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Subcontracting relationship between hiring company and subcontractor
April 24, 2021
Subcontracting relationship between hiring company and subcontractor
          We received, unsolicited, a "subcontractor agreement" from large company along with their request that we should accept it's terms and be happy with the morsels they throw our way.
          No mention therein that THEY are licensed in Calif, or insured, but they expect us to be.
          I suspect that other, mostly smaller, alarm dealers actually accept terms like these and perform work for out of the area companies; and all for a promise of "payment within 45 days".
          Needless to say, we will not bother responding to their outrageous terms.
          But for the benefit of others, could you review and comment on the substance of the "subcontractor agreement" and offer advice and warning to dealers considering such a proposition. 
          Perhaps a new KK form, entitled "Addendum to Subcontractor Agreement" (similar to your addendum to central station dealer agreement form) could help even the playing field to protect dealers' interests when considering such subcontract arrangements.
Anon in California
          I edited out and omitted the name of the “large company” and I haven’t read its “form agreement’ but will, instead, focus on what subcontractors should be aware and leery of when dealing with other companies seeking to engage them as subcontractors.
          To make is easy and get to what you need to know and do, I will simply advice you that if you are the subcontractor then you want to use the Kirschenbaum Subcontractor Agreement for subcontractors.  [if you are hiring subcontractors then you want the Subcontractor Agreement for contractors]. 
          As a subcontractor you should be concerned with more than getting paid at the end of the job, though that is a serious issue, especially when the Agreement calls for litigation or disputes to be resolved exclusively in a foreign jurisdiction across the country, leaving you essentially on a canoe in a creek with no paddle. 
          If you need to be licensed to perform the requested job then the company hiring you most likely needs the same license; it is the one contracting for the service so it needs the license.
          If you need E&O insurance, which you do, then the company hiring you needs E&O coverage.
          If you agree with my advice that you perform no alarm or security work without a contract then you need to know that the company hiring you has a proper contract with the customer.  If you make a mistake [and often even if you don’t] you can be sued.  The company hiring you will probably be sued too, and you will be called upon to indemnify them.  The hiring company can put you in a bad spot if it doesn’t have a proper contract and you are forced to defend yourself and the hiring company with no contract protection.  Your insurance may not be enough.
          You will be required to name the hiring company as an additional insured on your E&O policy.  Make sure you do.  Failing to name the hiring company can have two awful consequences, 1) leaving you to defend the hiring company on your own with no insurance back-up, and 2) the hiring company can deem you in breach of contract and refuse to pay you, maybe in the same letter thanking you for the installation.
          Some hiring companies try to get away with a pay if or pay when clause, making you wait for payment until they get paid, if they get paid.  Don’t agree to either clause.  Set your payment schedule and if you’re smart, you’ll stay ahead of the hiring company, no matter if they are small [in which case you might be concerned about getting paid] or if they are large [in which case you might be even more concerned about getting paid]. 
          Don’t take on subcontracting work unless you will make money on the job.  You’re not getting the “meat and potato” RMR.  While the hiring company may be willing to install for cost or below, it is getting the after-install RMR, you’re not.  If you can get the work from customers on your own that’s probably a better way to model your business than doing subcontracting work for other companies.  Of course if the hiring company is going to let you have the RMR then you’ve got the incentive to do the install.  Good luck getting that deal. 
          The Alarm Exchange has a category for subcontractors listing their services and hiring companies looking for subcontractors.  A few bad apples have been removed but the listing companies have not been vetted.  Carefully investigate who you are doing business with, and that goes equally for the hiring company and the subcontractor.  The Kirschenbaum Subcontractor Agreements do have an arbitration clause so disputes can be resolved inexpensively and quickly, but you still need to enforce your award, so again, be mindful and careful who you do business with.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301