The excitement of being awarded a subcontract sometimes can result in little thought being given to the contents of that so called “standard form of agreement” you’re asked to sign. Not reviewing and potentially modifying critical contract terms, however, could mean the difference between a profit and a loss on a job, especially if things don’t go according to plan. If you are a subcontractor, here is some contract language you should pay special attention to:
“Subcontractor is responsible for all work, labor, materials and services on the project”
Broad statements about the work you will be providing leave a lot to interpretation and can lead to disputes over whether something falls under the contract or not. When reviewing any subcontract, make sure it specifically covers only the work you will perform. More importantly, list all known exclusions so there is no dispute over what you will not be responsible for.
“Termination for convenience”
This language allows a general contractor to fire you at any time for no specific reason. These are sometimes triggered when the general contractor finds another sub willing to do the same work for a better price. As a way to make up for possible losses, you should include in your contract the recovery of both your overhead and profit on the work and materials provided and on order, as well as all of your demobilization costs in the event of a no cause termination.
Pay-when-paid (or pay-if-paid) contract provisions exist in almost every construction contract that comes across my desk, and it probably exists in almost every contract that you sign. With such a provision in place, if the owner doesn’t pay the general contractor, the GC doesn’t have to pay you.
When your subcontract has a pay-when-paid provision, first determine if it’s enforceable in your state. If it is enforceable, try to strike the provision from the contract. Sometimes circumstances, however, won’t make it easy for you to eliminate pay-when-paid language from a contract. In these cases, there are four more things you can do to try and overcome the pay-when-paid provision:
- Look at the prime contract for any provision that, if incorporated into your contract, will void an otherwise valid and enforceable pay-when-paid provision;
- Check if the general contractor posted a performance and payment bond that you can make a claim against;
- Use your lien rights, if they are still intact, in order to get paid; and
- Add a contract provision that allows you to stop working if you have not been paid after a limited period of time, say 30 days.
“Time is of the essence”
In a subcontract, the general contractor will specify a completion date and often include the “time is of the essence” provision. If you don’t complete the work on or before that date, the general contractor may choose to terminate your subcontract, hire another sub to complete the job, and sue you for breach of contract.
Because delays are common on construction projects and may be outside of your control, you should exclude this provision from any subcontract. If eliminating this provision proves difficult, the subcontract should at least broaden the time requirements to complete assigned tasks.
In summary, remember there is no such thing as a standard contract. Always carefully review any legal agreement and tweak provisions to suit your particular situation. You just may be surprised how much you can change if you try.