Subcontractors are frequently considered the least powerful contracting party on a construction project. They are multiple levels away from the money, they experience the most lag between performing the work and getting paid for it, and they may not have the resources and the flexibility to aggressively negotiate construction contract language. However, there are some basic considerations for subcontractors that will level the playing field.
First, subcontractors must read the proposed contract. This includes the “boiler plate” terms and conditions. Subcontractors should look specifically at the payment provisions to determine if they are to be paid upon presentation of an invoice or if their payment is contingent upon the prime contractor getting paid. The next clause to review is the indemnity provision. It is normal to agree to indemnify upstream parties for property damage and personal injury caused by a subcontractor’s negligence. However, indemnity obligations broader than that need to be reviewed by the subcontractor’s insurance provider to determine whether they are insurable. In any event, it is prudent for a subcontractor to provide its insurance carrier with both the indemnity and insurance requirement clauses before signing the contract.
Contract delay clauses also need to be reviewed to avoid “no damage for delay” clauses or to make sure to define the nature of delays that will result in no damages if such clauses cannot be avoided. Subcontractors should also be sensitive to damage provisions triggered by delay, such as actual damages or liquidated damages. If possible, obtain an explanation of what components and values were used to develop any liquidated damage dollar figure.
Prudent subcontractors should familiarize themselves with the project ownership and the prime contractor. Often, subcontractors are familiar with the prime contractors from prior projects. However, that is no excuse for failing to perform some due diligence on the current performance history and financial capability of the prime contractor. Subcontractors should also familiarize themselves with the claim or change order provisions in the contract so they understand when notice of a claim is required, the degree of proof required to accompany notice, and any other steps required to preserve and perfect a subcontractor claim. Subcontractors should know the lien requirements related to their project. Requirements are different for public and private projects. Requirements are different from jurisdiction to jurisdiction. Subcontractors should review the applicable lien law before entering into the agreement and then review the agreement to make sure lien rights are available if necessary.
Subcontractors might not be able to level the contract language playing field, but reading the contract, being familiar with the application of various contract clauses, and following the contract procedures will greatly assist a subcontractor in achieving a smooth project or in successfully resolving a claim.