Navigating Contract negotiations By Ted Edwards
A
ll commercial contracts determine for yourself whether or are negotiable. If you are a not there is room for negotiation. subcontractor, you should Subcontractors have the right to always remember this fact. All too see any flow-down provisions to often subcontractors are told that which they are contractually bound. the general contractor (GC) has All too often, they do not exercise no negotiating room this right and are left with subcontractor guessing as to what agreements because their contractual their hands have been responsibilities actually tied by owner. Don’t are. believe it. While it is true that certain Subcontractors often provisions of the owner’s fear that they will contract with the GC lose work if they Attorney Ted Edwards often flow down to the attempt to negotiate of Durham, NC subcontractors on the contracts. This has not project, in my 20 years been my experience. practicing law, I have never seen General contractors know that their a contract in which there were so attorneys have drafted their form many flow-down requirements that contracts to favor their interests. there was no room for meaningful They expect savvy subcontractors to negotiation between the general negotiate the terms of those form contractor and the subcontractors. subcontractor agreements, and they respect those who do. It is the The terms of your contract same thing that they would do if are negotiable, and if you are they were the subcontractor. The just signing the standard form general contractors understand that subcontractor agreement that the negotiation is necessary on every general contractor presents, you are deal, but they do not volunteer this costing your company money and information. Simply put, if you increasing your company’s risk of don’t ask, you don’t get. There are failure. Rest assured that general some provisions in subcontractor contractors carefully negotiate agreements that are standard, which the terms of their contract with the general contractor is unlikely to the owners; so how could it be change; while there are others that reasonable for them to expect that the general contractor routinely you would not do the same? If a changes when asked. Experienced general contractor tells you that counsel should be able to review the it cannot negotiate the terms of agreements the general contractors your contract due to its contract present to you and advise your with the owner, ask the GC for company regarding which provisions a copy of its contract so you can are likely to be negotiable.
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Here are some of the most common provisions that subcontractors should consider negotiating: Pay-When-Paid / Several states have laws that prevent
the enforcement of “pay-when-paid” clauses. Nevertheless, these clauses are still found in most subcontract agreements. Regardless of whether pay-when-paid clauses are enforceable in your state, I recommend that subcontractors attempt to negotiate them out of the contract in favor of a provision making payment due to the subcontractor within 30 days of invoice. Subcontractors should not be expected to finance construction projects. If the general contractor is unable to pay for the work that is done, the subcontractor should have the right to stop work on the project.
Payment Timing / Every construction contract will have a provision that addresses the time allowed for review and processing. If you can shorten this time period, do it. General contractors are used to requests for quick pay agreements and it is always better to have your money sooner rather than later. Indemnification / Never agree to a one-sided
indemnification. If you agree to indemnify the Owner and General Contractor for your negligent acts, the general contractor should agree to indemnify you for its negligent acts. Never agree to indemnify anyone for the negligence of another party that is not under your control. For example, you should not indemnify the general contractor for the acts of other subcontractors unless they are subcontracted to you. Don’t take responsibility for the negligence of other people.
Overtime/Accelerated Work / Most form subcontracts contain a provision that provides that general contractor with a unilateral right to demand that the subcontractor work overtime or add additional workers to meet deadlines without any additional compensation for the extra work. This provision should be removed from the subcontract. If extra work or overtime is required for the project, your company should be compensated for it unless your company caused the problem that resulted in a delay to the project.
Change Orders/Extras Clause / Most construction
contracts require change orders to be in writing. In practice, however, the subcontractor is often instructed to proceed without a change order. If you are ever instructed to proceed without a change order, be sure that, at a minimum, you get either a fax or an email from the GC instructing you to move forward before you do any extra work. It is amazing how often people develop amnesia after a verbal instruction to proceed with a change order has been given. When it comes times to pay the bill, no one can remember telling the subcontractor to do the work, and the owner and GC will then go back to the contract and cite clauses requiring all change orders to be in writing. Good construction contracts lead to good construction projects. Each party needs to understand their responsibilities and their risks before the work begins so that they can be sure that they are being adequately compensated for the work and the risks that they are undertaking. As a subcontractor, if you are being asked to accept additional risk, you should be allowed to increase your compensation to cover your increased risk. If you do not take care to carefully negotiate the terms of your contracts, you will eventually be faced with unexpected liabilities and losses that could threaten the viability of your business.