Workshops covering all the important construction contract topics specifically for subcontractors. From understanding critical terms, to negotiations and getting paid.

We received a lot of positive feedback on our last article on three terms all savvy subs should include in their Proposals, so we’re back to share a few more!    Proposals are the first chance a Subcontractor gets to address anticipated bad Subcontract terms. If you have terms and conditions included with your Proposal, then you can easily explain that your pricing expected these terms to be included in the Subcontract.    Please keep in mind that if you sign a Subcontract that does not refer to and include your Proposal then it’s as if your Proposal didn’t exist.    BEWARE: If you can get your proposal referenced and attached to the Subcontract, many Subcontracts state that if your Proposal is attached, then it is for the scope of work only and that any terms included in your Proposal are of no effect.    So, what other types of terms should you include in your Proposal? As we said in our previous article, there are lots  of them but, for now, let’s look at three more important ones that you should seriously consider when creating the terms for your Proposals:    1.        Include Force Majeure terms to clearly state that you will not be liable for impacts to increases in your cost and time by events that are not within your control.  2.        Address project schedules so you don’t get stuck with a schedule that you can’t meet.  3.        Limit the extent of your obligation to review plans and specifications and do site investigations  to avoid taking on the risk of bad or inconsistent plans and unknown site conditions.     1.    Include Force Majeure Terms     Force Majeure provisions are very important these days, especially with what we all experienced with supply chain issues during the 2020 pandemic and concerns about tariffs.  While many subcontracts have provisions that allow some relief to Subcontractor due to force majeure events, it usually is in the form of delays and not increases in the cost to acquire the materials.    Many force majeure clauses also include language that the event must be “unexpected” or “unforeseen” in order to qualify under force majeure.  But, with the wild ride this industry has experienced over the last few years, one could argue that there are very few things that are “unforeseen” or “unexpected.”    It’s best to include with your Proposal terms what you’d like to see for a force majeure provision. One example is as follows:    Subcontractor shall not be liable for any failure or delay in performing its Work due to any causes to the extent beyond Subcontractor’s reasonable control (“Force Majeure Event”), including, but not limited to, acts of God, accidents, riots, war, terrorist acts, epidemics or pandemics or reactions and rules in response thereto, quarantines, civil commotion, breakdown or interruption of communication, utility, or internet services, natural catastrophes, governmental acts or omissions, changes in laws or regulations, tariffs, changes in taxes, strikes, fire, explosion, supply chain interruptions, or lack of reasonable availability of materials or labor. Subcontractor shall be equitably compensated for increases in its cost to acquire materials to the extent caused by a Force Majeure Event.     2.      Address the Project Schedule.     A project schedule is almost always referenced in the Subcontract and included as a Contract Document. But, many times you may not have seen the base-line schedule because it is not yet finalized when you submit your Proposal or are asked to sign your Subcontract. What do you do?  You need to confirm it is accurate for your work when the Subcontract is signed, or address concerns before the Subcontract is signed.  Knowing this may be difficult , but it’s good practice to address the project schedule in your Proposal.   You also want to be clear if your work includes equipment with long lead time items. One way to address this in your Proposal is to add a list of equipment that has long lead times and include the lead time after submittals are approved the equipment can be released for manufacturing.     Consider including a provision in your Proposal terms like the following:    Subcontractor will comply with the agreed-to schedule.  Subcontractor’s compensation shall be increased to the extent Subcontractor’s cost of work increases due to the project site not being ready for Subcontractor’s work per the agreed-to schedule or Contractor’s changes in the agreed-to schedule, including, but not limited to, increases caused by Subcontractor having to accelerate its work, work its crew beyond its normal work day or week, re-sequencing its work, providing extra mobilizations, and/or incurring extra rental equipment costs.     3.    Avoid Responsibility for Deficient Contract Documents and Unknown Site Conditions      Your Subcontract almost always includes the obligation for you to review the Contract Documents and familiarize yourself with the jobsite conditions. You do not want to be responsible for confirming that all the plans and specifications coordinate properly, unless you are part of a design-build team, which we won’t address here.     You don’t want to be tasked with doing anything more than a visual site visit, because it is a rare situation when you do any destructive investigation into existing conditions.     You can also expect to see a provision in your Subcontract that commits you to following all the rules, laws, statutes, ordinances, codes, and regulations related to your work.    One way to combat this in your Proposal is to include language like the following:    Subcontractor’s site investigation (which shall be visual only) and examination of Contract Documents are in its capacity as a subcontractor and not a design professional and are for the purpose of facilitating coordination of Subcontractor's work and not for the purpose of discovering errors, omissions, or inconsistencies in the plans and specifications, or non-compliance of such with laws, rules, ordinances, codes, or regulations, or discovering latent, subsurface, or any site conditions that are not readily observable, none of which Subcontractor shall be held liable, and, Subcontractor shall be equitably compensated in the event any such errors, omissions, inconsistencies, non-compliances, or such site conditions cause an increase in Subcontractor’s cost or time in performance of its work. Subcontractor shall not be responsible for its Work failing to comply with rules, laws, statutes, ordinances, codes, or regulations in the event the drawings/plans and/or specifications provided with the Contract Documents fail to so comply .    Remember , the main reason you want to add terms and conditions to your Proposal is to have a much stronger leg to stand on when you are negotiating the Subcontract. By thinking through terms that are important to have in your Subcontract, and including those terms in your Proposal, you can legitimately argue that your pricing was based on having these or similar terms in the Subcontract. And, most importantly, don’t forget to include the terms you want in the Subcontract! Good Luck!

In my line of work, I run into a significant number of contracts.  Some terms are especially bad for the side that did not draft the contract .    Despite signing on to bad terms, there are steps any contractor or subcontractor can take to enhance their chances of success when faced with a claim or dispute.  Those steps include proper notice, proper notice and proper notice as well as documentation, documentation and documentation.  Proper notice and good documentation are so important that they each deserved being repeated three times!    Let’s get down to the basics:  1.      Proper Notice As a prime contractor, you need to fully understand how quickly you must provide the owner notice that the project is being delayed, or that you are running into problems that are costing you more money.  Likewise, as subcontractor you need to know the time limits for providing notice under your subcontract as well as the prime contract.  More and more contracts are stating that if you do not provide timely notice then regardless of what or who caused the problem (even if it is the owner), you have waived your right to pursue a claim for more time or money. Typical Events Requiring Written Notice (Even if you talk about it at a meeting!) a.     Delays to the approval of submittals; b.    Disagreement with a written interpretation of the contract documents from the Architect, Engineer or Owner; c.     Information received through an RFI that changes or adds to scope or time; d.    Contractor’s receipt of a directive that impacts contract price or contract time;  e.     Order for “minor” changes in the work that are not minor to the contractor; f.      Conditions encountered, observed, or believed to be present by Contractor at the site which differ from those indicated in the contract documents or are not ordinarily found in similar projects or sites.  Most contracts state that the contractor has examined the site and is willing to take all responsibility for conditions that differ. g.    Interference with, damage to, or delay in, the Work regardless of the cause; h.    Suspension of the work; i.       An order by Owner to stop the Work; j.       Emergencies; k.    Force Majeure; l.       Government agencies making changes under their own authority; m. Contractor’s desire to make a change in the work or deviate from the plans whether or not if affects price or time;   n.    Contractor’s belief that overtime or acceleration must be implemented to keep to the project schedule; o.    Subcontractor or supplier request for increase in price or time; p.    Contractor’s use of Owner Allowance items; Contractor’s use of contingency   2.      Get it in Writing Remember – there are no exceptions.  Create a paper trail for everything.  Whether or not to proceed with extra or changed work without a formal written change order or directive has to be decided on a case-by-case basis and most contracts require that you get a directive for extra work in writing – otherwise you waive your right to get paid.  But when a decision is made at a weekly meeting, or you get a verbal directive, confirming in an email that you’ll proceed unless you are told otherwise is sometimes your only choice to avoid delaying the entire project.  Sometimes you’ll not know if the other person gets the email even if you request a “read” receipt from the email server.  So, to verify your “confirming” email was received, “cc” at least one other person and include a question to the person you send it to that will likely prompt them to reply to that specific email.    3.      Keep it Clear  Strive to include only one issue per email and list the specific reason in the subject line.  Do this even if you have more than one item to discuss.  For example, if you are following up on one change order request and two RFI’s, send three different emails to keep the communication string clear for each item.  Keep mindful of the proper chain of command, but “cc” others if an issue is becoming critical and you are not getting the information or direction you need.   4.      Meeting Minutes Keep notes from meetings yourself.  Promptly review minutes if they are prepared by others and distribute changes to all attendees for items that are wrong or missing from the minutes.   5.      Daily Reports Set aside time daily to document the day’s events (daily reports or journal) and make this a habit regardless of whether or not you are required by your contract (or boss) to do so.  Use your tablet, laptop, or good old-fashioned paper and ink! Document everything, all communications, even verbal discussions held on site. Document visitors, owners and inspectors who visit the jobsite, weather conditions, rental equipment, crew sizes, any unusual occurrences, etc.   Finally, the importance of documenting in “real time” cannot be emphasized enough - key details may be forgotten if prepared later - plus, documenting from memory lacks credibility.   Realize that complicated and costly issues can end up going to litigation 2 or 3 years after the work is done and, by then, the individuals on the job will have forgotten most of the details.  You (and your company) will thank you when you have ample and accurate documentation to refer to when testifying later.  Always remember the old legal saying: The one with the best documentation wins!

Proposals are the first chance a subcontractor gets to combat bad contract terms and maximizes its profit goals – after all, no one wants to lose money on a project!    Most subcontractors focus primarily on identifying their scope in the proposal, which includes diligently reviewing the plans and specifications, doing a comprehensive take-off, and then carefully setting forth what’s included for their scope of work, often adding particular clarifications and exclusions.   Unfortunately, many subcontractors don’t take the opportunity to pump up  that proposal with some basic, but important, terms and conditions, leveling out that playing field when it comes time to negotiate the subcontract.   So, what types of terms should you include? There are lots of them but, for now, let’s look at just three (3) very important ones that you should consider when creating the terms for your proposals:   1.    A deadline for progress payments to avoid payment delays when the Owner doesn’t pay. 2.    A deadline for payment for changed or extra work  so you don’t get dragged into a long, drawn-out process waiting for the formal change order to be issued before you can bill for it. 3.    Contractor’s or Owner’s termination for convenience  must allow payment for costs you’ve incurred, especially for cancelling agreements with suppliers and lower tier subs.   1.    Using a Deadline for Progress Payments   As we all know, most subcontractors include provisions that say that the Subcontractor doesn’t get paid until, or even sometimes “ unless ” the Contractor gets paid. While California prohibits “pay-if-paid” provisions, some states don’t. And, either way, you don’t want to fight about this during the course of construction.   By including a term in your proposal that has a payment deadline, the Contractor knows that you’re not going to agree to unfair payment terms. A reasonable provision you can add can look like the following:   Payment to Subcontractor shall be made no later than 90 days after Subcontractor submits its proper payment application to Contractor regardless of whether Contractor has received payment for Subcontractor’s work, except to the extent Contractor is not receiving payment due to Subcontractor’s failure to comply with the terms of the agreement between Contractor and Subcontractor.     2.    Ensuring Timely Payment for Changed and Extra Work. For changed or extra work, the first hurdle is to clarify that you expect to get paid for all changed or extra work that the Contractor directs you to do regardless of how the Owner handles the situation with the Contractor.  The second hurdle is getting around having to wait for a formal change order to be issued so that you can bill for that work.   So, for the first hurdle, you can include language like the following:   Subcontractor shall be paid for all changes and additions/extras to its Work directed by Contractor regardless of whether Contractor receives payment for same.   For the second hurdle, you may want to try a provision like the following:   Contractor shall issue a formal change order for all changed or extra work directed by Contactor no later than 30 days after such work is performed by Subcontractor so that Subcontractor may bill for such work. Otherwise, Subcontractor may bill for such work in its next payment application following the expiration of such 30 days.     3.    Getting Fair Payment for Cancellations. An issue that has been much more prevalent since 2020 is the push to get orders placed for materials and equipment as soon as possible to better manage supply chain concerns and long-lead time items.   But what happens if there is a change in the project requirements? Or worse, what happens if the project is cancelled or your scope is reduced?   Who pays for cancelling those orders?   Almost every subcontract these days have terms that allow the Contractor to cancel without a default by Subcontractor and without any other good cause. These terms are generally known as “termination for convenience” provisions.   If you know you will be subject to cancellation charges from your suppliers once you place an order, it’s important that you put the Contractor on notice of this when you submit your proposal. Adding terms like the following can help:   Materials and equipment cancelled after the purchase orders are placed by Subcontractor are subject to cancellation charges . In the event Contractor cancels or terminates Subcontractor’s work or services for its convenience after direction to proceed or execution of the Subcontract, Contractor shall pay Subcontractor for all work performed, plus cancellation and restocking charges assessed by Subcontractor’s material suppliers, rental companies, and sub-tiers, plus a reasonable amount as determined by Subcontractor as compensation for demobilization to safe-off its work.   It makes sense that you provide a proposal believing that you’ll enter into a subcontract that has fair terms. But that is becoming less and less likely as Contractors continue to present increasingly one-sided subcontracts to their subcontractors.   Remember, the main reason you want to add terms and conditions to your proposal is to have a much stronger leg to stand on when you are negotiating the subcontract. By thinking through terms that are important to have in your subcontract, and including those terms in your proposal, you can legitimately argue that your pricing was based on having these or similar terms in the subcontract. And, most importantly, don’t forget to make sure your proposal terms are included in the Subcontract!

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