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

For most contractors, every construction project begins with signing the contract and ends with getting final payment. A lot will happen between these two events, and to make the project as successful as possible, the savvy contractor will need to be very proactive, even getting involved well before signing the contract. The "contract" most often includes  a number of different documents and are usually collectively referred to as the "contract documents".  They are not just the plans and specifications along with the agreement you sign, they can include anything else that may be designated as part of the "contract documents" in your agreement is signed, and almost always includes the prime contract for a subcontractor.  Also, it is very important to know that your proposal or bid, and any exclusions or clarifications you included with it, will not become part of any contract unless they are specifically included and identified as part of the contract documents. Think of the contract documents as the roadmap for the project, where every aspect of the work is addressed, including how to resolve problems. The contract spells out your rights and responsibilities, as well as your risk and your rewards. 1. Do Your Homework Keep in mind that if the Owner or Prime Contractor really wants you to do the work, and they know and trust you, they may be more willing to negotiate with you on some of the terms. This is where getting involved early will really help you.  Even if they don't know you, and you are a subcontractor, know what the prime contract and other contract documents require, and be sure that you aren't asked to take on any more risk than the Prime Contractor.  Getting some of the more oppressive terms revised is usually reserved for risk managers, senior executives, or the company attorney. The goal is to make sure the contract is a "fair" contract. If you can avoid falling into the "take-it-or-leave-it" trap, it will be to your advantage. But in reality, there really isn't a truly "fair" contract for both sides, because invariably one side has an advantage over the other. And if negotiations are out of the question, you need to be able to identify your risks, and then manage those risks. Once the contract is signed, the easy part of is over and the real work begins because you’re legally committed to performing exactly what the contract documents require.  At that point, are you leaving the project's success in the hands of the project managers and superintendents? If so, that’s perfectly okay …… if they understand the contract documents thoroughly. If they don’t, then it could be a disaster waiting to happen. Many people claiming to be conversant in construction contracts may think they know the terms and conditions but often they really don't understand them. In addition, many project managers don't even look at the contract until something is going wrong on a project.  The heat of the moment is not the time to try to figure out what the contract requires you to do, nor is it the time to let a new project manager take a crash course in construction contracts.  So, then what do you do? 2. Really Know the Contract This is easier said than done.  After winning the job, and before the project even gets started, make sure that all project management personnel thoroughly understand the contract documents. If they are not up to speed, get them training!  Expecting your project managers to get on-the-job training for contracts management is not a smart move.  When you consider that, for many projects, they’re going to be responsible for managing millions of dollars, you can start to see the value in the well-used cliché "knowledge is power". The contract spells out exactly what you are expected to do to protect your rights. If your PM doesn't know, or forgets a key requirement, it could cost you. 3.  Manage the Contract You should be able to pick out all the important clauses that need your special attention within a contract. These aren't "killer clauses" unless you drop the ball, and many of these clauses are used on a daily basis.  But some contract provisions are invoked only when an event happens. Do you know what that event may be, or do you even know how to identify that event in order to comply with the contract?   Bottom line is – don’t manage your contract on autopilot. You must understand the terms, or otherwise risk missing critical deadlines and the opportunity to maintain your anticipated profit margins!

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!

The single most common, and often most expensive, problem for contractors encountered on any construction project involves delays.  Delays are not really the problem, they are just the measured effect of the problem. And, some delays, in and of themselves, may not seem to be an issue, but individual task delays can impact productivity and create a domino effect on the critical path.  When the magnitude of these seemingly insignificant delays compound, so do the related costs.  The end result is that delays eat up project profits and expose the contractor and subcontractors to significant risk. Sometimes, it may seem like short delays here and there do not impact the project cost, so you may not want to take the effort to keep track and provide notice of the delay.  But, the reality is that minutes turn into hours and lost hours cost real money. For example, take a crew of 4 workers with one 15 minute delay caused by a chatty owner’s representative - this equates to one labor-hour of lost productivity.  Thus, that 15 minute delay probably just cost you at least $150 in lost labor costs – multiply that by 5 days a week, and you’re looking at $750 per week, $3,000 a month, and so on.  For larger crews and longer-terms projects, you could be sucking tens of thousands out of your profit margin in labor costs, not to mention not being able to explain why the project schedule float has been eaten up, resulting in more tasks being on the critical path. Contracting for Delays. Don’t expect your contract to help you prevent delays, or, in some cases, even provide adequate compensation if you are delayed.  Contract terms, even when favorable to you, cannot immunize your project from delays.  Worse yet are contract terms that try to limit the contractor’s or subcontractor's ability to recover its costs when events that cause the delay have nothing to do with the fault of the contractor or subcontract have done. Contract terms often address delays in four main categories: 1.      Force Majeure Events: These are events that are not caused by the owner or any contractor and are generally unanticipated.  For these types of delays, owners like to share this risk with the contractors.  This means that the contractor may get an extension of time, but no extra compensation for the delay.  Though historically called “acts of God”, each contract can define what it considers a force majeure event.  Commonly, this definition can include extreme weather that is unusual for the area, acts of war, world-wide raw material shortages, strikes, embargos, and other events or conditions that would not be anticipated by the parties when they are signing the contract. Especially given recent historic events such as the government shutdown sin response to Covid, contracts and subcontractors will want to include things that may not traditionally be considered force majeure events such as shortage of materials by a contractor’s supplier, local labor problems involving a contractor’s own labor force, or even transportation interruptions. The broader the force majeure definition, the better for the contractor or subcontractor.  When negotiating a contract, a contractor or subcontractor would do well by adding to the list of force majeure events wording such as “or any other event or occurrence not within the reasonable control of Contractor [or Subcontractor]", which will effectively broadened the definition in your contract with just a few words. 2.      Owner-Caused Delays: A contractor would expect that if the owner causes a delay, then the contractor would get not only an extension of time, but also payment for extra time-based costs like for rental equipment, job-site trailers, temp fencing and toilettes, and extended job-site overhead costs.  But, many contracts now contain no-damages-for-delay clauses that prohibit the contractor’s recovery for these types of time-based costs.  For longer projects, it is critical that contractors know whether or not their contract contains such a clause so that they can approach the issue reasonably during the contract negotiations. 3.      Contractor-Caused Delays. It usually goes without saying that the prime contractor will be liable for delays caused by it or its subcontractors and suppliers on every tier.  But, a contractor can get itself on better footing if it negotiates what remedies there are for contractor-caused delays. Contractors want to avoid a contract that allows the owner to send a “48 hour notice” demanding that more labor be added to the project just because a certain task or trade may be getting behind.  Often contracts require a contractor to work overtime or otherwise accelerate its work if it falls behind – all at the expense of the contractor. But, what if the task or trade is not on the critical path?  In that case, a contractor or subcontractor would want the opportunity to present a reasonable recovery plan instead of just throwing more laborers on the project.  This opportunity can be negotiated in a contract or subcontract by focusing delay concerns on work that, if delayed, would affect the critical path of the project schedule. 4.      Concurrent Delays. Concurrent delays are when there are two or more events causing a delay during the same period of time.  A contractor must be very careful with contract wording that would result in it not being granted even a time extension for delays caused concurrently by the contractor and the owner or a force majeure event. Contractors also want to be careful with contract wording related to the ability of the owner to still assess delay damages, including liquidated damages, against the contractor even for concurrent delays.  Both prime contractors and subcontractors will want to make sure that the wording in their contracts is clear that concurrent delays will result in time extensions and delay damages that are, at the very least, equitably proportioned among the various causes of a concurrent delay. Be aware that contracts use other wording for the above types of delays, such as “excusable”, “non-excusable”, “compensable”, and “non-compensable.”  Whatever the actual terminology used in the contract, you need to understand exactly how your contract handles delays.  This is because you can bet that, once there are delays, the lawyers come out in droves to analyze the contract to determine who will be responsible for the failure to complete the project on time and who has to pay the resulting delay damages.

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