Originally posted 2017-07-12 12:01:27.
As a construction attorney here in Virginia, I often have the pleasure of assisting subcontractors seeking advice on their all important contracts with general contractors. I often sense that these subcontractors feel that they are at the bottom of the food chain and don’t have the “clout” necessary to push back at all against the myriad clauses in these contracts that seek to push the risk downhill. “Pay if Paid” clauses, subordination of lien clauses (which may or may not be enforceable), indemnification language that seems to make the subcontractor liable for way too much, and the dreaded incorporation clauses , would seem to make the subcontractor hold one big “bag of risk” on any construction project.
While this may seem bleak, never fear, as a subcontractor you are not totally helpless. Remember, you don’t have to take a job from a general contractor that you get a bad feeling about. Often the best indicator of whether you want to move forward is your “spidey sense” that something seems a bit off or that the GC is trying to cram too much down your throat. Use your experience in the construction industry to guide your contracting activities. It is better to avoid the bad job than to take it in the long run. If you are a quality subcontractor (and I know you are or you wouldn’t be reading this), other work will come along because general contractors need good subs to get their work done.
You can also make certain reasonable changes to the language of most subcontracts presented to you. In exchange for striking a “pay if paid” clause, you may be able to get the GC to accept a longer payment window (for example instead of 15 days from payment by owner, substitute 45 days from date of proper pay application). Instead of liability to indemnify everyone for everything “relating to” your work, a simple change to assure any claim is “directly related” to your work and that you are only liable to indemnify for your or “those for whom you may be held liable” can and should be acceptable to a general contractor with whom you are going to do business. These are just a couple of reasonable changes that can be made and this is not meant to be an exhaustive list.
Of course, these changes must be negotiated before the beginning of work, hopefully with the early advice of a construction attorney. Once you’ve signed the contract and begun work, the terms of that contract will apply. This is Virginia after all and the courts of the Commonwealth will enforce contracts as written.
So, in conclusion, you as a subcontractor may not have all of the leverage, but there are ways to make a job less risky.
As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.
Good advice, as always, Chris.
I would step back to one fundamental issue that should not need articulation (but does). In the more than 25 years that I’ve been handling litigation in the design/building arena I think it’s safe to say that in the majority of cases subcontractors ‘buy into’ provisions that pass through the terms of the General Contract without ever getting a copy of that document.
It’s great when a sub has a good attorney to advise on contract language, but smaller subs often don’t have one in their corner.
Executing a contract without legal advice, and without knowing what specific risks are being taken, can be a truly fatal act (and has led to the collapse of otherwise well-managed companies).
Smart subs realize that an investment in legal advice BEFORE the job is started is good insurance. To borrow language, some subs ignore this, and never realize ‘what a mess they’ve gotten themselves into’ until after a dispute has arisen and they are forced to engage counsel in response.
Excellent advice Chris! This pay if paid becomes a huge problem for all the subcontractors and yes its a great idea to put the 45 days from date of proper pay application as the duration of payment, this is completely fair to both the sides and protects the interests of a subcontractor.