Masonry Magazine April 1987 Page. 19
SUBCONTRACTS:
TROUBLE FOR THE UNWARY
GENERAL CONTRACTORS HOLD MOST OF THE CARDS, BUT
THERE ARE SOME STEPS THAT YOU CAN TAKE TO PROTECT
YOURSELF
by Robert L. Wilkinson
Construction contracts-especially those for specialty subcontractors can be likened to a blind-folded marksman trying to hit a moving target before the target hits him. Or so it must seem to those specialty contractors including mason contractors who have signed without reading a sub-contract, handed to them by a prime contractor who already has the job in his hip pocket.
It doesn't have to be that way. Specialty contractors should try to find out the terms of the sub-contract document before they waste time on a take-off and bid estimate. Failing that, they should at least know what the subcontract requires and make every reasonable effort to change the worst subcontract terms prior to signing it. Finally, they might do better to walk away from the job rather than sign an agreement that could ruin their company.
Optimistic contractors and estimators generally assume when taking off a job that the main cost is complying with the drawings and technical specifications and that everything will go as planned. Unfortunately, construction projects often are ruled by Murphy's Law "Anything that can go wrong, will go wrong." When things do go wrong, you may be liable for damages to others, or not be relieved of damages to your firm, for events that you or another prudent bidder could have contemplated when entering into the contract agreement.
TO PROMOTE HARMONY
Contract documents should promote harmonious cooperation, not entrapment of the unwary. In practice, however, a party often is caught by careless or ambiguous language or by the unavailability of all binding contract documents when the project was bid. Regardless of how much you want the job, you should understand the origin of the agreement and evaluate your risks before signing.
Ideally, risks should be allocated according to each party's relative ability to control the factors that cause the risks. The party best able to avoid or control the damages will then have an incentive to do so and can judge the magnitude of the unmitigated risks. No matter what incentive the other party has, however, there is little he can do if the problems are beyond his control.
Unfortunately, the party best able to control the risks often is the one who has the economic clout to dictate the terms if the other party wants the job badly enough. Specialty contractors are especially vulnerable to risks that are passed down by a party having a superior bargaining position. You need to make sure your contract price will cover the risks you are buying when you sign it.
For ten years organizations of general and subcontractors tried to negotiate a standard subcontract agreement form so that bidders would know what would be provided regarding changes, delays, retainage, performance and payment bonds, settlement of disputes, terms of progress and final payment, and so forth. A stalemate resulted because the Associated Specialty Contractors and American Subcontractors Association, both representing subcontractors' interests, insisted that subcontractors were entitled to payment for satisfactorily completed work while the Associated General Contractors of America held that general contractors should not have to pay until the owner had paid the general. The AGC has since published a unilateral form entitled Document No. 600, which ASC and ASA have criticized because it contains numerous exculpatory and inequitable clauses.
As flawed as it is, the AGC form is considerably better than most of the subcontract forms developed by individual general contractors and some written by AGC chapters. Having a vastly superior bargaining position when he has the job and his price has been set, the general contractor often is confident that subcontractors will sign any agreement, no matter how inequitable.
On the other hand, many general contractors are anxious to have good relations with subcontractors and to share risks equitably and efficiently. Such contractors may invite low bidding subcontractors to sign unfair agreements without malice, having used forms developed by others without really realizing they contain unfair clauses.
About the Author
Robert L. Wilkinson, recently retired as director of services for the National Electrical Contractors Association and as president of the Associated Specialty Contractors. In these capacities, as well as a long affiliation with the American Arbitration Association, he has had extensive experience with construction subcontract problems. He is considered one of the most knowledgeable persons in North America on issues involving subcontractors.