Masonry Magazine April 1987 Page. 20
WATCH OUT FOR THESE CONTRACT CLAUSES
Subcontractors should carefully read and analyze any contract that contains the following exculpatory clauses:
Indemnity or hold harmless clauses are exculpatory if they excuse one party from consequences for his acts or failures to act by requiring the other party to indemnify him from all loss, even if the indemnifying party did not have any actual responsibility for the damage. You need to show any such clauses to your insurance agent before signing to be sure you have or can buy adequate contractual liability insurance.
No damage for delay clauses are gaining in popularity with owners who are alarmed over the high cost of delays caused by design errors, excessive change orders, owner interference and other problems over which someone other than the contractors have control. General contractors will pass along such clauses to subcontractors, of course, but they also include no-damage-for-delay clauses in subcontracts even when they are absent from owner-contractor agreements. That way the general contractor is entitled to compensation for owner-caused delays, but the subcontractor is not.
Scope documents may state that the contract documents cover the general scope of the project but do not necessarily indicate or describe all work required to satisfy the owner. All items required to achieve the performance expected by the owner, whether specified or not, must be furnished by the contractors, and the decision of the architect as to the work included within the scope language is final and binding.
SUBCONTRACTS
It may be possible for alert subcontractors to reach an agreement to substitute a better subcontract form or to negotiate elimination of the worst clauses.
Contract Documents, a publication of the Associated Specialty Contractors, Inc., available from the MCAA Executive Office, contains abundant advice about what substitutions or alterations should be made. Failing to make such corrections or substitutions, you have to decide whether getting the subcontract is worth the additional risks you will have to undertake, including the risk of non-payment if the owner does not pay the general contractor because of inadequate performance by the general or another subcontractor or because of the owner's default.
AIA FORM IS FAIREST
The fairest subcontract form is the American Institute of Architects Document A401, Standard Form of Agreement Between Contractor and Subcontractor. Having no axe to grind except to promote harmony on the job, timely completion, and economical bids to meet the owner's requirements, the AIA has tried to develop clear language that apportions risks according to the parties' relative ability to control those risks. Subcontracting would be a safer business if owners and architects required general and specialty contractors to use Document A401, but that is seldom done.
The AGC recommends that its members not use A401 and some general contractors are suspicious of the document-without having read it-because it was developed by architects. Although ASC and ASA have been extensively involved in suggesting language for A401, the AGC has refused to acknowledge the right of architects to participate in writing subcontracts and does not take part in the periodic revision of A401. Not every word in A401 is favored by ASC and ASA, but they do recognize the superiority of the form over others.
Despite the antipathy of the AGC and some general contractors to A401, it is widely used, often because subcontractors succeed in having it substituted for whatever forms general contractors want. At more than 100,000 copies sold per year, A401 is the third highest selling form in the AIA's extensive list of forms.
The federal government has never been involved with subcontract forms, but a committee of the American Bar Association has been drafting a partial subcontract for discretionary use on federal building projects. This form reiterates numerous clauses in the standard federal prime contract form which government regulations require be incorporated in subcontracts. The AGC also has vigorously attacked this venture as an intrusion into what it regards as the general contractor's sole prerogative determining subcontract language.
In addition to payment language, several other clauses frequently found in both prime and subcontracts should be vigilantly sought out and examined when assessing risks. These generally fall in the category of exculpatory clauses that excuse one party from liability he could prevent by dumping it on the other party. Contracts with exculpatory language are not only unfair, they can be uneconomic. When bidders know ahead of time that they will be taking on another party's risks they have to allow contingency factors to cover costs, even if the event does not occur.
For some examples of common exculpatory clauses that you should watch out for, see the special box in this article.
Scrutiny of the subcontract agreement alone is clearly not enough to protect you. Exculpatory clauses especially are often passed along from the prime contract with a catch-all statement that the subcontractor will be bound by all terms of the owner-contractor agreement and other contract documents. Fortunately, you often can read the owner-contractor agreement and general and supplementary conditions, together with the technical specifications, when bidding. If you have not done so when bidding, you certainly need to do so before signing a subcontract. You also should ask for copies of all contract documents for future reference.
A growing number of legal precedents hold that subcontractors are liable to perform for the amounts of their bids if general contractors rely on such bids. This doctrine of promissory estoppel, however, does not mean you have to sign any subcontract agreement the general contractor puts in front of you. You would have a strong defense if you stated your bid was based on equitable terms such as