Subcontract Provisions: Sword or Shield?

By Alexander Barthet
Published On: Thursday, June 4, 2015 11:21 AM

Get Risk Management In Your Inbox

Subscribe

The typical construction subcontract contains a number of provisions, many of which will
favor either the general contractor or the subcontractor, depending on whose form of
agreement it happens to be.
But no matter whose form it is, understand three basic contract realities:

there is no such thing as a standard contract;

most contracts are written to favor one party; and

contracts can be modified.

A number of factors can impact a partys ability to modify any subcontract. Economics play
a major role. The general contractor is generally in a position to dictate which provisions it
will or will not accept as it controls the selection process. This is especially true when
projects are scarce. On the other hand, a particular subcontractor may have the best price
or be one of the few qualified firms available at the time for the project at hand. That would
move that subcontractor into a preferred position and give it an ability to negotiate terms.
Experience is another factor. Both parties will be more willing to accept changes from
someone with whom they have successfully worked before.

Attorneys like to stress the importance of incorporating a reasonableness standardboth

parties should be expected to act fairly toward each other, and no one should be asking for
things that are not customary or just one-sided. Of course, this is easier said than done, but
it should be the first area of discussion between the parties, as it sets the proper tone for the
negotiations of an equitable agreement.
An example of this can be seen in how the work is defined. To say that it will be everything
and anything that can be inferred from the plans and specifications may be an overreach.
On the other hand, limiting the work to only what is included within the original proposal may
be too restrictive. Finding a middle ground, based on what is traditionally incorporated into
the specific work, would be a very good start.
It is no different with the other critical provisions. From setting out payment terms to any
penalties associated with late performance, from the extent of any indemnification to the
manner of exercising a termination provision, all can be addressed in a fashion that properly
and fairly protect each party without giving one party an advantage over the other.
Having said all this, both parties will want to be sure to review the following subcontract
provisions:

work;

price and payment terms;

time;

insurance and indemnification;

claims;

warranties;

default and termination; and

dispute resolution.
Some can be troublesome and many are susceptible to shifting risk from one party to
another. Tweaking these provisions to suit ones particular circumstances could make the
difference between a profit or a loss on a job, especially if things dont go according to plan.
While agreements need not include pages upon pages of terms and conditions, no aspect
should be left to a handshake. Having taken the time to get this agreement in writing, avoid
subsequent handwritten notes or verbal change orders. Memories become hazy over time,
so always convert any modification to a written contract signed by both parties.
A subcontract is in place to minimize any subsequent debate on what was meant between
the general contractor and subcontractor. Knowing when a provision is either a sword or a
shield will allow both parties to understand the associated risks, liabilities and exposures.

Alexander Barthet

Alexander Barthet is principal of The Barthet Firm, a 10-lawyer commercial law practice
which has been serving South Floridas construction industry for the last 20 years. With
several Board Certified Construction lawyers, the firm has more than 150 years of combined
legal experience mediating, arbitrating and litigating all types of contract, lien and bond
claims.