Resolving the Subcontract
Language That Drives You
BY DAVID O. HUNT JR.
Construction Dimensions asked a ran- believes that general contractors should ject and are shifting it all on the sub-
dom sampling of contractors who are accept some risk on the job. After all, contractors,” says Richard Baird of
members of The Association of the Wall he says, the contractor makes the deci- Baird Drywall & Acoustics, Vinton,
and Ceiling Industries—International sion of which subcontractors to hire. Va. “If I know who I’m working for,
about which provisions of a subcontract Subcontractors simply should not have they'll either cross it out or modify it.”
bother them the most. Wall and ceiling to bear the risk of an unsafe subcon-
contractors listed a variety of the most tractor who may have been hired strict- Lien Rights
dreaded contract provisions that are ly because of their bottom line, he says.
thrown at them by general contractors. “Some people try to get you to waive
Winn adds that he normally approach- your lien rights,” Baker says. “I would-
Penalty clauses, “pay-when-paid” provi- es a hold-harmless clause with a red n’t sign that right away. It’s the guaran-
sions, hold-harmless clauses and lien pen. “If I cant eliminate it, then I try to tee you’ll get paid.”
right waivers all made the short list of limit it to the responsibility for negli-
the most bothersome contract items. gence on our part.” He says he likes to Winn agrees that lien rights may serve
Many AWCI members also pointed out stick closely to contract language devel- as powerful leverage for wall and ceiling
a disturbing trend—general contractors oped by the American Institute of contractors. “The threat of a lien can be
are growing far less willing to accept Architects, which holds the owner, one of the strongest motivators available
their fair share of risk on a project. architect and contractor harmless for to expedite your payment,” he says.
claims, damages, losses and expenses Winn also advises wall and ceiling con-
Indemnification Clauses caused in whole or in part by the negli- tractors to review and clearly under-
gence of the subcontractor. stand the lien law of their state. Winn
Many subcontractors say indemnifica- suggests considering how lien rights
tion or hold-harmless clauses, designed Kenneth Baker of Southwest Commer- may be affected by “pay-if-paid” or
to shift the risk of injuries or losses, are cial Interiors, LLC, Dallas, sees indem- “paid when paid” clauses. After all, he
the portion they dislike the most. nification in much the same way. “If says, if a subcontractor is not entitled to
someone else is responsible for an acci- payment, then an affidavit claiming a
Steve Winn, a contract administrator dent, we should not have to assume the lien for money cannot be filed.
for Marek Brothers of Houston, objects liability,” he says. “I try to scratch it
to many indemnification clauses, as out.” Pay-When-Paid Clauses
well as the larger concept of shifting the
risk from the general contractor and “The general contractors don’t want Another bone of contention among
others onto the subcontractor. Winn any responsibility or liability for a pro- wall and ceiling contractors revolves
Official Publication of AWCI 33
around “pay-when-paid” or “pay-if- do some homework to find out about tractor does not receive payment
paid” clauses. the owner and whether the money is through no fault of the subcontractor,
there to complete the project. If not, I then the subcontractor must be paid.
Jerry Turano of Turano Plastering, Inc., wouldn’t sign the contract.”
Fort Myers, Fla., says that pay-if-paid Winn says there are less desirable forms
contingencies are the contract item that Baker worries less about completing of contingencies that general contrac-
bothers him the most. public projects since, he says, the tors may try to build into a contract.
money is normally available to com-
“I can’t imagine how you could get plete them. One form might say, “A contractor will
away with that in any other business,” pay the subcontractor within ‘X’ days
Turano says. “I hate that the responsi- Winn says of payment contingencies after the contractor receives payment
bility rests with us.” that if he can’t get the language strick- from the owner.” Worse yet, the con-
en, then at least he goes for a modifica- tract may stipulate that the subcontrac-
Baker says payment language is usually tion. He believes that the standard lan- tor agrees that the owner’s payment to
difficult to resolve because most general guage in form AIA-A401 offers needed the contractor is a precedent to the
contractors will refuse to strike it. protection for wall and ceiling contrac- contractor’s obligation to pay the sub-
“More than likely a general contractor tors. The form says the contractor will contractor.
probably won’t work with an owner if pay the subcontractor within three
he thinks they are financially question- working days after payment is received Or even worse, Winn says, language
able,” Baker says. “But you still have to from the owner. It adds that if the con- may specify that the subcontractor
Official Publication of AWCI 35
accepts the risk of non-payment if the tractors to include the contractor as an contractors to check with their insur-
contractor is not paid for any reason. additional insured on a liability policy ance agent to make sure adequate limits
and overall coverage have been obtained.
In the end, Winn suggests, “If you cant Stephen Tyler of Tyler Taping, Kirk-
simply strike the contingent pay clause, land, Wash., says that adding the con- Penalty Clauses
then at least shorten the time for pay- tractor as an additional insured is the
ment to five or 10 days, and amend the contract item that irks him the most. Arnold Wurst of Region South Enter-
risk of the nonpayment clause to read, “Insurance agents will tell you these prises, Maitland, Fla., says the most
‘Subcontractor accepts the risk of non- requirements are not as bad as they important item to consider is not what’s
payment only if the contractor is not sound,” Tyler says. However, he adds, in the contract, but who is behind it.
paid due to the fault of subcontractor.“’ while some requirements may be strick- “As long as the contractor is straight,
en from the contract, the insurance then there should not be a problem
“I try not to let our right to get paid requirement protecting the general con- with the contract,” Wurst says.
depend on the performance of someone tractor from liability is not usually one
beyond our company’s control,” he says. of the items that is easily removed. After weighing a contractor’s reputa-
tion, Wurst zeroes in on the penalty
Contractor as an Insured The problem, Wurn says, is that many clause of a contract. “If it’s not favorable,
subcontractors may be insured for too I would walk away from it,” he says.
Winn says many contractors shift the loss low a limit that doesn’t adequately cover
risk on a project by requiring subcon- them for a workplace injury He advises Wurst believes it’s important to keep an
Official Publication of AWCI 37
eye on a contract schedule and comple- ter be able to complete the job,” Baird Winn tries to minimize the damage
tion dates, as well as the penalty clause. advises. He adds that if earlier parts of a here, by specifying that his firm
He also recommends that if a project contract are delayed so that his firm can- requires 24 hours written notice of an
appears headed for trouble, that docu- not begin on time, he also carefully doc- assessment for clean-up charges. He
menting your company’s activities may uments his company’s activity. also specifies that these charges must be
be a help in the long run. billed within 30 days.
“If there’s a steep penalty clause, you bet- Baird says one general contractor he
Tyler says that it’s more efficient for his worked with tried to add charges of 25
Forms of Indemnity: cents a day for the use of a telephone
Lowering Your Liability firm to clean up once every several days
rather than every day. But, he says, if it and 50 cents a day for a portable toilet.
The broad form of indemnity includes
losses due to comes down to being assessed for clean “I couldn’t believe it,” Baird says, laugh-
n Other party’s sole negligence.
up, he avoids those charges by instruct- ing, “I told him I’d install my own.”
n Other party’s partial negligence.
n Subcontractor’s own negligence. ing his workers to clean up every day.
The intermediate form of indemnity About the Author
includes losses due to
n Other party’s partial negligence. Winn says clean-up charges bother David O. Hunt Jr. of Harrisburg, Pa., is
n Subcontractor’s own negligence. him, too and that contractors often like a photographer, freelance writer and
The limited form of indemnity includes to add these charges at the end of a pro- government relations consultant. He has
losses due to
n Subcontractor’s own negligence. ject, when there’s little recourse but to worked with the construction industry
Source: ASA accept them. for the last 11 years.
Official Publication of AWCI 41