July 23, 2018
By Bob Incollingo
Q. If you are a contractor in a specialty trade, what’s worse than working without a written subcontract?
A. Working under a ridiculously one-sided subcontract, for one thing. (There are others.) It’s a safe bet the subcontract you’ve been offered is not one-sided on your side.
(The questions continue; the answers follow.)
If you pride yourself on delivering quality workmanship on time and nearly always without problems or disagreements, would you sign a ridiculously one-sided subcontract? You want the work; maybe you need the work. Suppose that the subcontract was a preprinted form, with a crazy flow-down clause that makes you responsible for terms in the prime contract, general conditions, plans, drawings, labor agreements, statutes, and regulations you’ve never seen. Maybe the subcontract has “AIA” or “AGC” or some other established pedigree on its face. You tell yourself, it’s the owner / architect / prime contractor’s standard form, so how much trouble could you get into?
Would you even read the whole subcontract? Probably not, because after all, once you decided to sign it, how would reading it change anything?
Would you sign it? Of course you would!
And you’ll nearly always be just fine.
Maybe though, you’re willing to remember the last time you made a “business decision” to take a hit and walk away from a losing proposition on a bad project, not standing up for your rights because you had signed something stupid. How long did you have to work to make up the loss? Otherwise bright men and women sign one sided contracts, called contracts of adhesion, every day. If you sign a contract of adhesion as a consumer, the law will be on your side if you try to get clear. As a business owner, not so much.
So what should you do? It’s no stretch to imagine that you don’t want to call your lawyer, since that would be expensive and beside the point. He or she will only tell you not to sign a bad subcontract, and you’ve already decided to sign a bad subcontract. You want the work. Who needs more pressure and expense and guilt from lawyers?
But this is the kind of problem that comes up over and over. Maybe it’s time for you to experiment with a different approach.
Try this: have special conditions to your subcontract drawn up – a page or so that addresses the things you won’t swallow under any circumstances – and send it back to the prime contractor every time before you sign anything. If you want the edge, use your own preprinted form for this. Present it as your company’s standard form which never changes. Don’t sign any subcontract before the prime contractor signs your special conditions. It might work. If it doesn’t, you and I are clear that you should have called your lawyer to start, and maybe saved yourself a boatload of money and aggravation.
Your special conditions – you can call them supplemental conditions if you want – should be designed to operate as the last word on the subcontract documents before any signed change order. Drafted correctly, special conditions may – once signed by all parties – relieve you of some of the unacceptable subcontract terms presented to you by a prime contractor. If you had a lawyer involved every time, your lawyer would sit with you and discuss revising the subcontract terms as presented, and you could send back a marked-up counterproposal or walk away. That would be the best way to approach things. Sending back blanket special conditions for the prime to consider is a distinct second best, but it’s bound to be better than what you’re doing now.
Mid-level employees in a big outfit are likely to run away if you come back at them with a marked-up subcontract, because nobody wants to stick their neck out and depart from the company’s pre-approved form. Neither does anyone feel incentivized or equipped to negotiate all terms of a legal contract. All they want to talk about is scope, time and price. However, if they need you, especially under deadline, a prime contractor’s representatives who would never countersign a messy marked-up version of their own agreement just might accept preprinted “standard form” special conditions.
Note: If you are a supplier rather than a subcontractor, or if you are a hybrid supplier/subcontractor, you need preprinted fully executed Special Conditions attached to a prime contractor’s purchase order even more. This is because a prime contractor’s preprinted purchase order will ordinarily say nothing regarding the universe of risk-shifting choices which should be spelled out regarding shipping terms, deadlines for notification of nonconforming goods, handwritten notes on forms, version control for drawings, required approvals, product warranties, additional orders, title and risk of loss, and so forth.
Here is the beginning of a set of Special Conditions to get you started. It isn’t finished because one size doesn’t fit all. Contract law is complicated. Sorry for the tease, but you’ll have to see your lawyer any way. Still, it could be that you’ll only have to do it once, and you can re-use the same Special Conditions job after job.
Oh, and despite what the caption says, there is no such thing as a standard form.
YOUR NAME HERE
SPECIAL CONDITIONS OF THE SUBCONTRACT
Standard Form 2018
These Special Conditions of the Subcontract are made of even date with the Subcontract executed by __________________, as Contractor, and __________________, as Subcontractor, for work on the ___________________________ project, and delete, amend or add to the clauses in the Subcontract as follows.
- Order of Precedence. Subcontractor and Contractor agree that they have specifically negotiated these Special Conditions of the Subcontract, and that these Special Conditions of the Subcontract govern over any other ambiguous, inconsistent or conflicting terms in any other contract document including without limitation all documents and regulations incorporated by reference therein.
- Amendment of Flow Down Provisions. The specific terms of the subcontract regarding payment, claims, disputes (including without limitation attorney fee shifting provisions), change order, termination, schedule, insurance and liquidated damages provisions are hereby limited and amended so that Subcontractor shall have the benefit with respect to the Contractor of all the same rights, remedies and redress that the Contractor has pursuant to its prime contract with the Owner. Moreover, wherever any flow down provision of the subcontract imposes any obligation on Subcontractor to comply with incorporated prime contract terms which are not clearly and precisely explained in the Subcontract, Subcontractor’s performance of such obligation shall be limited by these Special Conditions of the Subcontract, and Subcontractor’s compliance obligation shall be interpreted broadly in favor of Subcontractor so as not to abridge the benefit of Subcontractor’s bargain under the Subcontract.
- Something Else We Won’t Put up With. (It’s phony title, of course. This and the succeeding numbered paragraphs are where you set out the things that you can’t live with no matter what, or what you absolutely must have to move forward. If you have a recent prime contract from an outfit you despise, pull it out and go through it. Have your lawyer write you up new clauses on topic that favor your company, and make them part of your special conditions. These are the preconditions for you going to work. Stand by them.)
- Something Else We Won’t Put up With. …
- Something Else We Won’t Put up With. …
- Something Else We Need or We Can’t Do Business Together.
And so on, in legal format. Remember, there absolutely needs to be lines at the foot of the special conditions for authorized representatives of the parties to sign. Everybody needs to sign. Don’t be the first one to sign the Special Conditions of the Subcontract; they will only come back to you unsigned or not at all. If the Special Conditions are not signed by the prime contractor, it’s as if they never happened.
South Jersey construction attorney Robert J. Incollingo is a member of the Board of Directors of the Camden Business Association, formerly known as the Camden Business and Contractors Association. He is a past co-chair of the New Jersey State Bar Association Construction Law Section (2009-2011) and has more than 30 years’ experience litigating thousands of construction, business and real estate disputes. RJI@RJILAW.com