Your Subcontract: Deconstructed
A Provision-by-Provision Analysis of Your Subcontract
Part One of a Five Part Series

By Alexander Barthet

Your subcontract; done right, it can be both a sword and a shield in your dealings with your subcontractors. Careful consideration should be given to each provision such that the risk and benefit of inclusion or exclusion of this language can be measured against the scope of the work and the contract price. This series is designed to give you a better understanding of those key provisions in a subcontract and allow you to better manage the risks and exploit the benefits in your negotiations.

In this first part, we shall discuss, generally, several good contract practices as well as the ins-and-outs of the Preamble, Article 1: The Contract Documents, Article 2: The Work Defined, and Article 3: Performance of the Work.

Good Contract Practices

Sometimes, memories can be hazy. Experience dictates that recollections are particularly hazy when a dispute arises. “Convenient recollection” can be minimized if your agreement is memorialized on paper. Simple agreements need not be pages upon pages. The converse is also true – complex and significant agreements should not be left to a handshake. Now that it’s settled that the agreement will be in writing, let’s discuss several important details about the writing. First, if possible, avoid handwritten notes or modifications on the agreement. If necessary, convert the changes to a typed addendum to the agreement. Second, number all of the pages, preferably with a numbering system that lists the total number of pages (such as “Page 4 of 5”). Again, this will minimize the argument that the agreement includes or does not include certain pages. Along the same lines, multi-page agreements should be initialed by all parties on each page. This further minimizes the argument that a certain page is or is not part of the original agreement. This is particularly true for addendums and exhibits. As an example, to avoid a dispute that the subcontractor never received the construction schedule, have both parties initial it (and all exhibits). Finally, when the person signing is acting for an entity, such as a corporation, verify that the party signing the agreement is in fact authorized to do so. A simple way to do this is verify with the Secretary of State that the signatory is an officer of the corporation, preferably the president or vice president, or a member of a limited liability company. The Florida Secretary of State maintains this information publicly at www.SunBiz.org. If the person signing the agreement is not listed appropriately on the Secretary of State, you should question that person’s ability to bind the company. As a side note, this is also true for any documents that are signed throughout the course of construction including partial and final releases.

The Preamble

With the basics out of the way, let’s discuss the subcontract specifically. A preamble is usually a short introduction at the beginning of a contract. In many contracts, it typically includes the term “whereas.” However, as used herein, the preamble is where we will state and define many of the subcontract’s key variables, including:

Your job number;
The effective date of the subcontract;
Your full company name and address (defined as “Contractor”);
The subcontractor’s full company name and address (defined as “Subcontractor”);
The name and address of the owner (defined as “Owner”);
The name and address of the architect/engineer (defined as “Architect”);
The scope of the name and address of the project (defined as “Project”);
A brief description of the subcontractor’s work;
The subcontract price (defined as “Subcontract Price”);
The monthly billing date (defined as “Monthly Billing Date”);
The retained percentage (defined as “Retained Percentage”); and
Whether or not you required the subcontractor to furnish a bond.

You will find it useful to place all of this information on the first page of your subcontract so that it is readily available. Moreover, by defining each variable, you can then simply refer to that defined term (in capital letters) throughout the agreement. This greatly simplifies the contract drafting process. We will refer to these defined terms in these articles.

Article 1: The Contract Documents

The Contract Documents As you know, your subcontract is not limited to its four corners but includes reference to many other documents. It is critical to incorporate through reference those documents into the subcontract. The most common incorporated document in a subcontract is the prime contract (i.e. “the contract between the Owner and Contractor for the Project”) as well as all of its referenced and incorporated documents. Additionally, many subcontracts incorporate all of the plans and specifications by the design professional (i.e. “the drawings, plans and specifications by the Architect for the Project, as amended”). All of the incorporated documents can be defined in the subcontract as the “Contract Documents.”

The reason that these and other documents are incorporated by reference is to pass on the obligations of those documents directly to the subcontractor. Said another way, as the general contractor you want to have your subcontractors obligated to you to the same extent that you are bound to the owner. Incorporating documents by reference is one way of doing that.

Correspondingly, it is important that you make each of the incorporated documents available for the subcontractor to review. You may wish to redact any sensitive financial information from the prime contract. Moreover, you should include a statement in the subcontract that “the referenced documents have been made available for the Subcontractor to review, less any financial information, and have been thoroughly reviewed by Subcontractor.”

Article 2: The Work Defined

It is important to delineate the scope of the subcontractor’s work. The definition should be very broad in order to bind the subcontractor to the greatest scope as possible. This becomes important if there is a dispute as to whether or not a particular item is base contract work or an extra or change order work.

A common description of the scope of work usually includes reference to “the furnishing and performance of any and all labor and materials by the Subcontractor which is within the scope of the Contract Documents or which can be reasonably inferred from the general scope of the Contract Documents.” The last portion of this sentence is critical as it places upon the subcontractor a heightened obligation to perform work that may not be specifically articulated in the documents, but would be reasonably inferable therefrom.

Certain scope of work issues are such common subjects of disputes that they should be listed with particularity. These include, but are not limited to:

Sealing pipe penetrations;
Fire safing/stopping;
Temporary facilities such as temporary electric, water, or other utilities;
Onsite storage;
Parking;
Hoisting of men or materials;
Cleanup and trash removal;
Lighting;
Security of tools or materials,
stored or installed; and
Patching and painting to correct the subcontractor’s work.

A correspondingly important provision is one that deals with possible inconsistencies in the “Contract Documents.” It reads “in the event that portions of the Contract Documents are inconsistent, the provision imposing the most stringent standard (e.g. the highest quality, the greatest quantity) shall control.” As above, such a provision places the risk upon the subcontractor to the extent that additional work is needed due to issues with the contract documents.

Finally, it is of critical importance to require the subcontractor to verify in writing that he or she has inspected the site and is capable of performing its work. A common sentence to this effect reads “Subcontractor represents and agrees that it has examined and understands the Contract Documents including the schedule, has investigated the nature and condition of the Project site and locality, has familiarized itself with the conditions affecting the difficulty of the work, and has entered into this Subcontract based upon its own examination, investigation and evaluation and not in reliance upon representations or information from Contractor.” A statement such as the foregoing should affirmatively obligate the subcontractor to all aspects of the project and the schedule and minimize complaints that the subcontractor was “unaware” or “surprised” by the occurrence of, for example, excessive rain or subsurface conditions.

Article 3: Performance of the Work

While the general contractor may have general oversight of the project, the contractor also expects that the subcontractors will manage and coordinate their men and materials within the scope of the ongoing project. Specifying this as an obligation of the subcontractor avoids any confusion.

First, it must be made clear that the subcontractor is in control of its forces. A provision similar to the following should do the trick: “Neither Architect, Owner nor Contractor shall be responsible for construction means, methods, techniques, sequences or procedures of Subcontractor, or the acts or omissions of Subcontractor, or the failure of Subcontractor to carry out the Work in accordance with the Contract Documents.”

Second, with respect to where the subcontractor’s work meets the work of other trades, it is important to remind the subcontractor of its duty to coordinate. A provision similar to the following is common: “The Subcontractor shall coordinate its Work and cooperate with the Contractor and other trades whose work might be affected by or interfere with Subcontractor’s Work. In furtherance thereof, Subcontractor shall participate in the preparation of coordination efforts and drawings as required by the Contractor.”

--------

Future articles will discuss other key provisions of your subcontract – look for Part two in this five part series.

This series only covers some of the many aspects involved in contracting. Each situation and contract is unique and you should contact a lawyer to assist with your specific situation.

This article was first published in the November 2007 issue of South Florida Homebuilder as the first of a five part series on contractor-subcontractor contracts.

_____________________________________________

Article Concepts: contract, written agreements, signers, contract specific, contract documents, work, performance

 

© 2008, The Barthet Firm