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

By Alexander E. 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 each should be measured against the scope of the work and the contract price. This series is designed to give you a better understanding of each provision so that you can better manage the risks and exploit the benefits in your negotiations.

In this fourth part, we shall discuss Article 12: Assignment, Article 13: Compliance with Laws and the Contract Documents, Article 14: Safety and Cleanup, Article 15: Quality of Work, and Article 16: Warranties and Guarantees.

Article 12: Assignment

It is no surprise that your Subcontractors will retain the services of other specialized trade professionals and suppliers in the performance of their duties. However, it is critical to maintain some control over that assignment. This is typically done in several ways.

First, make it clear that the Subcontractor’s retention of subcontractors and suppliers does not diminish the Subcontractor’s obligations to the Contractor. This can be done with the following statement: “Nothing herein shall prevent Subcontractor from engaging subcontractors and suppliers to perform a portion of the Work hereunder. However, Subcontractor shall be and remain as fully responsible for all persons, directly or indirectly, employed by such subcontractors and suppliers as Subcontractor is for its own acts and omissions and those of its agents, servants and employees.”

Second, require the Subcontractor to assign to you any and all rights it may have in its subcontractor and purchase orders. Let’s consider an example where such a provision would be beneficial. You hire a window installer who special orders the windows from a window manufacturer. For various reasons, you are forced to terminate the window subcontract. You want to make sure that the window order continues and that the windows are delivered to the project. By requiring the Subcontractor to assign all subcontracts and purchase orders to you, you can ensure prompt delivery of the windows. A sample provision would read: “Subcontractor (and its successors and assigns) hereby assigns to Contractor all its right, title and interest in any subcontracts and purchase orders now existing or hereinafter entered into by Subcontractor for the performance of any part of the Work which assignment will be effective upon acceptance by Contractor in writing and only as to those subcontracts and purchase orders which Contractor designates in writing. It is agreed and understood that Contractor may accept said assignment at any time during the course of the Work prior to final completion. It is further agreed that all subcontracts and purchase orders shall provide that they are freely assignable by Subcontractor to Contractor and Contractor's assigns.”

Finally, it is important to make clear that while there are limits to the scope of assignment which the Subcontractor may employ, you, the Contractor, are not so hampered. This gives you the flexibility to assign the Subcontract to others without the need for the Subcontractor’s consent. It could read; “Contractor may, at its sole option and discretion, assign and/or transfer any or all of its rights, interests or obligations under this Subcontract at any time to any other party without the consent of Subcontractor.”

Article 13: Compliance with Laws and Contract Documents

Generally all applicable laws are read into all contracts without the need to specifically reference them. However, prudence dictates that the parties make it clear that the Subcontractor is obligated to comply with all laws and its failure to do so will require correction at the Subcontractor’s cost. This would apply to the mundane, such as obstructing traffic during loading and unloading of materials, to the potentially life threatening, such as construction not in compliance with applicable building codes.

A sample provision could read: “Subcontractor shall, at its own expense, obtain all necessary licenses and permits pertaining to the Work and comply with all federal, state and local statutes, ordinances, laws, rules, regulations and orders as may be applicable to it and to the Work and the performance thereof, including, but not limited to, those relating to occupation, permitting, building codes, taxes, environment, hazardous materials, safety, wages, discrimination and equal employment opportunity. Subcontractor shall promptly correct any violations of such statutes, ordinances, rules, regulations and orders committed by Subcontractor, its agents, servants and employees.”

Article 14: Safety and Cleanup

Construction is a dangerous profession and safety plans and precautions can save lives. However, the actual or perceived delegation of this safety obligation can create liability for the contractor. Therefore, it is important to clarify that the Subcontractor is obligated to manage and monitor the safety of its men and those of its sub-subcontractors and suppliers. While such a delegation may not eliminate a contractor’s liability for an accident, it may limit it by allowing the contractor to pass that liability onto the responsible subcontractor.

Such a provision may read: “Subcontractor agrees that the prevention of accidents to workers engaged upon or in the vicinity of the Work is its responsibility, even if Contractor establishes a safety program for the entire Project. Subcontractor has the sole responsibility for maintaining the safety and loss prevention programs covering all Work performed by Subcontractor and its subcontractors and suppliers of any and all tiers. Subcontractor shall establish and implement safety measures, policies and standards conforming to those required or recommended by governmental or quasi-governmental authorities having jurisdiction and by Contractor and Owner, including, but not limited to, any requirements imposed by the Contract Documents. Subcontractor shall comply with the reasonable recommendations of insurance companies having an interest in the Project. Contractor's failure to stop Subcontractor’s unsafe practices shall not relieve Subcontractor of its responsibility therefore. Subcontractor, as reasonably necessary, shall provide flagmen, erect proper barricades, employ fall protection, and other safeguards, and post danger signs and other warnings as warranted by hazardous or potentially hazardous conditions.”

With respect to cleanup, the Subcontract must clearly delineate the scope of the Subcontractor’s responsibility. Most times, the Contractor will assume the task of renting a dumpster and merely require that all subcontractors deposit their trash therein on a daily basis. Such a provision would read: “Contractor shall provide a trash dumpster within reasonable proximity to the Project. Subcontractor shall, on at least a daily basis, broom-clean the area within which it worked and deposit said trash and debris into the provided dumpster, or if there is no such dumpster or it is full, haul away all such trash and debris at Subcontractor’s sole expense. No hazardous substances shall be disposed of in the dumpster but shall be properly disposed of by Subcontractor at Subcontractor’s sole expense.”

Finally, the Subcontract should have a mechanism to backcharge the Subcontractor if the Subcontractor fails to cleanup. It could state: “If, within the Contractor’s sole discretion and upon 24 hours written notice, the Project or portions thereof are not adequately clean and free of debris, Contractor may undertake the task of cleanup and backcharge Subcontractor a fixed fee of $50 per man-hour for cleanup. If Contractor is uncertain which subcontractor was the cause of the debris, all subcontractors shall be backcharged pro rata for the cleanup.”

Article 15: Quality of Work

Many times, the contract documents do not specify brands or makes and models of all of the materials to be used on the project. That said, it is reasonable to assume that the owner expects that all installed materials be new and of high quality, unless stated otherwise. As such, the Subcontractor should place this burden on the Subcontractor. As an example, it could read: “Subcontractor shall at all times provide first quality, new materials (unless otherwise specified in the Contract Documents) and workmanship conforming to this Subcontract and the Contract Documents requirements and be in accordance with the best standards of the construction industry where the Project is located. The Subcontractor shall, if required, furnish satisfactory evidence as to kind and quality of all materials and equipment.”

Another component of quality of work is to confirm that the Subcontractor verify the integrity of the work and materials preceding it. As an example, the application of stucco on an improper base will likely lead to cracks or delamination. Therefore, you would demand that the stucco contractor verify that the area to which the stucco will be applied is sound prior to allowing him to apply the stucco. This affirmative obligation could be created as follows: “Subcontractor shall use all necessary means to discover and to notify Contractor in writing of any defect in any part of the Project upon which the satisfactory performance of the Work may depend, and to allow a reasonable amount of time for remedying such defects. If Subcontractor should proceed with the Work, Subcontractor shall be considered to have accepted and be responsible for such condition and consequences therefrom unless Subcontractor shall have been directed by Contractor in writing to proceed over Subcontractor’s written objection to Contractor.”

Article 16: Warranties and Guarantees

A Project is not done when the owner takes possession as warranty obligations continue for years to come. It is for this reason that certain obligations be placed upon the Subcontractor.

First, require that any warranty obligation of the Subcontractor is not contingent on the final resolution of any payment disputes. This is a common situation. The Subcontractor refuses to perform warranty work until its final bill is paid, an amount the Contractor disputes. To minimize the likelihood of such a scenario, the following provision should suffice: “This Subcontract shall not be considered completely performed until all punch list and warranty and guarantee obligations hereunder are fully satisfied. Subcontractor’s punch list and warranty obligation hereunder shall apply irrespective of any payment disputes between Subcontractor and Contractor and/or any unpaid balance claimed by Subcontractor.”

Second, depending on the jurisdiction and the type of project, warranty obligations may continue for three years from final completion, or longer. As a Contractor, it is imperative that the Subcontractor be obligated to back its work and materials for at least the same duration as the Contractor’s warranty to the owner. Therefore, instead of using the standard one year, The Subcontractor’s warranty should be measured by the longer of several triggers via a provision that could read: “Subcontractor shall warrant and guarantee to Contractor and Owner and any and all successive owners all work performed and materials and equipment furnished under this Subcontract against defects in materials and workmanship for the longer of (i) one (1) year from the date of substantial completion of the Project, or (ii) for a longer period if so specified in the Contract Documents or (iii) for any applicable period as required by law.” Any other applicable triggers may be used as appropriate.

Finally, it is important to specify how and in what manner warranty repairs must take place. The following provision has not only states when the repair must occur, but makes clear that the Subcontractor is not only responsible for the repair of the defective work, but all other ancillary work (such as drywall, painting, …). The provision reads: “Subcontractor shall, promptly, but in no event longer than three calendar days, upon receipt of written notice thereof, make good any defects in materials, equipment and workmanship to its Work which may develop within periods for which said materials, equipment and workmanship are warranted and guaranteed, and also make good any damage to other work caused by the repairing of such defects at Subcontractor’s sole expense, and without reimbursement under this agreement.”

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Future articles will discuss other key provisions of your subcontract – look for Part five 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 March 2008 issue of South Florida Homebuilder as the fourth of a five part series on contractor-subcontractor contracts.

 

© 2008, The Barthet Firm