Twenty years ago, it was possible to enter into a construction contract or subcontract with a simple handshake. You were able to trust the person and the company he or she represented; they would live up to their word and handshake. Unfortunately, those days are long gone and now a construction company, whether it is a general contractor or a subcontractor, must look to the contract agreement to guide its actions and performance.
Unfortunately, many construction companies will sign whatever contract is put in front of them, often not knowing or understanding the contract clauses or the implications of the risks involved. This is where many companies get into trouble: They blindly assume that so long as they do “the work” they will get paid. Unfortunately, that is not always the case.
Remember, a contract is nothing more than an agreement to shift or accept risk for a sum certain. There is risk in every construction project. The question is, whether the contract assumes too much risk for the reward (the payment). This is where a fully vetted and understood construction contract will level the playing field.
We have all attended seminars on “killer contract clauses”. The problem is that in today’s contracting environment, these clauses are evolving and becoming much more complex to understand. Moreover, there are clauses in construction contracts that may seem innocuous but can have serious consequences if not properly understood or neutralized.
Clauses such as coordination, clean-up, back-charges, warranties and a host of others. These clauses, if not properly understood or negotiated, can increase the risk on one party to the contract (usually the downstream contractor).
For instance, there are many examples of a subcontractor performing its work and, in some cases, has filed a claim for additional work that was directed to be performed. Suddenly, the general contractor has miraculously found a bunch of back-charges that are almost equal to the claimed amount. The subcontractor had no idea about any of these back-charges and is left fighting the general contractor on these. Instead of focusing on its own claim, the subcontractor is too busy playing defense now. A simple solution to this type of situation would be to insert language that states when there is a back-charge, the back-charge must be presented to the subcontractor within 5 days of the general contractor’s knowledge of the back-charge or it waives its right to assert such back-charge.
There are many other examples of simple clauses that most subcontractors would not even take a second glance at but are very important nevertheless. These clauses can make the difference between a profitable project or an unprofitable project.
For more information contact Edward Hershon at Hershon Legal, LLC.