As often as not, subcontractor agreements incorporate terms of the Prime Agreement between owner and contractor by reference, or contain a clause that provides the subcontractor “agrees to bound to the same extent and in the same manner as the contractor” to terms of the Prime Agreement. But many times the Prime Agreement is not attached to the subcontract, leaving you in the dark on its terms. If you have not obtained a copy and read it, you are taking big risks with your business. Here are some key areas to watch for:
Payment. What is the process for requesting and receiving payment? How long will you have to wait for payment to be made? Under what conditions can the owner or contractor withhold payment for your work? For example, can payment be withheld only to the extent of an amount in dispute, or can payment be withheld in the owner’s discretion to protect itself from any anticipated loss? Beware of “pay when paid” and “pay if paid” clauses, and make sure you know the difference.
Notices. How much time is allowed for giving notice of delays, deficiencies or claims? Does notice have to be in writing? Are you required to notify anyone in addition to the contractor? Failure to comply with notice provisions can compromise your claims or defenses in the event of a dispute.
Safety. Does the Prime Agreement make you responsible for safety issues even if they do not involve your work or trade?
Liens and Waivers. Does the Prime Agreement have a “no lien” provision? These are unenforceable in many jurisdictions, but not all. Make every effort to avoid a promise or agreement not to assert a claim for lien in the event of non-payment. Make sure your waivers are conditioned on receipt of payment.
Indemnification. Is your duty to indemnify the owner for losses appropriately limited to the extent such losses are caused by your negligent acts or omissions? Have you agreed to indemnify the owner or architect even for losses they caused or contributed to?
Dispute Resolution. What method of dispute resolution applies to your Subcontract? Are you giving up any rights to assert claims or defenses on your own behalf?
You won’t be able to change terms agreed upon between the owner and contractor. But you may be able to negotiate changes to your subcontract that allocate risk more fairly, or relieve you of certain obligations. At the very least, by reading and understanding what is required of you by the Prime Agreement, you will be better able to assess your risk before you sign up.
Taft's construction attorneys represent companies ranging from small to large, from the supplier to the end user. We understand the economic challenges our clients face, and we are committed to keeping legal costs reasonable in light of the economics of the matters we are addressing. Our goal is to partner with our clients for successful, profitable construction projects.
If you need help, call upon Taft to consult with lawyers who are experienced and knowledgeable about construction claims. We are always available to assist.