All in Agreement
No Uncertain Terms
The CDC defines its mission in the following terms:
"The Contract Documents Committee will be recognized as the leader in providing and continually improving balanced documents for the construction industry by: being aware of the needs and concerns of all AGC members and chapters; advocating equitable risk allocation between owners, architects, engineers and contractors; creating and endorsing a comprehensive family of documents and educating all parties in their use; providing critical information to the industry on contract documents issues; and reinforcing AGC's commitment to Skill, Responsibility and Integrity through contracts."
Mark McCallum is the senior counsel and executive director of Programs and Industry Relations for the AGC of America. I contacted McCallum in an effort to determine how the AGC goes about developing subcontracts. He explained that a large group of various people work on a committee called the Contract Documents Committee. Basically, this group is challenged to develop new contract documents, as well as redesign older versions.
He also explained to me that the AGC is comprised of about 12,000 to 14,000 specialty contractors and vendors who are members of the AGC. McCallum went on to say that there are about 7,000 general contractor members. If we estimate each of these GC members use an average of 15 subcontractors on each job, this would represent a total of 105,000 different subcontractors. This rough estimate leads me to believe there are far more subcontractors than there are general contractors. If we agree there are many more subcontractors, please explain to me why subcontracts don't favor the subcontractor.
The number of subcontractors should far exceed the number of GCs and if this is true why is it that the AGC develops our contracts? After all, the name does stand for Associated General Contractors of America-not Associated Subcontractors of America.
Shrinking subcontractor baseEstablished 37 years ago, the ASA is an organization dedicated to work on behalf of subcontractors. One part of the ASA's purpose statement indicates that the ASA desires to "develop the best interest of subcontractors, specialty contractors and material suppliers in the construction industry."
In looking over its Web site, I noticed that the organization has prepared a subcontractor indemnification checklist, which causes me to think that they are realizing just how unjust subcontracts have become. I haven't talked to anyone there as of yet but I hope to begin exchanging e-mails in an effort to get them fired up. I don't know how many members they have nor do I know how committed they are to fighting for fair contract language. I do think that it could be the conduit for which contract language could be changed but it will take years.
We know that change must happen at some point. Like banks, grocery stores, gas stations, restaurants, brokerages houses, and insurance companies, the total number of subcontractors will decrease because a small subcontractor will not be able to afford the costs associated with being in business. One of the key reasons subcontractor insurance costs have skyrocketed is because we subcontractors signed contracts with language that costs our insurance companies more money. If subcontractors outnumber GCs we most likely pay more in premiums than GCs nationwide.
It's become more difficult to be a subcontractor who only wants to do $1 million in sales each year because the cost and risk to do $1 million in sales has gone up significantly. Now, you may have to do $2 or $3 million in sales to cover all costs. Large discount chain stores have nearly wiped out the small mom-and-pop operations. Oil giants have wiped out family-owned gas stations. Mega banks have swallowed up smaller banks.
The same idea should apply to subcontractors because unless the average subcontractor sells more work he can't possibly pay all of his expenses. The problem as I see it: We either do more work to pay higher expenses or we shrink to fewer larger subcontractors.
As the cost of living goes up, I think it's only fair that every worker receives a cost of living increase as long as that worker is not overpaid to begin with. Material costs will increase as the cost of living increases. Subcontractors can expect and plan for a cost of living increase, as well as material increases. However, subcontractors cannot continue to accept the liability and insurance burdens associated with subcontracting.
Now is the time for risk to be shared equally by owner, GC and subcontractor. Now is the time for organizations like the ASA, as well as our government officials to begin changing the way subcontracts are written.
Why do we have to sign contracts that require us to insure the owner and general contractor? Why do we sign contracts that require us to perform work without our price being approved in advance? Why do we agree to defend the owner and GC? Why do we have to agree to wait for our money until the GC receives it from the owner? Why should an excavation contractor or steel erector have to wait for final payment (retention) until the project is finished?
Are we represented?Do you feel that your contract adequately protects you? Do you feel the contracts you sign fairly allocate risk between all the parties? If you think the subcontracts we sign are fair then I'd like to sell you a subterranean condominium. I don't think anyone from the AGC or the ASA could argue that subcontracts fairly distribute risk between all the parties involved, but they will.
Today's contracts don't indicate to me that anyone is representing us with regard to contract issues. If we were, why do we have to modify contracts? Why do contracts say we won't be paid unless the owner pays? Why do contracts require us to provide primary additionally insured non-contributory insurance endorsements?
Some associations become associations by tackling issues that are easier to tackle than others. Membership grows because of these minuscule successes while the tuff jobs are lightly addressed or ignored altogether. If the big issues are not corrected or greatly improved upon, why belong? What do you want your membership dollars spent on? Do you prefer that your money be spent on seminars, retreats, conventions or luncheons, or would you rather give it to an organization that fights for fair contract language? You see, unfair contract language creates a whole new industry where your money is spent on everything other than changing how contracts are written. There are people making more money than you are teaching us how to combat unfair contract language.
In next month's column, I will report the results of my conversations with the AGC and the ASA. Until contracts change, all of us will have to do the best we can to change them ourselves as they come to us. Keep in mind that changing contract language will reduce risk but until the industry changes as a whole our costs of doing business is going up. As a banker once told me, "You have to base your business on risk and reward." If the risk is worth the reward, keep running but don't get caught at the top of the wheel when it stops.
After this story is printed, there may be some complaints. I would ask those who might complain three questions:
1. Are you a subcontractor?
2. Do you honestly believe the current payment, insurance and hold harmless agreements fairly allocate a subcontractors risk?
3. Do you know how much time a subcontractor spends reading and editing subcontracts?
If you would like subcontract language to change send an e-mail to the ASA, as well as the AGC. You can find addresses at www.asaonline.com and www.agc.com, respectively.
"Until the AGC and the ASA eliminates the ‘pay-if-or-when' clause, as well as revise contracts to fairly allocate a subcontractors risk including certain ‘hold harmless' agreements and insurance requirements, I will no longer support your organization."
If subcontractors get involved and spend just a few minutes voicing their concerns, change could be right around the corner. Feel free to copy and paste the sample e-mail and send it off. You will find this story on www.wconline.com.
Remember: Teamwork begins with a fair contract!