How to Put the Cart With the Horse
Initially, subcontractors started to show up in the construction industry because the general contractors did not know enough about the work of each trade to supervise the work of the tradesmen. By hiring subcontractors, they got a better product and the subcontractor made a profit by being more efficient than poorly supervised trades people. Why use subs though? Why don’t they just hire their own crews and eliminate subcontractors altogether?
Because there is too much risk! The specific reasons for subcontracting the work is as follows:
1. Shift the liability to the subcontractor.
2. The general has greater control over the subcontractor than he does over his own employees!
Nothing surprises us anymoreNone of you reading this article are surprised that general contractors prefer to shift liability but I doubt you have given much thought to the fact they have greater control over you than they do their own employees.
Employees are not harnessed by contracts, bonds, insurance or main contracts. They go to work and receive their pay each week. If an employee does not receive a check on payday, he or she finds another job. In the state of Washington, where I live, an unpaid employee files a claim with the state, which goes after the general on behalf of the unpaid employee.
Today, subcontractors are lucky to receive payment in 45 to 60 days. Changeorders take months in most cases. Many subcontracts today have “pay-if-paid” clauses, which simply state that the general contractor is not obligated to pay the subcontractor until the owner pays the general. In other words, the general is not responsible for the sub’s payment. This is part of a one-sided, so-called team approach with the general contractor receiving all the benefits!
If general contractors wanted to develop a quality team relationship with subcontractors, they could start by giving us fair subcontracts. Subcontracts today have a greater likelihood of destroying our businesses than ever before. It will only get worse.
I have customers who are team players. However, a serious problem could arise that we are unable to resolve between ourselves. At that point, the agreement that I signed will determine the outcome, in most cases.
Subcontractors provide a valuable service, for which there is a great need. However, we have allowed the general contractor and the owner to place unreasonable requirements upon us. If we all refused to sign unfair contracts, the problem would resolve itself. By signing these unfair agreements, we have accepted serious liability and opened the door to accepting even more.
In the next several months, I will submit articles on specific issues, including:
a. Pay-if-paid clause
c. Sequence of the work
d. Main contract
f. Change orders
g. The owner
i. Claims and disputes
k. Shop drawings/design
2. General Contractors
b. Project managers
f. Daily logs
g. Your quote
In the meantime, negotiate your subcontracts, make changes and get advice from a qualified construction attorney.
The language of contractsMost subcontracts include a section referring to supervision we as subcontractors are required to provide on a specific job site. The language contained in these provisions requires us to remove any “persons whose employment might be reasonably objected to by the contractor or the owner.” This language also applies to any subcontractor you have working for you.
In 20 years, I’ve never had a general or owner ask me to remove anyone from the job. I understand why the language is in the contract. But if we are to have a fair contract, and if we are to work in a spirit of teamwork, the language must be stricken or we must be given the same option to have the general contractor’s employee removed from the job site.
This type of contract language can only hurt us. It’s not a big issue, just another issue stacked on top of other one-sided issues that, together, cause division and, therefore, lack of teamwork. I’m suggesting that you strike out the language or change it, giving you the same option in the event you find the general to have employees whom you wish to have removed for “reasonable cause.”
The reason this language and similar language is contained in our contracts is because the general contractor has at one time made a poor choice in selecting a subcontractor. A problem occurred and now he or she wants to have the power to harness a subcontractor in the event the same problem comes up.
When I make a decision to put a specific foreman on a specific job, it is because I believe this person is the best person for the job. I should also be the one who decides if the person is not the right person for the job.
Just last week, I had a meeting with one of my customers who had just provided me with his new contract form. I explained to him that his new contract was the worst one-sided agreement I have ever seen. His comment was that the contract was not designed for subcontractors like me but for those subcontractors he anticipates a problem. He then went on to tell me to go ahead and sign the new contract and not to worry about it. I explained that I would sign it after making some changes. He had no problems with the changes I made.
Consider all the items contained in your subcontract as bullets. The more you agree to, the more ammunition the general contractor has. Teamwork begins with a fair contract!