During the 1990s, Americans experienced an out-of-control stock market that generated riches for many people—especially for those who knew what was really happening. People were fat and happily gloating over their stock portfolios while enjoying great jobs and big incomes. Stock options and big bonuses became standard incentives.
The average American stock portfolio grew at an astounding rate and people of all incomes wanted to get in on the gold rush. Toward the end of the gold rush, smart money left the stock market and the average American kept plowing more and more hard-earned cash into the market only to find out the run was over. The goldmine had petered out.
There is no question in my mind that Wall Street not only lied to us; they made big money doing it. They used our money to raise the value of their investment in the companies they were promoting and made a commission at the same time.
Where were all the eager beaver reporters and analysts when this scam was taking shape? Do you think the TV networks and news publications knew what was going on? Could it be that the media was cashing in on Wall Street and dot-com advertising budgets? Ka-ching!
Insanity clauseWe’re now left with two types of losers. The realist admits he was taken in by all the hype and jumped in with both feet. The other loser is the one living in denial, who says, “I’m in the market for the long term, this is just a temporary set back.”
We subcontractors live in denial every time we sign a contract. We’ve come to the point where we accept things the way they are because we think we will lose the job if the contract is not signed.
In other words, we’ve found it is easier to believe a lie rather than uncover the truth. The truth is that subcontractors have a right to a fair contract. Nationwide, there are subcontract issues that are totally unfair yet subcontractors continue to agree to these unfair one-sided agreements.
Below, I’ve listed six sub-busting contract issues that continue to plague our industry while eroding our profits.
• Paid-if-paid clause
• Bound to the contract between the owner and GC
• Primary additionally insured non-contributory insurance endorsement
• Construction change directive
• GC schedules and sequences all work
• Change order process
Paid if paid: This clause basically means that the subcontractor will not get paid unless the GC is paid by the owner.
Bound to the owners contract: The GC has a contract with the owner to build the owner’s building. As a subcontractor, you are not only bound to the GC’s contract, you are also bound to the terms and condition of the contract between the owner and the GC.
Primary additionally insured non-contributory: When a subcontractor provides this type of insurance, the subcontractor is basically insuring the GC. In other words, the subcontractor’s insurance will pay to defend a claim, while the GC and its insurance company continue to bid more work while the subcontractor’s insurance company pays through the nose.
Construction change directive: This is simply a notice from the owner/architect directing a sub to perform additional work without the owner/architect or GC agreeing to pay you for the work. The work is done first without any guarantee of payment.
Schedule and sequence: The GC prepares the schedule and the subcontractor is responsible to get the work done as scheduled. The GC not only has control of the schedule but also the sequence of the work. The GC may require the subcontractor to perform all or portions of the work as the GC determines.
Change orders: Change orders are those elusive changes the subcontractor should receive when work is either added or deleted. Deductive change orders are normally processed quickly, while additive change orders usually take much longer. Unless the owner approves a change order and the subcontractor receives a fully executed change order the subcontractor will not be paid. Change orders are tied very closely to the paid if paid clause. If the GC doesn’t get a change order from the owner, the subcontractor won’t get one from the GC.
Face of the enemyThe GC is not the enemy! I don’t want anyone to think that the GC is the bad guy. You can’t look at a GC as an individual. The GC is a business entity, not an individual. If a GC tells you to start taping before the heat is on or start before the screw inspection is performed, you know that is contrary to your contract obligation.
Consider for a moment that GCs rarely self perform. They normally subcontract the majority of the work making their money off the sweat and tears of subcontractors. This is very similar to the way stockbrokers made their money during the gold rush. How much risk does a stockbroker have when something goes wrong? How much risk does a GC have when something goes wrong? Today’s GC is really nothing more than a broker. For that reason, we can call them building brokers.
Building brokers organize a group of subcontractors who build and finance projects. Building brokers use the very best contract forms they can possibly find to protect themselves from liability. In addition, and most important to the building broker, is a contract that binds the subcontractor to the same extent the building broker is bound to the owner. In other words, the building broker wants ironclad subcontracts.
Ironclad subcontracts shift major liability from building brokers to subcontractors. Groups such as the Associated General Contractors of America spend a great deal of money on subcontract forms specially designed to shift risk from the building broker to the subcontractor. How much money have you spent supporting subcontractor associations and how much success have subcontractor associations had in fighting unfair contract language? Has your subcontractor association given you your money’s worth?
A very wise man once said, “Get the truth and don’t ever sell it.” The truth is that we have sold it because we don’t say “no” to unfair contract language; because we think we have to agree or lose the job. We have believed a lie for so long it seems like it’s the truth.
The truth is that none of us have to agree to a paid-if-paid clause. We don’t have to be bound to the owner’s contract. We don’t have to provide primary insurance or agree to the owner’s/GC’s construction change directives, schedules, sequences and change order process.
What now?Grass roots! Let’s take the paid-if-paid issue by itself and consider the fact that if the building broker doesn’t get paid, the building broker is not contractually obligated to pay the subcontractor. What would happen if we subcontractors together decided to exclude agreeing to the paid-if-paid clause when we bid a job? If all of us would refuse the paid-if-paid clause the building broker would have few choices if the broker wants to bid the job. The same would apply to primary insurance endorsements and so on. These unfair one-sided issues can be stopped if subcontractors did it together.
Our current subcontractor associations have not made a dent in these major issues and I don’t hear any noise that would lead me to believe they are working at it. I think it’s going to take a grass root effort by subcontractors in local areas. Labor unions may be complicated, however, strong labor unions in local areas make no bones about how things are going to be. Labor unions are a good example of what can be accomplished when a group is united.
A united subcontractor association focused on fair contract language at local levels may be the best way to combat the broker mentality. Remember the very wise man who said, “Get the truth and don’t ever sell it.” E-mail firstname.lastname@example.org if you know who this wise man is, or post the answer on the Walls & Ceilings bulletin board at http://www.i-boards.com/bnp/wc/.
Consider how much money Wall Street brokers and the media made from our recent stock market gold rush by keeping the deception and the hype going at our expense. Remember, they didn’t get the name broker for nothing. Or did they?
Remember: Teamwork begins with a fair contract!