As a subcontractor, you put a lot of time and hard work into bidding a project. While you may never get most of them you bid on, in tough economic times like these, you bid more and get even less. After having dozens of bids out there, the phone call comes in and you find out you are the lucky bidder; you feel elated and high five those around the office-for about a minute. Then reality sets in, and you ask yourself, “What did I miss?” Even if you bid the job and did not miss any square footage, there is still a huge danger lurking to kill you: those Killer Klauses.
Contract agreements between the general contractor and subcontractor are a hammer-and-nail scenario. I will give you one guess to which party is the nail and which is the hammer? This is not to say all contracts are one-sided but many are, particularly the larger general contracting firms. As a small subcontractor, you want to do their work but you better beware and mind your P’s-and-Q’s. Many subcontractors are great tradesmen but lack the business skills to survive in this environment. If you want to survive and grow, you have to learn to navigate the pitfalls and unfortunately some contracts you may sign could contain Killer Klauses. You will be tempted to sign, but this could be the end of your firm before you even get started.
Remember the basic premise: You bid the work based on a set of plans, what they told you or some other directions provided. They then call you and offer your firm the chance to do the work. The key word to note is “offer.” There is nothing wrong with making a counter offer, either. This is just business and while some people would like you to believe that their contracts are gold and unalterable, this is simply not true. They are not holy relics not to be discussed or touched by human hands. It is simply an offer with various terms and conditions. Many subcontractors forget that the reason the general has selected you is based on a variety of factors, not the least of which is a lowest price from a qualified bidder. You have already bid cheap-do not let the bad clauses take you down.
A few of the Killer Klauses for the subcontractor to watch for are listed below:
- Paid “if” paid
- Agree to be bound to a prime contract that you never get to see
- Personal guarantees
- Indemnification (even if it is their fault)
- Right to alter the schedule at no cost to the owner
- Dispute resolution terms
- Unreasonable change order procedures
- Reasonable productivity
- Fixed costs on materials, insurance, etc.
- Accessibility to the worksite
- One time move-in and set-up costs
- Length of project
Do not be lulled into believing you are the only subcontractor that questions the conditions of an unfair contract. Do not believe it when you hear “that will never happen” or “our attorneys say that clause has to be in the contract.” Be willing to walk away. Do not forget, they want you at that price. While the general may look like Santa Claus with gifts, this bag may contain a present you did not bargain for.