Masonry Magazine August 1999 Page. 9
Avoiding
Contract Pitfalls
Contracting, especially subcontracting, is a risky business. The profitability of a project depends on many factors that cannot be controlled: weather, subsurface conditions, the financial strength of the owner or general contractor, to name a few. Subcontractors control risk using different tools, including insurance, safety programs, and diversification. Subcontractors often do not recognize the effect the subcontract has on the risks on the job until too late in the process, when they discover that the subcontract is being used as a weapon to defeat their claims, rather than as an aid to achieving a profitable project. This article identifies some of the pitfalls and how you can avoid them.
Starting Work Without Seeing or
Signing the Subcontract
In today's fast-track world, general contractors or owners often direct subcontractors to begin work before providing the subcontract for review, or before the subcontract is signed by both parties. After beginning work on the site, the subcontract arrives, full of onerous provisions with a directive from the general contractor to "sign the contract without alteration or deletion." Many subcontractors, already concerned with prosecuting the job and believing that they have agreed to the general contractor's form by beginning work, simply sign the contract and move forward.
If possible, never start work without a signed contract. You might not have an obligation to continue when an unacceptable subcontract shows up and may be able to succesfully pull off the job without liability if you and the general contractor cannot agree on terms. On the other hand, an uncertain situation has been created in which the contractor may argue that you have committed to its "standard" contract or to terms that are "standard" in the area. You may have 30 or 60 days worth of labor, materials, and equipment invested in the project, with no ability to receive the first progress payment unless you sign the contract as presented. If you pull off the job without payment, you may be required to sue to recover that investment.
With advance planning you can avoid this situation while still commencing work as requested. When submitting your initial bid or proposal to the general contractor or owner, submit a written bid that sets out the essential terms (price, scope of work, scheduled start and finish dates) and that specifies the contract form that must be used if the general contractor wishes you to perform the work: This bid is conditioned on use of the American Institute of Architects Form A-401 Agreement between General Contractor and Subcontractor, 1987 edition. An order to proceed with the work without a signed contract signifies acceptance of such subcontract form. The general contractor that orders you to start work with a provision like this in its possession is likely to have agreed to your contract form.
Signing the Subcontract
Without Reading It
Astoundingly, many contractors accept and sign the contract presented to them without reading it completely. They may look to see that the dollar amount of the contract is correct and that the correct project is identified, but completely ignore the balance of the contract. Although the "boilerplate" provisions make tedious reading, they contain key provisions that make the difference between making money or losing one's shirt on the project. You obviously cannot negoti-