Masonry Magazine August 1999 Page. 10
Key contract provisions to carefully review include:
a. Incorporation by Reference
An incorporation by reference clause makes all or a portion of some other document a part of the subcontract. That other document becomes binding on you as if it were your agreement, although you surely did not sign it, and may in fact have never even seen it. You should certainly obtain a copy of all the documents to which you are agreeing before signing the subcontract, and certainly before signing work. This is because the prime contract may have notice provisions that bar claims for extras unless submitted in a certain format or by a certain date.
Most subcontracts provide that in case of conflict between the subcontract and the general contract, the subcontract will control. However, some subcontracts provide that in case of conflict, the general may decide in its sole discretion which contract governs. Such provisions unfairly give the general contractor room to pick the rule that suits it after the parties have acted. Furthermore, a subcontractor cannot comply with the rules if the general contractor can change them after the fact.
b. Payment Clauses
Most subcontracts contain either a "pay-when-paid" or a "pay-if-paid" clause. These clauses provide that the subcontractor is entitled to payment only after the general contractor receives payment from the owner. The language of the particular payment clause is critical. Clauses that provide for payment to the subcontractor within a specified number of days after the general receives payment from the owner are generally interpreted to control the timing of payment, not the entitlement to payment, despite the fact that the language implies that subcontractor has to wait until the prime contractor is paid. Instead, courts generally hold that the subcontractor is only required to wait a reasonable time for the general contractor to obtain payment from the owner before the subcontractor can demand direct payment from the general contractor.
In contrast, clauses that state that payment by the owner is a condition precedent to the general contractor's obligation to pay the subcontractor, or that indicate that the subcontractor is relying solely on the owner's payment to the general contractor are different. Courts find that such "pay-if-paid" clauses shift the risk of nonpayment directly to the subcontractor. The unlucky sub is simply out of luck if the owner becomes insolvent, even if the general contractor remains financially viable. The difference between "pay-when-paid" and "pay-if-paid" clauses is therefore subtle but crucial.
c. Scheduling/Coordination
Scheduling provisions may be one of the biggest traps for subcontractors. Project durations are
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10 MASONRY- JULY/AUGUST, 1999