Masonry Magazine August 1999 Page. 11
Subcontractor Claims
Subcontractors often face challenges due to clauses in subcontracts that favor the general contractor. These clauses can significantly impact a subcontractor's ability to recover costs associated with delays, changes, or disruptions.
Subcontractors are often not provided with detailed schedules in bid documents, but are assumed to be "reasonable" by the subcontractor in preparing its bid. The subcontract then arrives with a clause that obligates the subcontractor to "start work immediately when notified by Contractor, at such times as will enable Contractor to fully comply with the main contract, and to perform all parts of his work at the time schedule by the Contractor, which shall be subject to change by the Contractor as deemed necessary or convenient to the overall progress of the project, at no additional cost." This long, grammatically imperfect sentence has the effect of allowing the general contractor to schedule the work any way it sees fit without complaint from any subcontractor. Again, courts have enforced one-sided clause like this to. The subcontractor has no claim for delay, acceleration or impact, as it has agreed to perform the work when directed by the general contractor.
Subcontracts also increasingly contain provisions that require the subcontractors to coordinate the work among themselves. Rather than look to the general contractor for coordination, the subcontractors are to demand compensation for disruptions from the particular subtrade that caused the disruption. Courts have enforced such provisions, although they would appear to remove the general contractor from any coordination responsibility on the job. The prudent subcontractor should either eliminate these provisions during negotiations, or include sufficient management money in its bid to perform the coordination task.
# Pass-through Provisions
A large percentage of subcontractor claims are caused by the owner's actions. Because the subcontractor has no contract with the owner, however, it must make claim against the general contractor. To ensure that such claims are passed through and paid by the owner, general contractors often include pass-through provisions in their subcontracts, such as the following:
In the event of any dispute or claim between Contractor and Subcontractor caused by or arising out of conduct for which Owner may be responsible, Subcontractor agrees to be bound to Contractor to the same extent that Contractor is bound to Owner by the terms of the Main Contract and by any and all procedures and resulting awards made thereunder by the person so authorized in the Main Contract. Subcontractor agrees to be bound by the procedure and final determinations as specified in the Prime Contract and agrees that it will not take any action with respect to its claims pending final determination of any dispute resolution between Owner and Contractor. Contractor shall not be liable to Subcontractor for any greater amount than Oroner is liable to Contractor, less any markups or costs incurred by Contractor.
Such "pass-through" provisions usually restrict a subcontractor's right to recover. They often incorporate the notice provision of the main contract, which may be more onerous on a subcontractor, and restrict recovery to the funds the prime contractor actually recovers from the owner. Some provisions may also require the subcontractor to post security, and allow the general contractor the power to approve the subcontractor's selection of attorneys.
The prudent subcontractor will review these provisions carefully before signing the subcontract, eliminating markup by the general contractor on claims prosecuted entirely by the subcontractor. Clauses that allow the prime contractor to apportion a settlement in its sole discretion between itself and the subcontractor or between multiple subcontractors should also be eliminated.
# Notice
Most contracts and subcontracts require notice of claims if a subcontractor wants to preserve its right to seek additional compensation for a change in the work, or for delay or acceleration. Notice may be required to go to the other party to the contract and/or to third parties. Often, written notice must be provided in 48 hours or less, with a complete description of the claim and the dollar amount.
AIA's A201 form recasts allocation of project risk (Part 1)
The 1997 edition of the American Institute of Architects (AIA) A201 document, General Conditions of the Contractor Construction, includes some important changes in the insurance and indemnification language from prior editions. The changes are significant when compared with current industry practices. Subcontractors will benefit from a more balanced allocation of risk if the changes in the A201 are supported by the industry and become common practice.
A significant change related to liability insurance for subcontractors is contained in Paragraph 1 1.3.3 of the A201, which expressly prohibits the owner from requiring the contractor to include the owner, architect or other persons in the contractor's liability policies by way of additional insured endorsements. Other "flow-down" provisions of the A201 allow the subcontractor the benefit of all rights that the contractor, by the contract documents, has in relation to the owner. Subcontractors should no longer feel automatically compelled to give additional insured status to general contractors, architects, owners and others when it is requested. During negotiations of contract terms, the A201 changes can be stressed as examples of what should be standard practice.
During a January 1999 meeting of the AIA, American Subcontractors Association (ASA) and Associated Specialty Contractors (ASC) Task Group discussing AIA contract documents, it was noted that there is little evidence of a slackening in demands that owners and contractors be named as additional insureds. The demands continue in spite of the prohibition language in the A201 (1997 ed.).