DRAFTING OR NEGOTIATING A SUBCONTRACT–QUESTIONS TO CONSIDER

When it comes to drafting and negotiating a subcontract, there are provisions that should be important to you from a risk assessment standpoint.   From the subcontractor’s standpoint, below are questions you should ask, or issues you should consider, as you go through the subcontract.  These are the same questions and issues that are also important to a contractor as the contractor will want to ensure these issues are included in the subcontract.  By asking yourself these questions, you can check to see how the subcontract addresses these issues, and how the risk should be negotiated.  Hopefully, you are working with counsel to make sure you understand what risk you are assuming and those provisions you want to try to push back on.  Asking yourself these questions, or considering these questions, will help you go through the subcontract with a purpose based on the risk profile of the project and certain risk you don’t want to assume.

 

 

  • Prime Contract –> Does the subcontract incorporate the prime contract?  Make sure to request the prime contract since the subcontract will identify the prime contract as part of the Subcontract Documents and will require you to assume towards the contractor the same obligations the contractor is required to assume towards the owner.

 

  • Scope of Work –> What is the scope of work? Is it clear.  Make sure the scope is clear and you understand the scope.

 

  • Drawings –> What are the drawings incorporated into the subcontract? Are these the most up-to-date drawings?  These are the drawings the subcontract amount will be predicated on so revisions to the drawings may result in change orders.

 

  • Schedule –> Is the contractor’s schedule attached? Regardless, what does the subcontract say regarding revisions and updates to the schedule? Does it require you to provide scheduling input?  Does it include a no-damage-for-delay provision that gives the contractor an argument to preclude paying any delay, acceleration, or lost productivity claim?

 

  • Claims Procedure –> What is the required claims procedure? How many days do you have to submit a claim after the occurrence of the event giving rise to the claim?

 

  • Change Order Procedure –> What is the change order procedure? What steps should be taken if a change order request is denied?

 

  • Construction Change Directives –> Can the contractor issue construction change directives if there is a dispute as to time or money with the construction change directive?

 

  • Insurance –> What are the insurance requirements?  Do you maintain this insurance or can you obtain the required coverages?

 

  • Design-Assist –> Are there any delegated-design or design-assist requirements? If so, do you have insurance to cover this risk (which goes with the insurance requirements)?

 

  • Indemnity –> What are the indemnity requirements? Do you have insurance to cover the indemnity obligation(s)?  Does it comply with the law if you are required to indemnify the contractor for the negligence of the contractor?

 

  • Substitutions –> What is the procedure for getting substitutions or deviations with the Subcontract Documents approved?

 

  • Dispute Resolution –> What is the dispute resolution procedure? Does it require arbitration or litigation?  Is mediation a condition precedent?  Are there other conditions precedent?

 

  • Conditions Precedent to Payment –> What are the conditions precedent to payment? Is there a release form attached to the subcontract?  Does it allow you to carve-out items for pending change orders or claims, i.e., items you are not prepared to release?

 

  • Delay Damages –> Does it include a liquidated damages provision or allow the contractor to flow-down liquidated damages? What about the contractor’s own delay damages?  How are delay damages handled?

 

  • Hazardous Substances –> Is there a provision dealing with hazardous substances?

 

  • Site/Unforeseeable Conditions –> Is there a provision discussing unforeseeable site conditions? Or, if it is an existing structure, is there a provision dealing with hidden conditions?

 

  • Attorney’s Fees –> Is there an attorney’s fees provision?

 

  • Consequential Damages –> Does it include a waiver of consequential damages and, if so, does it specify the type of waived damages?

 

  • Force Majeure –> Is there a force majeure clause and how is it worded? Does it address items like pandemics, hurricanes, etc., or is there another provision that addresses these items?

 

  • Escalations and Supply Chain Impacts –> How are material escalations and supply chain impacts addressed?

 

  • Fabricated or Modular Items –> How are prefabricated items addressed from a risk allocation standpoint including delivery, shipment, storage, and integration issues?

 

  • Building Information Modeling or Digital Drawings –> Is there a protocol regarding digital drawings or building information modeling?

 

  • Bonding Requirements –> What are the bonding requirements?  What does the bond form look like?  Make sure it is not an unfavorable form, particularly when it comes to the performance bond.

 

  • Default and Termination –> What is the default procedure?  Is there a reasonable cure period?  What forms the basis of a default and then a termination for default?  Is there a termination for convenience provision and, if so, is there a termination for convenience fee?

 

  • Warranty Period –> When does the warranty period begin? Is there a specific warranty procedure?

 

  • Retainage –> What is the percentage of withheld retainage and does the percentage reduce after 50% completion? When is retainage released?

 

  • Lien/Payment Bond Rights –> Do you have construction lien rights or rights against the contractor’s payment bond?  Do you need information, such as the notice of commencement, to make sure you timely preserve your rights?

 

  • Pay-When-Paid –> Does the subcontract include a pay-when-paid provision?  It probably does which reinforces why you need to know on the frontend whether you have construction lien or payment bond rights.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

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