As a subcontractor, you need to appreciate that the subcontract you (more than likely) sign is going to have you bear risk associated with furnishing manpower to maintain the prime contractor’s schedule and progress. A subcontractor can factor some of this risk into the lump sum amount it agrees to in the subcontract. But, from the general/prime contractor’s perspective, it is very important that this risk is borne by the subcontractor because there is no such thing as a schedule written in stone. The baseline schedule, whether attached to the subcontract or not, will change. Activities will be re-sequenced. Activities will be added. Activities will overlap. Activity start dates and finish dates will change. It is the nature of construction. As a subcontractor, you know all of this because it is the same no matter the project. Schedules are never written in stone — they change on a regular basis.
The subcontract will include a number of provisions that address the schedule, the prime contractor’s discretion to adjust the schedule and supplement the work, and the subcontractor’s requirement to maintain progress. These are provisions that shift risk to the subcontractor including:
- The subcontractor will furnish all manpower to complete its scope of work;
- Time is of the essence with respect to the subcontractor’s performance of its work;
- The prime contractor has the right to decide the time and order of various portions of the subcontractor’s work;
- The subcontractor must prosecute its work in a prompt and diligent manner and at such times as the prime contractor directs;
- The subcontractor must keep itself thoroughly informed as to the overall progress of the project;
- The subcontractor must not delay, hinder, or interfere with the progress of the project;
- The subcontractor must notify the prime contractor within “X” days after the occurrence of the circumstances giving rise to a change (or delay) or else waive such claim for additional time or compensation;
- If the subcontractor fails to furnish sufficient manpower or prosecute the work with promptness and diligence, which is not corrected after “X” days after receiving notice, the prime contractor can declare the subcontractor in default, supplement the subcontractor, terminate the subcontract in whole or in part, and/or complete the subcontract work at the expense of the subcontractor;
- The prime contractor can withhold payments if the subcontractor is unable to comply with subcontractual obligations, perform its work, or is delaying or is in reasonable danger of delaying the work; and
- The subcontractor is required to indemnify the prime contractor for damages resulting from its breaches of the subcontract (which may be an indemnification provision separate from an indemnification for personal injury or property damage claims).
These types of provisions are crafted a number of different ways, are perhaps more onerously drafted, but the intent is the same relating to the subcontractor assuming risk and ensuring the prime contractor has recourse against the subcontractor associated with that risk. (An example of such risk-shifting provisions in a subcontract can be found here.) Again, these are important provisions for prime contractors to include in subcontracts. They are also important provisions for subcontractors to factor in the risk associated with the subcontract amount.
In a recent bench trial, MWH Constructors, Inc. v. Brown and Brown Electric, Inc., 2018 WL 2087687 (S.D.Fla. 2018), a prime contractor sued its electrical subcontractor for breach of subcontract and contractual indemnification associated with the subcontractor’s inability to maintain progress during the construction of a water treatment project. The subcontractor counter-sued for its contract balance. The subcontract at-issue contained all of the provisions discussed above.
During the subcontractor’s scope of work, its president and qualifier died. Thereafter, it began to fall behind schedule and was not furnishing sufficient manpower. There were numerous discussions between the prime contractor and subcontractor regarding the subcontractor’s inability to timely complete its work. It was discussed that the subcontractor needed additional manpower and needed to work on Saturdays to recover lost time. The subcontractor, however, was unable to abide by its commitments. Further meetings were held and notifications were sent to the subcontractor. The public owner notified the prime contractor the job was delayed, the electrical subcontractor was behind schedule, and was threatening to assess liquidated damages. Finally, after the subcontractor was unable to improve its progress, the prime contractor declared the subcontractor in default and supplemented its work with another electrical subcontractor and back-charged the subcontractor for such costs.
Due to the supplementation, the prime contractor paid the supplemental electrical subcontractor in excess of the defaulted subcontractor’s contract balance. The prime contractor also had to pay the defaulted subcontractor’s lower tiered subcontractors and suppliers because the defaulted subcontractor did not pay them (likely because it did not have the cash flow due to the prime contractor withholding contract balance).
The trial court entered judgment in favor of the prime contractor against the subcontractor finding that the prime contractor was justified supplementing the subcontractor in accordance with the numerous contractual provisions. The prime contractor put on evidence at trial supporting the justification in conjunction with its rights under the prime contract.
Of importance, the trial court was not going to rewrite the subcontract or the risks the subcontractor assumed in the subcontract:
Contracts are voluntary undertakings, and contracting parties are free to bargain for-and specify-the terms and conditions of their agreement. That freedom is a constitutionally protected right.
Thus, [i]t is not the function of the courts to rewrite a contract or interfere with the freedom of contract or substitute their judgment for that of the parties thereto in order to relieve one of the parties from the apparent hardship of an improvident bargain.
Rather, the court’s task is to apply the parties’ contract as-written, not rewrite it under the guise of judicial construction.
MWH Constructors, Inc., 2018 WL at *6 (internal citations and quotations omitted).
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.