If you or your company work within the construction industry, whether as a general contractor or subcontractor, and whether in the residential or commercial building market, chances are you already know the Golden Rule – “Whoever has the gold makes the rules.” The project owner dictates the rules to the general contractor who, in turn, dictates those (and perhaps more) rules to its subcontractors. Whether these rules are found in lengthy written contracts or subcontracts or nestled in the fine print on the back side of a purchase order, they are routinely presented as a “take it or leave it” proposition. Those without the gold may then be left with the choice of declining an otherwise good project or accepting the work on the proposed terms and running the risk that they may later regret doing so.
In reality, the Golden Rule of construction projects is not always absolute. General contractors and, particularly, subcontractors often miss opportunities to negotiate better terms for contracts with the players higher up on the project food chain.
Every project owner, and any general contractor that cares about its reputation and the prospect for future work, wants the project completed according to determined specifications, finished on time and within budget. Seasoned owners and contractors also realize that specifications may change at any point during the project, unforeseen problems often cause delays, and budgets frequently don’t match actual costs in the end. In order to protect itself from liability or responsibility for these and other events, he who has the gold (i.e., owner to general contractor and general contractor to its subcontractors) crafts his contract or subcontract to push the liability downstream. While this is understandable and, to an extent, reasonable, it can go too far—and there may be opportunities to negotiate better contracts for all concerned.
Although every provision of a contract has importance, here is a sampling of typical construction contract provisions that may be worthy of extra attention and potential negotiation:
Change Orders: Is there a clear and reasonable procedure that allows for negotiations when someone changes project specifications, or can some, or all, changes be pronounced and imposed “from above”? Is there a reasonable mechanism to determine changes to the costs or project schedule necessitated by changes? Are minimum lead times respected if new or different materials are required?
Delays: Will you be held responsible for project delays caused (at least in part) by other trades? Are there reasonable exceptions made for acts of God, supplier shortages and other causes beyond your control?
Liquidated Damages: Is the deadline tied to owner occupancy requirements or some other date that gives an upstream party (but not you) an extra time cushion? Are subcontractors charged liquidated damages even if the general contractor is not? Is the damage amount reasonable considering the value of your portion of the work, or is it tied to the value of the entire project?
To one degree or another, everyone’s goal of a successful project should motivate contracting parties to establish workable and reasonable project rules and contingency mechanisms. Whether you are a project owner or general contractor that “holds the gold”, or a subcontractor that wants a piece of it, you should not always consider construction project contracts to be “take it or leave it” propositions. Quite often, there is room for improvement that may benefit everyone.
For more information, or for experienced assistance and guidance throughout your construction endeavors, contact a member of the Business Team at the Law Firm of Conway, Olejniczak & Jerry, S.C.