Business Owners and Subcontractor Agreements
For many small business owners, a verbal agreement and a handshake used to be the norm. However, subcontractor agreements are becoming more and more frequent requirements for doing business. As such, we at Attorneys Hartman, Chartered want to provide you with some general guidance for reviewing these agreements.
Before considering that guidance, there are two important items to consider. First, while these tips are intended to be helpful in a general sense, no two agreements will be exactly alike as each transaction will have a life of its own. Accordingly, it is always a good idea to make sure you fully understand each agreement you enter into, and that each agreement is tailored in the way that best protects your interests given the particulars of the project.
Second, as each contract will reflect the particular concerns of the project it concerns, it is impossible to list every conceivable consideration. Thus, bear in mind that the below list of considerations is not an exclusive list, and wise business owners should be alert for any other additional items that may be of particular concern to them.
With those caveats in mind, please consider each of the below items when reviewing your subcontractor agreement.
Most subcontractor agreements contain payment contingencies. Make sure you fully understand what conditions must be satisfied for you to get paid for your services. For example, if you are a subcontractor you may not want to agree to wait until the general contractor gets paid before you receive payment, as this sets up a potential scenario where, if the general contractor never gets paid, then neither do you.
Most subcontractor agreements contain insurance requirement provisions. If you are a subcontractor, you will want to make sure the agreement doesn’t require you to have more insurance than your current insurance coverage presently have.
Many subcontractor agreements contain an attorney’s fees and costs clause. Ordinarily, you can’t recover attorney’s fees in a breach of contract action. These clauses may override the general rule, and make it so that the prevailing party in any lawsuit to enforce the agreement may recover attorney’s fees. If there is such a provision, you will want to make sure that it applies to both parties and not just you.
Make sure the scope of work in the agreement is specific to the project. As a general rule, the more general the scope of work defined in the agreement is, the higher the risk you will be asked to do more than what you bargained for. Make sure the scope of work called for in the bid matches what’s defined in the agreement. Also, make sure any specifications (e.g., milestones, timelines) are within your expectations and capabilities.
Considerations to Be Aware Of
- Be aware of any flow-through clauses that might attempt to hold you responsible for any conditions imposed on the general contractor by another party. If there are any such provisions, make sure, at a minimum, you review whatever agreement the general contractor is subject to so that you know what conditions are being applied to you.
- Be aware of any provision that prohibits recovery by you against the owner of the project. Generally, you will want to make sure there is no provision disallowing recovery by you against the owner of the project for delays caused by the owner.
- Be aware of any lien waiver language. Generally, you will want to make sure any lien waiver language relates ONLY to payments that have been made and NOT to extra work to be performed.
- Be aware of any indemnity clauses. These can be extremely important provisions, which generally state that the subcontractor will hold the general contractor harmless from existing or future liability under certain circumstances. If you are ever presented with an agreement that has an indemnity clause, it is extremely important that it be carefully circumscribed to make sure you don’t end up on the hook for something that you should not be held responsible for.
- Don’t ever assume you will be paid for extra work done based on anything other than your right to be paid for extra work in writing in the contract or in an addendum to the contract. Relatedly, be aware of any change order provisions in the agreement. Sometimes, general contractors ask subcontractors to do additional work, and often there are change-order provisions in the contract that do not allow for additional payment for additional work unless there is a writing in place. Whether there are any such provision in the contract or not, you should always act as if a writing is required before doing extra work.
- Pay close attention to any provisions relating to dispute resolution procedures. Often, agreements will specify that arbitration is required, which means that you will not be able to file a lawsuit in the event the contract is breached. These provisions will/should also specify who pays the costs associated with arbitration, what your appeal rights are, whether attorney’s fees are recoverable, whether you are required to continue work while the dispute is being resolved, and what the range of damages might be.
- Be careful of any contingencies placed on you that are outside of your control. For example, if you are asked to perform a task that requires specific items, and the general contractor or project owner is responsible for providing those items, then you must be careful to negotiate terms that do not place the risk entirely on you.
- Be careful of any provisions conferring a warranty from you to the owner or the general contractor. Warranties are fine in a general sense, but there are a number of types of warranties, and each, depending on how they are applied, confer different legal obligations and benefits. It is crucial you understand what you may be liable for in the future before agreeing to it in the present.
- Be aware that some agreements allow for termination by the general contractor of a subcontractor for any reason and/or at the general contractor’s convenience. Make certain that any such provision states that, in the event of such termination, you get paid for any labor and materials you have provided to that point.
- You should also be aware of any liquidated damages provisions. These provisions impose a penalty on failure to specified work, or failure to do specified work within a specific time frame.
As noted at the outset, there are a wide variety of considerations to be made when you are presented with a contract for services, each dependent on the particulars of the project you are engaging in. If you are presented with a subcontractor agreement, or need assistance in preparing them, contact the experienced attorneys at Attorneys Hartman, Chartered for a consultation.
Contact a New Jersey Attorney About Your Subcontractor Agreement Case Today!
Do you have questions about preparing your subcontractor agreement or one that you were presented with in New Jersey? At Attorneys Hartman, Chartered, we have years of experience helping clients with this very task. Call us anytime at 856-235-0220 or fill out our online contact form to schedule a confidential consultation. Our main office is located at 68 E. Main Street Moorestown, NJ 08057.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.