As a Subcontractor, your most important business relationship is the one you establish with the general contractor. General contractors commonly subcontract the job to several trade contractors. In return, subcontractors rely on general contractors to provide job opportunities.
Let's discuss briefly how to maximize that relationship right from the start.
Do your homework
GCs may request financial and safety reports from subs to make sure their capacity is enough to complete the construction project they awarded. As a sub, you may request similar information to be sure you will work with a reputable GC.
Prepare a strong contract
You’re taking a big risk if you don’t have a contract in place and you start work on a verbal agreement or letter of intent. Also, it is important to cover the solutions for the possible changes in the job in time. Make sure you have a contract in place before beginning any work.
The devil is in the details
It is essential that you take the time to carefully read and understand any contract before signing - including all fine print and legal jargon. This is to ensure that you are comfortable with all provisions and clauses included. If the general contractor is unwilling to negotiate more favorable terms, it might be in your best interest to walk away from the deal. Remember, the general contractor-subcontractor relationship is supposed to be mutually beneficial to both parties involved, which also means that both parties will share some of the risks.
Understand the Clauses in Your Subcontract
There are specific provisions that you should look out for.
Pay-When-Paid Clauses
Be wary of pay-when-paid provisions and do your best to avoid clauses that state pay-if-paid. What pay-when-paid means is that the general contractor doesn't have to pay the trade contractor until the owner pays them. Whereas, pay-if-paid means that if the owner never pays the general contractor, then the subcontractor isn't obligated to get paid either. Ideally, you want a payment schedule that requires you to invoice the general contractor by a specific date each month and that they will pay you within a specified number of days after receipt regardless of whether they have been paid by the owner. This way, you're guaranteed to get paid for your work as long as you fulfill your end of the bargain.
Flow-down or Pass-through Clauses
Flow-down clauses are commonly used in subcontracts and they serve to extend the terms of the general contract to the subcontractor. This means that the subcontractor has the same duties and responsibilities towards the general contractor as the general contractor does towards the owner. You should never agree to a flow-down clause unless you have received and reviewed a copy of the prime contract. If there are any terms in the prime contract that you're not comfortable with, you should ask the general contractor to change or remove the flow-down clause to avoid any unforeseen problems.
Change Orders
Working on a change order without written confirmation from the relevant authority can cause a lot of problems down the line. Make sure you get something in writing before you start any work on a change order. And don't forget to submit claims promptly to the general contractor for any additional costs or time extensions that the revised work might incur.
Indemnification Clauses
These clauses will hold a trade contractor liable for any negligence on the part of the general contractor or others on the job site that you have no control over. The subcontract should only require you to assume liability for your own negligence and not that of the general contractor or any other third party on the job site.
Payment Bonds
As a trade contractor, it's important to be familiar with the payment bond requirements for both public and private projects. If you have to file a claim, make sure you fully document it and notify the surety in writing. Familiarize yourself with any state statutes that may override the conditions in the bond contract for filing a claim.
