Five Mistakes Subcontractors Commonly Make Before Signing Construction Subcontracts
By : Kevin N . Tharp - RBE Partner
Construction subcontractors assume a tremendous amount of risk with each subcontract that they sign with a prime contractor . While much of that risk cannot be avoided , there are some risks that subcontractors can reduce ( if not eliminate ) by avoiding the following mistakes prior to signing their subcontracts .
1 . They Do Not Receive a Copy of the Prime Contract
Subcontracts often include a provision stating that the subcontractor is bound to the prime contractor on the same terms that the prime contractor is bound to the owner ( commonly known as the “ Flow- Down ”). A subcontractor can only know — and abide by — the prime contract terms if the subcontractor obtains a copy of the prime contract before the subcontract is signed . For that reason , upon request , a prime contractor should promptly provide a copy of the prime contract ( which may be redacted to protect confidential information , such as the prime contract price ). If the prime contractor declines to provide the prime contract , the subcontractor should reconsider whether to do business with that prime contractor .
Too frequently , subcontractors negotiate , sign , and perform their subcontracts without ever seeing the prime contract . Years ago , one of my clients served as a replacement subcontractor on a large commercial project . Construction was well underway when my client became involved with the project . When I asked the prime contractor for a copy of the prime contract , the prime contractor agreed and stated that none of the other subcontractors — who were onsite performing large scopes of work for which they were charging seven- and eight-figure sums — had asked for a copy of the prime contract , without which the subcontractors could not possibly know all the risks they had assumed .
2 . They Do Not Attempt to Negotiate
Generally speaking , construction subcontractors do not enjoy much leverage in negotiations with prime contractors . This frequently leads subcontractors to conclude that it is a waste of time to negotiate the terms of the prime contractor ’ s standard subcontract , so they do not try . This is a mistake for three reasons .
First , the prime contractors ’ standard subcontract terms are often onerous , and they know it ( even if they are not willing to acknowledge it ). The prime contractors may be willing to soften some of the more onerous terms if the subcontractors ask . As the adage goes , “ If you don ’ t ask , the answer is always ‘ no .’” Second , suppose the subcontractor has a copy of the prime contract in hand . In that case ,
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Riley Bennett Egloff LLP - July 2021