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Lower your subcontracting risk

December 6, 2016

risk-in-businessYou already know that your bids are crucial to your business. But did you know that just one sentence in your bids might lower your risk as a business owner and subcontractor?

Subcontracting: A risky business

All levels of construction have risk, from timelines and safety to quality and installation practices. As a business owner, you take on even more risk when you buy materials, send your crew to a job site and begin billing for your time with the expectation you will get paid for it. So what happens if the general contractor says he cannot pay you for your work because the building owner did not pay him?

You can potentially reduce this kind of risk by adding just one sentence to your bid, making your bid conditional. “I don’t know why a contractor would not take the time to do this. A conditional bid is just one sentence with a lot of benefits,” says Don Gregory, director and chair of Kegler Brown’s Construction Law Practice, based in Columbus, Ohio. He also is the General Counsel for the Association of the Wall and Ceiling Industry.

According to Gregory, you should state in your bid that “The bid is conditioned upon the use of the Consensus DOCS 750, AIA A401 or other acceptable subcontract language.”

With these forms, you will ensure equitable contract language including that: your bid is accepted once you begin the work; a change in material price by 5 percent or more warrants an equitable adjustment; you are not required to name additional insureds; you create favorable payment terms; you are entitled to equitable adjustments for modifications to the schedule for delays beyond your control; you are entitled to rely on contract documents; and lien waivers exclude retainage and unbilled changes or claims.

Get a seat at the table

Gregory notes that adding this language gives you a seat at the negotiation table instead of allowing everyone else to dictate the contract and project risk. If you get push back from a general contractor, Gregory suggests pointing out that contracts, by nature requiring give and take, do not work well when they are one-sided.

This language also elevates you to a higher level, showing that you read your contracts, stand behind your work, and are committed to each and every project. Gregory says: “You can explain to a GC that if he expects you to strictly comply to the plans and specs, you are going to pay attention to the details in the contract, as well. Some of the competition will not.”

There might be some general contractors who will not accept these terms, and you will have to decide if you are going to walk away from the job. That decision, in the end, is up to you. It ultimately is the definition of risk. One option that may help is to have two prices—one for subcontracts with less risk and one for more risk. Gregory believes that people in the industry have to be sensitive to the risk that they are being asked to assume and how that risk should be fairly priced.

General contractors and subcontractors are regularly balancing risk. The successful subcontractor knows how to fairly balance his risk to fairly reflect the return on that work.

You can find tools to deal with unfair subcontract provisions at www.asaonline.com or www.awci.org. A bid is your last chance to make the rules, so don’t miss this opportunity.

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