Key Subcontracting Issues

Association of Construction and Development
February 11, 2013 — 3,656 views  

The field of construction is a complex one. In large scale or medium scale construction projects, owners hire contractors to finish the job and deliver a result. In this process, the prime contractor further enlists the services of a sub-contractor to finish specific jobs like plumbing, dry wall installation, or electrical wiring. The interaction between the three parties is governed by the terms of the contract signed between each other. Thus the contract takes prime importance.

While the owner and the contractor interact directly, the interaction between the owner and the subcontractor must happen through the contractor. Due to this gap in communication, there are a lot of issues that arise and may affect the business of both the contractor and the subcontractor. Hence, the subcontract between the prime contractor and the subcontractor must be drafted in detail and with utmost care.

Important issues in a Subcontract that Need Attention

Discussed below are some of the key subcontracting issues faced by both contractors and subcontractors, which can be avoided by addressing such aspects of a subcontract more carefully.

1. Subcontract type: The prime contract between the owner and the contractor may be time and materials type or fixed-price type but it is noteworthy that the subcontract type is negotiable. This can be drafted to be beneficial, and meet the specific needs of different projects. 

2. Compensation: Though this matter is addressed in the cost proposal, to evade confusion, it must be enlisted in subcontract agreements as well.

3. Payment: There are various modes of payment for the services rendered by subcontractors. The most suitable form of payment can be agreed upon to suit the needs of specific projects.

4. Management of the project: This section of the subcontract states how the personnel will be supervised, who will supervise, and how the project will be managed. One must ensure that special attention is paid to this section as this is where most misunderstandings between owner, contractor, and subcontractors arise.

5. Dispute resolution: This is another important section that needs to be drafted carefully keeping in mind the exact parties involved and the methods that are most suitable to resolve disputes. Disputes may arise between the owner and the subcontractor or the subcontractor and the prime contractor.

6. Liability for owner back-outs, weather problems, etc.: Deciding who assumes responsibility in the event of external delays and problems is also a key area of a subcontract.

7. Performance delays: The subcontract must address who takes responsibility for performance delays on part of the subcontractors.

8. Error correction and work acceptance: These areas must also be addressed carefully. The subcontract must clearly assign the responsibility for error correction and on what grounds the work can be deemed complete.

9.  Termination of work: These issues must also be taken into account. Work stoppage and termination of work can become just as problematic as any other disputes.

Note that the subcontract will supersede the teaming agreement, and ensure that all important areas of the teaming agreement are incorporated in the subcontract agreement as well.

Safeguarding your Business

Careful consideration of the above-mentioned aspects will ensure that both contractors and subcontractors face minimal hassles in the work process. A well-drafted subcontract is vital to ensure that you have legal protection, should problems arise. Be cautious about new terms that may impose different obligations, and remember that a legal review is always beneficial before accepting any terms and conditions of a subcontract agreement.

Association of Construction and Development