Before you negotiate anything, the first thing you need to do is identify the contract documents. Typically, these include the project manual, the plans and specifications, and the terms and conditions. This information should direct you to the most important terms in your contract with the general contractor. These documents will help you determine if this job is worth investing in or if you would like to negotiate with the general contractor for more favorable terms. The terms of the contract between the owner and general contractor are normally included in these documents as well. If you are a subcontractor, you should ask for a copy of this contract so that you can be informed about its terms and conditions.
Second, the scope of your contract with the general contractor is the next most important thing to take note of. When you bid a project, you have put together a plan or an outline, of what you are projected to do. However, when the general contractor wins the bid, the scope of your contract with them may change. The most important thing you can do once you receive a contract from the general contractor is to check the scope of what the general contractor gave you. This scope could be different than what you originally submitted to the general contractor, but the amount you will be paid may not have changed to accommodate those changes.
The next three topics are specific terms within your contract that you need to be aware of because it could be the difference between a
The terms regarding changes in work are important because they explain how to receive payment for change orders. You want to know who has to approve the change order? Usually, you would submit a change order to the general contractor and the general contractor would get it approved by an owner. However, there may be changes if the general contractor is working under an AIA with an architect, or you are working on a public project. Additionally, it’s extremely important to get any and all change orders in writing and signed by all parties. If a dispute arises regarding payment, a signed change order would be paramount in proving the changes were approved and completed.
Next, the payment terms are important to understand how payments are expected to flow to you from the owner. The general contractor is most likely going to have a pay application for you to fill out. However, you need to be aware of deadlines to submit. Additionally, if you miss your deadline, how do you submit an untimely pay application? Further, this section, or another section close before or after, will denote if you have a payment specific clause: either a pay-if paid clause or pay-when-paid. These two clauses have important distinctions that can determine when and if you get paid. A pay-if paid clause is exactly what it sounds like – your payment is contingent on the general contractor’s payment from the owner. A pay-when-paid clause is a contingent payment term that specifies that a general contractor is allowed to withhold payment to subcontractors until they received payment from the owner. This second clause is not as dangerous, but it could still affect the timing of payment from the general contractor.
Lastly, the termination terms in your contract need to be reviewed. The two most important issues here are termination for convenience and the time-frame for curing a defect. If you have a termination for convenience clause, the language could enable an owner to terminate its contract with their general contractor and not be required to pay any more funds. This is important to note because there could be language that precludes a subcontractor from recovering on work that has already been performed. The timeframe for curing a defect and opportunities to cure is also important to note, so that you know how long you have to fix a problem should one occur. A general contractor generally has to give a subcontractor notice if there is an issue with the materials delivered or services rendered. However, the “cure period” could be begin without you realizing it if you are unfamiliar with the requirements. A general contractor usually has to give you the opportunity to cure, but you need to be aware of the time-frame and the notice period in order to cure within the allotted time.
Next time, we will discuss five more terms to be aware of and negotiate with a general contractor.