Negotiating Equitable Subcontracts on Behalf of Subcontractors
Kegler Brown Construction Newsletter March 1, 2017
Leveling the Playing Field
Frequently, owners are imposing one-sided contracts upon contractors who then force subcontracts with language at least as one-sided, or worse, upon their subcontractors. Unfortunately, none of the parties typically discuss the nature of the contract to be agreed upon until after there has been an agreement upon the scope of work and price. At that point, it is increasingly difficult for a subcontractor to withdraw because of inequitable contract language, and this often leads to contentious relationships at the very start of a project. Subcontractors can employ several simple strategies to minimize this risk shifting down the “construction food chain” and encourage an equitable sharing of the risk.
Use Conditional Bids
One way to avoid this unpleasant experience of receiving an inequitable subcontract “after the fact” is for a subcontractor to condition his bid upon acceptable contract language. An example of such a conditional bid might be:
- “This bid is conditioned upon the use of the ConsensusDOCS 750 Subcontract.”
- “This bid is conditioned upon the use of the ASA Addendum to Subcontract to qualify the terms of any specified subcontract form.”
ASA also has a comprehensive Subcontractor Bid Proposal available online (asaonline.com) to its members that sets forth conditions necessary to protect subcontractors.
These conditional bids are particularly crucial for subcontractors who are otherwise bound to their bids, when relied upon by the successful contractor who is awarded the job, even if faced with inequitable subcontract language later. A subcontractor who conditions his bid (upon the ConsensusDOCS 750 subcontract or acceptable subcontract language, for example) can force a general contractor to decide “up front” whether to use that subcontractor or not, based upon not only the price but also the contractual risk assumed in the subcontract.
If the general contractor elects to use the subcontractor’s qualified bid, he will not be able to force unacceptable one-sided subcontract language upon the subcontractor later, and the subcontractor will maintain leverage in those subcontract negotiations. Increased demand for good subcontractors with a strong labor pool has recently assisted the knowledgeable subcontractor in those negotiations.
Encourage Use of the ConsensusDOCS
For too long, the industry has been driven by conflict that begins when the owner puts one-sided contract documents out for bid and then the contractor sends a subcontract at least, if not more, one-sided to the subcontractor, and so forth, all the way down the “construction food chain.” It has been a lot easier to draft unfair, risk-shifting contract language, than it has been to seek cooperation and fair terms from the construction team to ensure a timely project, on budget, and with a fair profit for those doing the work.
While trade association forms have traditionally been less onerous than proprietary contract forms, each group publishing the form has had its own member’s best interests in mind, and often little else.
This was the situation in the industry when many of the major construction trade associations, including groups as diverse as AGC and ASA, got together with other associations in a collaborative process that culminated in the ConsensusDOCS. Those diverse groups agreed upon a model subcontract form – the ConsensusDOCS 750. ConsensusDOCS has also published dozens of other construction documents for almost every situation.
These contract documents have been endorsed not only by ASA and AGC, but by over 40 construction associations representing owner, surety, contractor and subcontractor interests, and have been drafted in the best interests of the project.
It is refreshing to have so many different groups agreeing to fair documents reflecting best practices, not simply the lowest common denominator or a form that protects its own members at the expense of others.
ConsensusDOCS is attempting to usher in a new era of collaboration and consensus to a challenging and evolving industry by encouraging all to manage the risk they control in a cooperative way with all members of the construction team. The ConsensusDOCS are an important tool available to advance the cause. More information concerning ConsensusDOCS can be found at consensusdocs.org.