AGC Drafts New Subcontracts

Kegler Brown Construction Newsletter

AGC has apparently abandoned the AGC 640 model subcontract that it jointly endorsed with ASA in 1994. Instead, AGC has recently promulgated its new AGC 650i and 655i forms. The AGC 655 form is a "pay if paid" subcontract.

In addition to the obvious concerns expressed by subcontractors to such "pay if paid" language, these subcontracts contain many other provisions troubling to subcontractors.

  • For example, the subcontract contains the "flow down" burdens and obligations imposed by the prime contract but no "flow down" of the contractor's rights and benefits with the owner.
  • The unknown condition or differing site condition clause differs materially from the similar clause in the AIA A201 document. In addition, certain design delegation protections found in the recent AIA A201 1997 revisions are missing for the subcontractor.
  • A subcontractor is only going to get a time extension or compensation if the contractor receives one from the owner for owner caused delay.
  • If the sub does not provide a bond, the contractor is allowed to hold retainage against the sub for satisfactory work in excess of the retainage held by the owner for this work.
  • If the owner terminates the contractor for cause, the sub can only recover to the extent the contractor recovers from the owner on the sub's behalf — an unlikely proposition when the contractor has defaulted!
  • If the contractor suspends work for his convenience, the sub's right to additional time or money is conditioned upon the contractor's recovery from the owner — again an unlikely event in that circumstance.
  • If the contractor wrongfully terminates or suspends the sub's performance, the sub only is to receive payment for the work in place, and no lost profits on the unperformed work.

In short, the AGC 655 contains "pay if paid" and other provisions potentially disastrous to subcontractors. Even the 650, which has a "pay when paid" clause, contains the same problems absent the "pay if paid" provision. While both subcontracts may be marginally better than many proprietary forms currently being used by many general contractors in the industry, they are much less equitable than the AIA A401 or the AGC 640 form for that matter. We also believe that they are less favorable to subcontractors than the old AGC 600 form.

A review of the AGC 650 reveals that it goes much further in diminishing subcontractors rights than simply making it consistent with the new AIA A201 General Conditions, as apparently argued by AGC. Subcontractors should be cautioned to carefully review and revise this document or, in the alternative, avoid it altogether.