Lessons Learned #24: …and Vice Versa

If you are a subcontractor, one of the biggest challenges you face is being able to negotiate a fair contract. Let’s face it, a general contractor has substantially greater leverage when the time comes to negotiate the deal.

Whether it’s the fact that they have a large share of the market, or that they are higher up in the “food chain”, or that there are many more competitors at the subcontractor level, general contractors have a built-in edge in negotiations.

I found myself thinking about this recently, as I reviewed a subcontract which was very one-sided, and about as “unfair” in key areas as I have seen. If my client (the sub) experienced delays or changed conditions (even if not his fault, or caused by the general contractor’s negligence) it appeared that he would have no right to any remedy.

Unfortunately, many subcontractors have adopted the belief that it doesn’t pay to try to negotiate better contracts. They seem to sign them “as-is” (lopsided as they may be), without reading them closely, either unable or unwilling to invest the effort to create better terms. They trust or hope that through their personal efforts they can somehow endure through the difficulties that will inevitably arrive. They genuinely believe that they will overcome the unfairness in their agreements by relying on their “good relationship” with key individuals on the other side.

My experience has confirmed that marketing, personal relationships, and good will don’t go very far when the going gets tough and the contract language is pulled out for reference, as is the case in disputes involving anything that is not “trivial”.

Given these realities, a subcontractor would be smart to think in ways or to adopt methods that might be considered “outside the box” in an effort to obtain some fairness in his business dealings.

While thinking about this topic, I remembered a situation that occurred many years ago, when I was trying to modify some “very tough” terms in an agreement. After much debate with the other side (who had drafted the agreement) and listening to their attempts to interpret what the language “really meant”, my attorney came up with a very interesting “outside the box” suggestion. He took out his pen, and in a very elegant, and concise way added the following words at the end of the section we had been debating, “…and vice versa.” It caught everyone by surprise! He explained that we would accept whatever the terms were, as long as the same terms applied equally to the other side. I recall that at that point there was a change in everyone’s thinking, which allowed us to come up with a much better agreement as a result.

From my perspective, this unfairness is at the very core of the majority of the contract/subcontractor conflicts with which I have dealt during the past 37 years in the industry. I also suspect that grossly unfair contracts are an underlying factor in most of the losses incurred by subcontractors (and by general contractors in the case of one-sided owner contracts).

If you’re a subcontractor, signing a bad subcontract without negotiation of the clauses that could allow you some relief when legitimate problems arise, is like going into the boxing ring with both hands tied behind your back and expecting to emerge in one piece after 15 rounds. The odds are heavily stacked against you!

As a general contractor, the practice of forcing subcontractors to enter into lopsided subcontracts without any relief will result in lack of cooperation, additional problems during construction, and might give you a bad reputation which can work against your long term success.

“A fair contract provides the fertile soil to nourish the teamwork and cooperation so vital for a successful project” – Paco Farach

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