Lessons Learned #43: A Subcontractor’s Honest Perspective on Contracts

I recently had a very interesting conversation with a subcontractor client who I respect for his business savvy. I was sharing my view on his company’s need to do everything possible to negotiate subcontracts, based on the disproportionate risks that continue to be shifted to the subcontractor’s side of the ledger. If that isn’t bad enough, I added, subcontractors don’t seem interested in using what leverage they have to negotiate with general contractors (other than for price).

It was at this point that my client turned to me and said, “you may not like what I’m about to tell you, but in all honesty, I don’t even read the subcontract language at all, I just have my folks check the scope, then I execute the document.” He went on to tell me that he realizes he is taking on all of the risks of the unbalanced language in the terms and conditions of the subcontract, but he manages his projects from day one to use all of the performance leverage that he has to attempt to get what he needs and ultimately to be paid.

Well, I found his honesty very refreshing. Finally, someone confirmed what I had suspected was the truth about subcontractors and their approach to the contracts they sign!

From my perspective, a subcontractor today that is working on large projects in the “open bid” market is operating in an environment that’s not too different than that of a casino, from a risk perspective. Let’s review the dynamics of the relationship you have when you walk into a casino:

1. They have more money than you.
2. They make the rules.
3. The rules are guaranteed to work in their favor in the long run.
4. If for some reason you represent a threat to them, they can have you removed!

Let’s be honest, that isn’t very far off the mark as an analogy, is it?

By now you may be asking, “what can we do as a subcontractor to make the playing field a bit more level?” There is no question that the business leverage has shifted more heavily in favor of the GCs over the Subs. Furthermore, after decades of following this trend, subs have become accustomed (or resigned) to this reality and its practical effects on contract negotiations. This only makes things worse, since it’s much more difficult for you to try to buck the trend, when others are willing to accept things just the way they are.

Here’s some practical advice for those subcontractors who are willing to make the effort:

  1. Make a list of the top 5 – 10 conditions that you need in a contract in order to reduce your risk of loss from actions caused by others.
  2. Work with a good lawyer or consultant to develop a rider to submit for inclusion in the contracts that you want to sign during negotiations.
  3. Negotiate like a madman with the GCs to accept as many of your top conditions as possible in your contracts.
  4. Properly document everything that interferes with your ability to perform (impacts to scope, cost, or time).
  5. Use any leverage you have during construction to get what you need.
  6. Don’t wait until the end of the job to work out your problems (waiting until the end only guarantees you’ll get the short end of the stick).
  7. If none of the above works for you, give me a call, you’re going to need help!

One last bit of advice, if you don’t like what I have to say in this issue… maybe you should consider GETTING OUT OF THE SUBCONTRACTING BUSINESS, it’s probably not meant for you…

“As long as people are talking instead of fighting, nobody loses very much blood – unless he happens to bite his tongue.” – David Eddings

I was fortunate to visit Mt. Rainier this June while spending time with my son’s family that lives in Washington. It had been 22 years since I visited there (also with my son in 1996). I’ve included a couple of pictures (before and now). 1996_Rainier_Issue_43_photo2

The one with my son was taken very high up the mountain (we went further than we should have gone without hiking gear). Yes, it was mid-Summer and it was that snowy and cold up there.

The more recent picture was taken next to a slice of a tree from the year 1239!

2018-July_Rainier_Issue_43 photo

Unfortunately , the weather was overcast and raining that day, so I could not hike into the mountain as I did in ’96. However, just being there brought back many memories (how time flies!).

— With my best regards to all, until my next issue, Paco.

 

© Farach Consultants, Inc.  •  all rights reserved  •  954.579.5058

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s