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Sub Contract Concerns

 
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Old 02-23-2018, 07:17 PM   #1
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Sub Contract Concerns


Every once in a while I come across a sub-contractor contract from a GC that can be a bit onerous. I'm wondering how often these provisions come up in your jobs and how you deal with them.

1. Subcontractor does not get paid until after the contractor gets paid.

2. Before the subs are paid the GC can require the subs to show that they paid the suppliers and employees (So what does the GC do if the customer wants the subs and suppliers paid before the GC is paid?)

3. Any dispute about the job or payment has to be filed within 48 hours or the sub forego's the right to dispute the issue.

4. No increase in the quoted price will be allowed due to delays unless the contractor is able to collect from the customer for the delay. (What if our delay is due to the GC delay?)

5. Contractor can demand binding arbitration.

6. If a dispute arises for any reason subcontractor shall continue their work on schedule.





Some of these I can understand to a point, but when combined together it makes me wary of this GC. Especially the parts about billing and payment. They all favor the GC which is great if you are the GC. To be honest this appears to be a contract for a multi-million dollar construction project not a smaller project for which we are being asked to quote.


How common do some of you find these terms?
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Old 02-23-2018, 07:45 PM   #2
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Re: Sub Contract Concerns


I’m a General Contractor and I wouldn’t ever present that contract to my subs. I have contracts from them that I expect to have the scope of work and materials they are providing. If there is an issue due to my screwup( of course that never happens) I don’t expect my subs to eat the extra cost.
Most of my subs I’ve had for years and treat them like business partners rather than just some faceless worker. As a result there are seldom problems we can’t cordially work thru. If I was a sub I wouldn’t even consider agreeing to those terms.

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Old 02-23-2018, 07:51 PM   #3
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Re: Sub Contract Concerns


I wouldn't sign it
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Old 02-23-2018, 08:01 PM   #4
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Re: Sub Contract Concerns


Walk Away, politely, but briskly, don't look back.

If the contract isn't reversible, i.e. "golden Rule" it is patently "unfair"

Don't due business with entities who can sue you forever out of tax deductible petty cash.....

These type of GCs designers, and owners will make soup out of your bones to avoid a hunger pang.

Save the toxic verbiage to a word search program to use vetting your possible future GC's contracts down the road, try to identify the source or sadly the cancer of greed sans morals is across the entire management of the pirate contractor. Forgive the perps, maybe, but never forget their actions now when considering future business contracts with any of the toxic principles.

Desperate people sign themselves into indentures and even slavery. Steer clear unless you are literally starving.

Sounds like "loss sharing programs for Subs",
Every provision adds to the Subs' risks with NO offsetting payments for carrying the GC's water....
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Old 02-23-2018, 08:06 PM   #5
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Re: Sub Contract Concerns


No way would I ever agree to that. I have had subs in some jobs and I just watch and make sure they are doing it the way I had it planned and they get paid the day they are done even if I am still working on the project.

I have always stressed the fact that you will get paid no matter what, I will get paid from the customer when the job is done. I will assume the risk of getting stung before I will let any of my help get stung along with me. They are doing me the favor of helping me get it done not helping the customer because I called them in not the customer. That is just the way I view it.

Now if the customer called them in and hired them then that's different but I have never had that happen yet. My customers like the one call does it all.
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Old 02-23-2018, 09:07 PM   #6
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Re: Sub Contract Concerns


Strike through the items you don’t agree to. Or walk.

Many of those terms are SOP in the commercial contracting world. I can’t speak to residential.


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Old 02-23-2018, 09:19 PM   #7
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Re: Sub Contract Concerns


I am both a subcontractor as well as a general contractor on projects. As a sub I wouldn't agree to that and as a GC I would never even ask a sub to agree to that.

With the part about subs not being paid until the GC get's paid, it's laughable but unfortunately not uncommon for stupid GC's to think this is reasonable.

I learned the hard way that this is how some paper guys actually operate. Total BS.
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Old 02-23-2018, 09:36 PM   #8
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Re: Sub Contract Concerns


Just another example that not everyone is necessarily your customer...

Those proviso's open up all sorts of avenues for the GC to play with the money while simultaneously sending you down a dead end avenue...

Dude's got cahones even trying it with a straight face... especially considering proviso #2...

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Old 02-24-2018, 01:22 AM   #9
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Re: Sub Contract Concerns


Quote:
Originally Posted by rtztgue View Post
Every once in a while I come across a sub-contractor contract from a GC that can be a bit onerous. I'm wondering how often these provisions come up in your jobs and how you deal with them.

1. Subcontractor does not get paid until after the contractor gets paid.

2. Before the subs are paid the GC can require the subs to show that they paid the suppliers and employees (So what does the GC do if the customer wants the subs and suppliers paid before the GC is paid?)

3. Any dispute about the job or payment has to be filed within 48 hours or the sub forego's the right to dispute the issue.

4. No increase in the quoted price will be allowed due to delays unless the contractor is able to collect from the customer for the delay. (What if our delay is due to the GC delay?)

5. Contractor can demand binding arbitration.

6. If a dispute arises for any reason subcontractor shall continue their work on schedule.





Some of these I can understand to a point, but when combined together it makes me wary of this GC. Especially the parts about billing and payment. They all favor the GC which is great if you are the GC. To be honest this appears to be a contract for a multi-million dollar construction project not a smaller project for which we are being asked to quote.


How common do some of you find these terms?
Number 3 is never going to fly. Not even in a court.

All the other items are fairly normal.

Item 6) A sub contractor has to keep working when a dispute arises. Otherwise, every time a sub gets a hair crossed he could use small issues to hold up a job where only the sub will benefit. The sub could create fake issues because he is losing money, or maybe he needs to pull off the job to work on another job. When any contractor purposely causes delays for any reason he should expect that his payments will be reduced, delayed and he will be threatened with a lawsuit.

Item 1) I suppose, subs doing small residential jobs expect to get paid up to a few thousand dollars the minute their work is completed. When doing large jobs most subs know they will not get paid until after the general is paid. Most sub contractors know that generals are not the bank that is financing the job. Most generals do not pay their subs until after the general gets paid. I don't blame the general for waiting to get paid because the general should not have to bankroll the job for the owner.

Item 2) I never heard of an owner wanting the general to pay the subs first. To solve the problem with paying the subs at the same time both the general and the subs give the owner a conditional lien release and the condition is based on the general and sub getting a payment that clears the bank. While the owner can write checks to both the subs and the general, most owners write checks payable to only the generals.

Last edited by daffysplumbing; 02-24-2018 at 01:46 AM.
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Old 02-24-2018, 06:52 AM   #10
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Re: Sub Contract Concerns


I couldnt get fast enough away from that GC and that contract...run
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Old 02-24-2018, 08:43 AM   #11
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Re: Sub Contract Concerns


First item would nix it for me. I only had it happen once, and it include if they don't get paid I don't get paid, period. I just laughed it off.
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Old 02-24-2018, 10:11 AM   #12
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Re: Sub Contract Concerns


The sub is contracting with the GC, not the HO... non-performance aside, the GC is on the hook whether the HO pays or not...

It's what makes most of those proviso's BS... the fact that he needs them is a huge red flag...

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Old 02-24-2018, 10:26 AM   #13
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Re: Sub Contract Concerns


so I'm guessing you wouldn't get a deposit
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Old 02-24-2018, 02:10 PM   #14
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Re: Sub Contract Concerns


Thanks for the input. Nice to know my thoughts on the matter are pretty common.

I emailed them back and said I wouldn't sign.
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Old 02-25-2018, 10:46 PM   #15
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Re: Sub Contract Concerns


Those are pretty standard contract terms in public works construction here in Cali. Verbiage is much different but the jist is the same. Not saying you should agree or not, that is on you.

For you residential guys it sounds like end of the world but it’s all geared to keep the job moving along at whatever cost. That being said we alter contract terms all the time to accommodate the subs needs. So negotiation is almost always part to the subcontract process, except for our long time subs, they just sign.


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Old 02-26-2018, 05:20 PM   #16
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Re: Sub Contract Concerns


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Originally Posted by daffysplumbing View Post
Number 3 is never going to fly. Not even in a court.

All the other items are fairly normal.

Item 6) A sub contractor has to keep working when a dispute arises. Otherwise, every time a sub gets a hair crossed he could use small issues to hold up a job where only the sub will benefit. The sub could create fake issues because he is losing money, or maybe he needs to pull off the job to work on another job. When any contractor purposely causes delays for any reason he should expect that his payments will be reduced, delayed and he will be threatened with a lawsuit.

Item 1) I suppose, subs doing small residential jobs expect to get paid up to a few thousand dollars the minute their work is completed. When doing large jobs most subs know they will not get paid until after the general is paid. Most sub contractors know that generals are not the bank that is financing the job. Most generals do not pay their subs until after the general gets paid. I don't blame the general for waiting to get paid because the general should not have to bankroll the job for the owner.

Item 2) I never heard of an owner wanting the general to pay the subs first. To solve the problem with paying the subs at the same time both the general and the subs give the owner a conditional lien release and the condition is based on the general and sub getting a payment that clears the bank. While the owner can write checks to both the subs and the general, most owners write checks payable to only the generals.
So re #1 sub finances the gc but the gc doesn't finance the client? Doesn't make a lick of sense.

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Old 03-01-2018, 07:29 AM   #17
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Re: Sub Contract Concerns


Quote:
Originally Posted by rtztgue View Post
Every once in a while I come across a sub-contractor contract from a GC that can be a bit onerous. I'm wondering how often these provisions come up in your jobs and how you deal with them.

1. Subcontractor does not get paid until after the contractor gets paid.

2. Before the subs are paid the GC can require the subs to show that they paid the suppliers and employees (So what does the GC do if the customer wants the subs and suppliers paid before the GC is paid?)

3. Any dispute about the job or payment has to be filed within 48 hours or the sub forego's the right to dispute the issue.

4. No increase in the quoted price will be allowed due to delays unless the contractor is able to collect from the customer for the delay. (What if our delay is due to the GC delay?)

5. Contractor can demand binding arbitration.

6. If a dispute arises for any reason subcontractor shall continue their work on schedule.





Some of these I can understand to a point, but when combined together it makes me wary of this GC. Especially the parts about billing and payment. They all favor the GC which is great if you are the GC. To be honest this appears to be a contract for a multi-million dollar construction project not a smaller project for which we are being asked to quote.


How common do some of you find these terms?

VERY common in commercial construction, even our contract boiler plates do have clauses that resemble what you described. HOWEVER.. after a recent large build out we actually sub'd for, we only received one payment (progress payment for about 40% of the contract price, by the time that came in, the project was finished), change orders were authorized and when it came time to pay up, this larger out of state company basically gave us the finger, demanded that we sign an unconditional release that was post dated before any payment would be released, of course i said no way, not signing anything... we finished the job, you authorized the CO's.. pay up. this was a 2+m project for a company that does very well on a national level, i wouldnt think they would have a problem paying. we immediately put a lien on the entire building and had our lawyers go to work. I LEARNED ALOT in the next few months... pay if paid clauses were actually found in previous court cases to be against the public interest and therefore deemed unenforceable. what this means is that if your contract does have those clauses in it, the entire clause and whatever paragraph its attached to can be thrown out during court. they shouldnt be put into contracts anymore, i think this has been the case since the late nineties... the problem subs run into when trying to collect, is that these predatory GC's come up with some BS excuse to not pay, legally it gives them the right to withhold the payment. no matter how small, or stupid the reason, all they need is to have a good faith complaint. once they do this, you cant collect damages for breach of contract (by what i understand). the only way at this point is to lien and foreclose, which is also a tricky bitch in itself... the lien cant be for anything outside the contract amount otherwise it will get thrown out, also you cant lien a project until you are 100% done, the dollar amount has to be exact. the lien only protects your contract price and still would takes months to force the owner to pay, if they do at all...

the only way to enforce a contract seems to be to take it all the way to trial and argue your gripes, which means lawyers, lots of money, and lots of time (could be years before its done).

in my personal business, we take on large projects all the time and always get progress payments, and pay our subs on demand regardless of what the contract says. we do have our subs on a 2 week (sometimes 30 day net) in case funds get low and the owner is late on a payment, but 99 percent of the time we pay out within a week of being invoiced. we do require all our subs to submit an invoice, with a conditional release before anything is processed, and our onsite super or PM has to confirm the work is actually complete, and to our standards which rarely ever is a problem.


i always practiced paying subs on time, as fast as i can, but have contracts that heavily protect the company at the same time in case new subs try and swindle us... after this long ordeal i realize that companies that put all that into contracts are the ones to watch out for... its just one big red flag, walk away... striking out the clauses you dont feel comfortable with does nothing. unless you trust that they will pay you, its not worth it. all in all we took a 40+k hit and settled because we couldnt fight anymore, by the time the lawyers were paid we would have spent much more than that, even if we did win.
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Old 03-01-2018, 08:43 AM   #18
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Re: Sub Contract Concerns


isnt it the case the most GC's tack on a percent to a subs price to cover "admin"?
basically they are making a profit managing subs, and they should be responsible for funding- the sub should not have to bankroll the GC.

And the GC should manage his draw from the client to have enough to pay subs.

I had a contract from a GC that stated if the GC did not get paid- for whatever reason, even if it was the fault of the GC, then the GC did not have to pay the subs!! thats ridiculous!! they are the one that hire you, not the client.

just delete the clauses you don't agree with- or don't play their game!
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Old 03-01-2018, 08:59 AM   #19
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Re: Sub Contract Concerns


The simple fact that someone would hand me a contract that said I don't get paid for anything outside of my control eliminates any interest I may have had.
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Old 03-01-2018, 09:00 AM   #20
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Re: Sub Contract Concerns


Quote:
Originally Posted by eastend View Post
isnt it the case the most GC's tack on a percent to a subs price to cover "admin"?
basically they are making a profit managing subs, and they should be responsible for funding- the sub should not have to bankroll the GC.

And the GC should manage his draw from the client to have enough to pay subs.

I had a contract from a GC that stated if the GC did not get paid- for whatever reason, even if it was the fault of the GC, then the GC did not have to pay the subs!! thats ridiculous!! they are the one that hire you, not the client.

just delete the clauses you don't agree with- or don't play their game!
your 100% correct, its called a pay if paid clause... illegal now in California and other states. i mean its a great contract tool for jumping into the business... have the subs float the job, all you do is sell it and make a profit off the subs + your general conditions. pff, who wouldnt wanna do that... zero risk? guaranteed gain? zero responsibility? zero start up capital needed? sounds like a good time.

unfortunately, even if you have a contract and the big guy fails to pay on it, or tries to screw you over... theres not much you can do. if not getting paid on a job will tank your business, then your business will tank and they win. the system is built that way... theres no quick and cheap way to collect from a non paying GC, even the lien process guarantees nothing except MAYBE getting a piece of paper that says they owe you money. remember they still have to write the check...

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