10 Commercial Construction Contract Nightmares for Subcontractors to Avoid

1. Thinking That Your Proposal is Part of Your Contract 

If you’re like most subcontractors, after you learn about a project, you’ll get a copy of the plans, spend a lot of time and effort estimating your price from the scope of work, and then submit your bid (i.e. your proposal).  

If later on you win the work, you might assume that the proposal you submitted is part of the contract you’ll sign. 

Most of the time, you would be wrong.

Unless you explicitly make your original proposal part of the Subcontract as an Exhibit, it won’t be.

FIND OUT WHY THIS IS SUCH A PROBLEM >> 

2. Not Understanding the Contracted “Scope of Work” 

Closely related to the problem above is when your Subcontract includes a vague reference to the “scope of work.” In some cases, that’s pretty straightforward. But in others, it’s not.  

For example, perhaps you’re an electrician and you specifically excluded low-voltage work from your bid. Does the “Electrical Scope of Work” in the contract agree? 

If not, you have an issue on your hands. 

Or imagine that your contract includes a reference to “the attached Exhibit B” — which is a list of every sheet of drawings for the entire Project. If there’s a particular detail that falls within your line of work but on a certain drawing that you’re not looking at, you might be held responsible for that.  

In Ohio, documents incorporated by reference into a Subcontract are as good as if they were cut-and-pasted into the Subcontract itself. In other words, you’re on the hook.

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3. There’s No Schedule

When you bid a project, part of your price will be based on how much time you’ll have to perform that work — and perhaps the sequence in which you’ll perform the work.  

Your Subcontract should contain a baseline schedule that matches the conditions under which you bid this job. At a minimum, it should contain the scheduling and sequencing information that’s important to your bid.

If you don’t have a baseline schedule, and later on something outside of your control happens that delays or disrupts your work, you’ll have nothing to base any claim on about how those delays are costing you additional dollars that should be paid. 

In fact, some subcontracts actually say that a general contractor has the right to reschedule or resequence its subcontractors’ work without additional compensation to the subcontractor. 

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4. The Old ‘Pay if Paid’ Clause

In Ohio and many other states, contracts can make your right to be paid for your work conditional, based on whether (or not) your customer has been paid.  

For example, imagine you perform $150,000 worth of demolition work at the start of a commercial renovation project. But then the owner closes its doors, loses its financing, or the job gets shut down by the government. 

If the owner hadn’t paid your customer, and you have a pay-if-paid clause in your subcontract, you have no right to that $150,000.  

Here’s a little secret: There’s a real good chance a clause like this exists in some of your contracts right now.

HERE’S WHAT TO LOOK FOR >>

5. You Waive Your Lien Rights  

In Ohio, every contractor, subcontractor, and supplier has the right to file a mechanic’s lien against the property they improved. These liens can be a helpful way to ensure you, or your company, receive all (or at least some) of the payment you deserve if the job were to fall apart. 

However, with certain contract language, you might forfeit your right to file a lien before your crews even set foot on the job.

In fact, there are contracts stating that not only you will not file a lien on the project, you will ensure that none of your subcontractors or suppliers will ever file a lien. 

This type of language is enforceable in Ohio. And if a contractual waiver of lien rights is paired with a pay-if-paid clause (discussed above), you can really get into trouble.

HERE’S WHY >>   

6. Requires ‘Changes in Writing’ — But You Don’t Get Them

Changes will come up during every construction job. It’s nearly impossible to foresee all events, issues, and conflicts that might happen.  But that doesn’t mean you shouldn’t be paid for the additional work or time lost from such changes.

However, most contracts place limits on when, or how, a subcontractor can change a contract’s price or time. 

Often, contracts will say something like: “Contractor shall not proceed with any change in the Work without the required written authorization…” 

They’ll then add a line like: “Failure to obtain such a Change Order before performance of any changed Work shall constitute a waiver by the Contractor of any claim for additional compensation for such item.”

Sign this and you’ve essentially agreed to working for free if you perform any unplanned work without getting a Change Order first.   

FIND OUT HOW LANGUAGE LIKE THIS COST A CONTRACTOR MORE THAN $1 MILLION >>

7. Places Unreasonable Restrictions on Claims or Changes 

General contractors and construction managers know the law is on their side if a subcontractor doesn’t comply with their contract. Therefore, GCs and Construction Managers will sometimes use unreasonable restrictions on change orders and claims to make it more difficult to comply. 

For example, a contract may state that a subcontractor needs to give notice of any claim for additional cost or time within 24 hours of first becoming aware of the facts leading to the claim. Take longer and the claim is waived. 

Contracts may also state a subcontractor has no claim for delay-related issues, or that a subcontractor’s only relief in the event of a delay is an extension of time (i.e. not compensation for lost time). Depending on the circumstances, both of these types of provisions actually violate Ohio’s Fairness in Contracting Act (O.R.C. 4113.62(C)). They’re illegal. 

Even so, your customer may attempt to enforce those clauses.

LEARN MORE ABOUT UNREASONABLE RESTRICTIONS >>

8. Ties Success in Your Claims or Changes to the Customer  

Let’s say you’ve got a legitimate delay claim for putting in footers and slabs months later than scheduled because of numerous site work issues and delays. 

You notified your customer of the delays and impacts as they were happening (check!), But your Subcontract says you agree to be entitled to additional compensation for a change order or claim only if the Contractor successfully recovers compensation from the Owner.  

Then the plot thickens. It turns out that the delays weren’t related to the owner or designer, nor were they from unforeseen conditions. Instead, they were the result of the construction manager’s mistakes (or the site work sub’s problems). 

Do you think that CM is going to successfully make a claim to the owner for delay-related relief? No. And because your Subcontract ties your right to relief to the CM having a claim honored with the owner, you potentially could get nothing.

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9. Contains Too Broad of Indemnification 

Indemnification means covering or saving one party to the contract from money damages and additional costs, usually caused by the other.  

Nearly all construction contracts have an indemnity clause in them. However, many of them contain indemnification clauses that are far more broad than they need to be — or are even legally allowable. 

In fact, some indemnity clauses require you to cover your customer’s costs, expenses, or claims against them — including claims that were not the result of your negligence. Some require you to indemnify your customer even if that customer is partially, or fully, responsible for the losses. 

Ohio’s Anti-Indemnity statute (O.R.C. 2305.31) specifically bars indemnity clauses that call for one party to indemnify the other for its own negligence. But these contracts are out there.

LEARN MORE ABOUT INDEMNITY HERE >>

10. Contains an Unexpectedly Long Warranty

Subcontractors generally have to warrant their work against defects for a year after completion.  Basically, if part of your work fails during that time, and that failure wasn’t the result of defects or damage caused by someone else, you have to fix it.  

The key question for you, as a subcontractor, is: When does that year start?

According to the American Institute of Architects A201 General Conditions, it’s one year from the completion of your own work.  

Often, however, a General Contractor or Construction Manager’s subcontract form will impose a warranty period for one year from the owner’s final acceptance of the project as a whole.  

So if you’re a subcontractor whose work was performed early on in the project, this means your warranty might go on for two or three years. 

And unless you can prove that damage to your work was caused by others, you’ve basically given your customer a free maintenance bond to return to the project and repair your work until the entire project is complete – even for normal wear and tear.

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