In the construction industry, general contractors are moving more toward design/build services and construction project management while pushing the risks off on subcontractors. This makes it important for subcontractors to take steps to protect their businesses from schedule adjustments, design changes and hidden contractual requirements. Subcontractors must also make sure they have a mechanism in place to guarantee they will be paid for the work they perform so that they won't have to rely on the mechanic's lien process. The key is to effectively communicate to understand the expectations. Understanding the scope of the project, any indemnity clauses, and how payments will be protected is critical. Here are some things you should do as a subcontractor to reduce the risks you might face on a project.
Carefully Review the Contract
When a general contractor contacts you to perform work on a project, make sure you get a subcontractor's contract in writing. Don't rely on oral promises outside of a contract. Written contracts are generally considered to include all of the agreements between the parties, so you might not be able to enforce oral promises outside of the confines of your contract.
When a general contractor presents you with a proposed contract, take the time to read it carefully. Never sign a contract without thoroughly reviewing it. If there is language included in the contract that you don't understand, it might be a good idea to have your legal counsel review it. You can also negotiate if the proposed contract includes provisions that you don't agree with to try to secure more favourable terms.
Make Sure You Understand the Scope of Your Work
It can be disconcerting to bid on a specific scope of work but then be presented with something different in the contract. This can happen when a general contractor has different expectations than the subcontractor. Knowing when the expectations differ before a contract is signed allows you to define what is expected of you. Being diligent in reviewing your contract is the best way to ensure you know the scope of the job you are expected to perform.
Pay Attention to Payment Protections
Your contract will likely include a payment clause, which is frequently an area of dispute between subcontractors and general contractors. If your contract states that your pay will depend on the general contractor receiving payment from the project owner, you should negotiate to instead be paid for your work when your job is completed. It is difficult for you to check the credit of a general contractor before agreeing to subcontract with them since their financials might not be easy for you to access.
One good way to protect your payments is to ask the general contractor to secure a payment bond. A payment bond is a type of contractor bond that guarantees the general contractor will pay its subcontractors and suppliers for their work and on time. If you require the general contractor to secure a payment bond, it can help you ensure you will be paid without having to get a mechanic's lien against the property.
Know the Safety Requirements
You should also make sure that you understand the safety requirements of a project before you agree to subcontract on it. You will want to ensure the general contractor has policies and procedures in place to ensure its compliance with the safety guidelines from the Occupational Safety and Health Administration (OSHA). You will also want to check to see whether the general contractor is expecting you to be responsible for assuming some of the general contractor's obligations for site safety. If the safety program places more demands on you than you expected, you could face productivity losses or be forced to hire additional employees. Review your contract to identify out-of-the-ordinary safety provisions. You should also make sure to evaluate the site to check whether other subcontractors might be engaging in unsafe practices that could cause potential harm to your team members.
Keep Abreast of Any Changes
Because of the complexity of construction projects, changes and delays are common. Many subcontractors do not receive scheduling information electronically. This makes it important for you to meet with the general contractor on a regular basis to make sure you are fully informed about any changes to the project the schedule. Even if you receive emails from the general contractor, it is still a good idea for you to meet with the general contractor in person on at least a monthly basis. This helps protect you if you happen to miss an email about a change. You will be contractually obligated to know what the plans include as well as any changes that have been made. Keeping track of changes using software programs can help you document your work more easily. Using the available tools can help you keep up and stay current so that you can be more successful in your work.
Make Sure You Understand the Entire Project
Many subcontractors only focus on the work that they will perform under the direction of the general contractor. However, understanding the entire project can help you better grasp how your piece fits in. You can be more valuable as a subcontractor when you understand the whole project because you can then help with the planning process and make suggestions on when your work should start in the context of the larger project.
Mitigating risks involved with subcontracting on a large construction project is critical for subcontractors. Reviewing your contract carefully, being willing to negotiate key terms and provisions, and requiring the general contractor to secure payment bonds can help protect you and your business. While you will want to help the general contractor be successful, you also need to be mindful of the need to protect your business interests. By taking steps to reduce risks, you can help create a more equitable work environment when you subcontract on a large construction project.