Volume 37, Issue 6, June 2002
The Right Path for Subcontractors to Follow
by Andrew T. Gum
As glazing contractors we are made painfully aware of the risks associated with being a subcontractor on a daily basis. We are asked, and sometimes forced, to sign contracts that put us at a severe disadvantage. One of the most important aspects of surviving, and ultimately being successful in our business, is managing the risk that your company assumes. One area that is often overlooked, and has become increasingly common since the advent of construction management, is the liability associated with hiring subcontractors to perform work for your company. Before we get started with the dos and don'ts of subcontracting, I'm going to ask you to do something that may be a little painful. I need you to think like a general contractor for the next ten minutes. I know it's hard, so to get you through, just remember the pain is temporary.
A Basic Understanding
The first things you need to understand are the hot spots with your construction manager or general contractor in the contract that you have already signed. Chances are that you have already assumed more risk and liability than you are comfortable having. Take the time to identify and understand the indemnity clause and payment terms that you are working under. Also pay close attention to the schedule, liquidated damages, change-order rules, safety requirements and the scope of work. Be sure to check and see if permission is required to sublet work in your contract. If so, you should submit your subcontractors to the construction manager for approval before you sublet any work.
Bidding your Work
Now that you've digested the details of your contract and hopefully taken something for your upset stomach, it's time to bid your work.
A good bidding practice is to have your subcontractors take off the work themselves and to have them bid the project per plans and specifications. The companies with which you work should be specialists in their trade and should have a better understanding of the details that are required to take off a job properly. It is also a good idea to let bidders know the project schedule, whether or not you plan to hold retainage, what the expected payment schedule will be and what type of contract you intend to use. Being proactive with these issues will help you avoid potential conflicts down the road. Remember, you're thinking like a general contractor so make sure you're not assuming the risk for your subcontractors take off.
Writing the Contract
After carefully evaluating your bids, it's time to write the contract. This is where most glazing contractors go wrong. It is absolutely imperative that you use an established industry contract such as an American Institute of Architects (AIA) A401, or an agreement drafted by an attorney. Remember all of the nasty terms and conditions that you agreed to with your general contractor? Unless you contract the work of your subcontractor properly, you could be held accountable for the actions of your subcontractor's workers and the material they install.
For example, you probably agreed to indemnify the general contractor, architect, owner and everyone else in a three mile radius of the job for any damages resulting from the performance of the work performed under your contract. Your caulking contractor is performing his work diligently one afternoon and one of the masons mistakes the freshly applied caulking for chip dip. Later that afternoon he is found face down in mortar and no longer breathing. Since your caulking contractor didn't have a sign up saying not to eat the caulking, the deceased's family promptly sues your company, your subcontractor, the general contractor, the architect and the owner of the building. Unless you had your subcontractor agree to indemnity all of the parties above them, guess what? You could be contractually obligated to defend the parties that you indemnified. I doubt that you have a contingency fund in your project estimate large enough to cover a loss of this nature.
When writing your subcontracts, be sure to communicate the project expectations clearly. Be sure to define the scope of work, warranty requirements, liquidated damages, change order process, schedule, required submittals, billing dates, retainage and the insurance requirements. It is imperative that your subcontractor's insurance certificate meets or exceeds the requirements of the specifications. If it doesn't, your policy will end up covering any deficiencies. If you decide to use the AIA A401, it references the contract documents and includes the terms of the prime contract. Remember, now that we're a general contractor, we need to think like one.
Other Key Elements
It is also good to have your subcontractors submit a schedule of values prior to starting their work on site. The AIA G702/703 is an industry-recognized and effective billing form to have them use. This will help keep you organized and will help to protect you against paying for work that hasn't been completed yet. When handling extra work, be sure to get a price from your subcontractor before the work begins. Using a formal change order form, such as the AIA G701, will help keep your accounting straight as well as maintain a clean and accurate contract agreement.
Here are a few key elements of successful subcontracting to keep in mind the next time you sublet work:
• Treat your subcontractors as you would like to be treated;
• Communicate the expectations of the project in advancep;
• A profitable subcontractor is a good subcontractor;
• Squeaky wheel gets the grease;
• Contract with companies that you can trust and that make your job easier;
• Use a thorough industry-specific contract document. Many of the AIA contract documents are endorsed by The American Subcontractors Association (ASA) and are widely accepted and affordable.
I'm not an attorney (thank God), so consult with your law firm on the indemnification and contract issues. Your insurance agent can also be helpful in determining what type of risks are acceptable and how to protect your company. There are no short cuts for good subcontracting practices. Hopefully you never have to use the protection that proper practices afford you, but done properly, they'll be there if you need them.
Andrew T. Gum is president of Thomas Glass Co. in Columbus, Ohio.
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