CONSTRUCTION LAW
As with most business systems, the construction industry is designed to protect those parties who are closest to the source of a money supply- “upstream entities”, e.g. Owners, CMs and GCs. Unfortunately, as a Subcontractor, you are several levels removed from the source of the project financing. If you want the job, you have to sign someone else’s contract, which is undoubtedly slanted in their favor.
So how can Subcontractors protect themselves? The only way to win the legal battle in, or better yet, out of court is to have the same quality of legal resources to prevent and resolve these issues as those upstream entities, but without the same cost. Because Owners, CMs and GCs can use one form of contract with the same terms and conditions for forty different Subs, they can afford to pay the large traditional law firm’s hourly rates to perform their legal services – simple economy of scale. In contrast, each job for a Sub comes with a new contract. The economy of scale benefit just isn’t there for Subcontractors and a Sub would go broke using the traditional large firm to protect itself. Given this limitation, what typically happens is a Sub attempts to guess which issues it should spend money on for legal counsel and which it should not. Unfortunately, without legal training, that’s like betting on a game in which one doesn’t know the rules. Eventually probability catches up with them to their detriment. The key is to find a legal resource that provides you with the same level of legal service as the traditional large firms but without the same high cost. Kane Law Office fills that need.
With today’s economy, the entities upstream of a subcontractor are using all the legal resources possible to structure their procedures to prevent them from having to pay their subs. They can afford to spend hundreds of thousands of dollars on these legal services because the results pay for themselves – by creating situations where GCs and Owners get out of paying the subcontractors. Often, a ten thousand dollar contract revision from a large law firm can save an Owner/CM/GC a hundred of thousand dollars easily when the contract is enforced upon several subcontractors on their project. Subs on the other hand, just can’t afford that same type of legal representation by using large firms.
Trade subcontracts have become more and more one-sided against the Subcontractor. Unfortunately, the Courts still enforce these contracts very literally. Subcontractors that are not willing to take the necessary steps to protect themselves, both in negotiating beforehand and execution the work after signing a contract, will lose money; money that could have been recovered if they were legally prepared.
The key to success for a subcontractor is to use the proper legal services to:
- prevent issues from developing
- mitigate the effects of the issues that couldn’t be prevented
- get paid what you are entitled to and
- avoid paying large legal fees that spoils the benefits of these accomplishments
Typically Subcontractors experience 3 different phases of liability in every project:
- Pre-Construction Liability. If you sign a contract without negotiating the terms beforehand, you expose yourself to obligations that could replace anticipated profits with project losses. If you negotiate too hard or on the wrong terms, you are denied the award. Typical contract issues that cause a Sub to lose money in this phase include (i) general terms and conditions, (ii) insurance requirements, (iii) bonding, (iv) warranty initiation dates, (v) missed scope areas, (vi) poor payment terms, and (vii) liability shifting.
- Project Execution Liability. After being awarded a contract, your company is then exposed to a plethora of liabilities in the execution of the build. Issues involving: (i) knowing when and how to give proper notice, (ii) negotiating Change Orders, (ii) defending scope issues, (iii) properly documenting work performed under a directive to proceed, (iv) protection of work, (v) effectively using liens to get paid and (vi) preventing formal disputes.
- Post Construction Liability. Close out is a prime opportunity for an upstream entity to take advantage of a Subcontractor. Backcharges, claims denied for deficient notice, non-compliant warranty issues, deductions for defective workmanship, Owner completion certificates, and retainage payments all create opportunities for lost revenue to a Sub.
The construction industry has changed again shifting more liability and monetary losses to the Subcontractors. Subcontractors who do not recognize and act on the increased need for legal protection necessary to keep their profits will suffer accordingly. Don’t lose any more earned profits to these upstream entities. Call us to discuss how you can afford the necessary legal protection to keep the money you earn.