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4 contract clauses subcontractors should never ignore

On Behalf of | Jul 10, 2024 | Business Law

Subcontractors play a crucial role in the construction industry, ensuring that specialized tasks are completed efficiently and to a high standard. However, construction projects often have complex contracts that can lead to disputes if not carefully reviewed. 

Understanding and not ignoring key contract clauses is essential for subcontractors to protect their interests and avoid potential legal battles.

1. Payment Terms

One of the most critical aspects of any subcontract is the payment terms. Subcontractors must pay close attention to the schedule of payments, including any provisions for retainage. Retainage refers to a percentage of the payment withheld until the project is completed satisfactorily. Understanding the conditions under which retainage will be released is vital to ensure that cash flow is not unduly disrupted.

Subcontractors should be wary of “pay-when-paid” clauses, which stipulate that the contractor will pay the subcontractor only after receiving payment from the owner. These clauses can delay payment significantly and place financial strain on subcontractors. Negotiating these terms or seeking legal advice to mitigate their impact is important.

2. Scope of Work

The contract should provide a detailed description of the work to be performed. Subcontractors must ensure that the scope of work is clearly defined to avoid disputes over what tasks are included. Any ambiguities can lead to disagreements and additional costs.

Construction projects often evolve, leading to changes in the scope of work. Subcontractors should understand the procedures for handling change orders. This includes how changes will be documented, approved and compensated. Ignoring these clauses can result in performing additional work without proper compensation.

3. Indemnity Clauses

Indemnity clauses outline the responsibility for damages and liabilities. Subcontractors should carefully review these clauses to understand their obligations in case of accidents or damages. Some contracts may include broad indemnity clauses that expose subcontractors to significant risks. It’s essential to negotiate fair terms to avoid undue liability.

4. Dispute Resolution

Contracts often include clauses specifying how disputes will be resolved. Subcontractors should consider whether the contract mandates arbitration, mediation or litigation. Understanding the preferred method of dispute resolution can save time and legal expenses in the event of a conflict.

Contract disputes can lead to costly delays and legal battles in the construction industry. By carefully reviewing and understanding key contract clauses, subcontractors can protect their interests and ensure smoother project execution.