Negotiating Difficult Subcontract Provisions

Contracts and subcontracts have to be negotiated for every job, and sometimes terms do not benefit subcontractors like contract glaziers. At BEC Conference, Chip Bachara, Florida Bar certified construction law specialist, provided negotiating language and guidance for some of the riskiest subcontract provisions for glaziers and other subcontractors. 

Pay-if-paid 

The challenge. Pay-if-paid clauses in a contract can mean that, should the general contractor not be paid by the owner, the subcontractor will also not be paid. If nonpayment happens, the subcontractor may have no legal recourse against the owner. Essentially, the subcontractor bears the risk of nonpayment by the owner.  

Negotiating tactic. Bachara recommends including language in the subcontract that makes clear that nonpayment should only happen in the case of an issue with the quality or completion of the subcontractor’s actual work. “If the general contractor asks you to share in the risk of owner insolvency, respond that your credit risk is with the contractor,” Bachara says. “You have no contractual relationship with the owner.” 

As an example, Bachara provided the following language for this clause (suggested addition italicized): 

Payments shall not become due to Subcontractor unless and until Contractor receives payment for such Work from Owner and the amount due shall not exceed the amount actually received by Contractor as applicable to Subcontractor’s Work; otherwise, the time when such payments shall be due Subcontractor shall be postponed until Contractor has received same from Owner. Such receipt of payment by Contractor is intended as a condition precedent to Contractor’s duty to pay Subcontractor and Subcontractor accepts such risk; provided, however, Contractor shall not withhold payment from Subcontractor if non-payment by Owner is caused by acts or omissions of Contractor, another Subcontractor, or a third party over which Subcontractor has no control. Contractor may only withhold payment from Subcontractor in the amount Owner withholds from Contractor due to Subcontractor’s failure to meet the requirements of the Subcontract. 

Indemnification 

The challenge. Indemnification clauses shift risk from one party to another. Subcontractors will be asked to indemnify the contractor, owner and architect from liability resulting from the subcontractors’ negligence.   

Negotiating tactic. Bachara again recommends ensuring that what is in the contract indemnifies the contractor, architect and owner but solely based on the performance of the subcontractors or the performance of anyone the subcontractor hires. “You want your indemnification to match your performance. I’ll indemnify you from something I’ve done wrong [as a subcontractor]. … But if it’s somebody else’s problem, I shouldn’t be indemnifying you,” he explains. 

Bachara suggests the following language for the indemnification clause: 

To the fullest extent permitted by law, the Subcontractor shall defend, indemnify and hold harmless the Contractor, the Contractor’s other subcontractors, the Architect/Engineer, the Owner and their agents, consultants and employees (the Indemnities) from all claims for bodily injury and property damage that may arise from the performance of the Subcontract Work to the extent of the negligence attributed to such acts or omissions by the Subcontractor, the Subcontractor’s subcontractors or anyone employed directly or indirectly by any of them or by anyone for whose acts any of them may be liable. 

Additional insured/insurance coverage requirements 

The challenge. It is likely that the subcontractor will have to provide insurance coverage for the general contractor, owner and architect. Sometimes subcontractors are asked to provide insurance for many project players, and to cover liability beyond the performance and work of the subcontractor, or those hired by the subcontractor. 

Negotiating tactic. Bachara recommends limiting additional insured language so that only damage caused by the subcontractor’s work is covered by the subcontractor’s insurance policy and not for all claims resulting from the defective work of other subcontractors or of the owner or contractor. 

If you are providing an insurance policy that also insures the general contractor, be sure that the policy provides coverage for damages caused by your defective work, Bachara explains. “It is okay to provide a policy that names the general contractor as an additional insured to the extent such coverage is for my defective work, but I should not have to pay for [the general contractor] to have extra insurance coverage.”  

He also recommends contract glaziers consult their insurance broker and confirm in writing that the subcontractor has the coverage required by your subcontract.