Subcontractor Issues
Date Posted: March 11, 2016
Posted In: Ideas,
From: Thomas, Feldman & Wilshusen, LLP:
by Richard Gary Thomas,
Thomas, Feldman & Wilshusen, LLP
Dallas, Texas
INTRODUCTION
The vast majority of commercial construction is performed by subcontractors. It has been estimated that subcontractors accomplish between 75% and 85% of the commercial construction in this country. The role of most general contractors in today’s construction industry is that of “brokers of construction services.”
Subcontractors, therefore, provide the majority of labor and materials that builds America. Subcontractors have the most capital invested in a construction project. Thus, it could be argued that the subcontracting industry has more at risk than any other segment of the construction industry. For these reasons, it is not an overstatement to say that subcontractors are “where the rubber meets the road” in the construction industry.
SCOPE OF PAPER
This presentation will identify some of the situations and issues confronted by counsel for subcontractors. Included in the discussion are troublesome clauses often encountered in subcontract forms. The discussion emphasizes situations that often result in disputes. The focus, therefore, is centered upon the time period before the subcontractor’s performance is significantly under way. Because of time limitations, many subjects affecting subcontractors are not covered, such as collecting funds for “extra” work, job site document management, perfecting lien and bond claims, and prosecuting claims for delay and labor inefficiency.
THE AWARD
The first problem commonly encountered by subcontractors occurs shortly after they learn that they are the successful bidder. Usually, the general contractor informs the subcontractor by saying something to the effect that: “you have the job.” Shortly thereafter, the general contractor instructs the subcontractor to proceed with performance by ordering materials and preparing submittals. Sometimes, the general contractor will issue a “letter of intent,” and other times no such document is forthcoming.
Somewhat amazingly, most subcontractors proceed without any definite express contractual commitment from the general contractor. At this point, the legal relationship between the parties is totally undefined, or at least, poorly defined. Both, however, count on the hope that the legal relationship will be solidified at a later date. They conduct themselves as a defined legal relationship exists. The general contractor uses the subcontractor’s bid in determining the contract price between the general contractor and owner. The general contractor relies upon that particular subcontractor to do the job. The general contractor puts “all its eggs in one basket” in the sense that no other subcontractor has prepared to do the work of that trade. If, for some reason, the selected subcontractor does not work on the job, an automatic delay of the project results while the second subcontractor “catches up.”
Likewise, the subcontractor at this stage often contractually commits to purchase materials and equipment from suppliers in reliance upon performing the job. Furthermore, the subcontractor may decline other work because of the anticipated demands of the job. In short, both the general contractor and the subcontractor alter their positions in reliance upon the other, all without a clearly defined legal relationship. This is either any attorney’s dream or a nightmare, depending upon one’s perspective.