A contractor often enters into a contract negotiation or bid process where there is little to no ability to negotiate the terms of the contract. It is for all practical purposes a “take it or leave it” deal. Sometimes, this is a result of the owner’s or prime contractor’s unwillingness to negotiate. Sometimes, this is a result of flow-down provisions that the contractor has no ability to negotiate. Sometimes, the job opportunity is so great it is worth signing on the dotted line despite less than desirable terms. With that said, a contractor can successfully navigate unfavorable terms that may exist in the contract. The key is to identify the pitfalls and train your management and field personnel to avoid them. This is where an attorney can help to review a contract to provide a road map on what to look for to avoid potential dangers.
Knowing the requirements set out in the contract and educating personnel on the procedures are the first steps. If there is a detailed change order process set out, with specific deadlines, the appropriate personnel need to know the requirements up front. Your standard internal practices may not align with the procedure required by your contract or the prime contract. If the prime contract requires a flow-down of terms to all subcontractors, the internal team needs to understand what requirements are non-negotiable and apply to subcontracts. You don’t want to breach the contract before ground is even broken. If the prime contract requires subcontractors to add the owner as an additional insured, then the internal team needs to ensure this is done and include any additional cost in the bid. Identifying these procedures for both accounting and the project managers to follow is half the battle.
Some of the provisions you have agreed to in the contract may have unintended or unforeseen consequences. If the addition of time to the schedule is the result or part of a change order, what does the contract require be provided with the change order? Do you now need to submit certified payroll or is a summary enough documentation? Does the changes clause presume that the change order includes all costs, including unidentified or unknown impacts and delays? No contractor wants a change order to be denied for lack of documentation, poor timing, or a failure to reserve future claim rights. A lawyer’s review of the contract documents can often help your company manage the risks and allow for effective planning.
In the end, the best defense is often a good offense, and following the process set out in the contract to avoid a conflict can be your best move. This is where your legal team can help. These contracts can be large, foreboding, and confusing documents. On the right project, spending time with your lawyer at the beginning of the project to properly understand your contract and to identify potential landmines is far better than spending even more time with your lawyer during or after a project trying to put the pieces back together after stepping on that mine.