5. No Damage for Delay
Beware of the ‘no damage for delay’ provision. If enforceable, it can turn your viable project into a disaster. This provision places the risk for loss caused by a delay on the downstream contractor.
Even if the delay is caused by others not under your control, you are only entitled to additional time. You are not entitled to any monetary compensation or damages caused by the delay. These contract clauses preventing subcontractors from recovering damages for delay are valid, reasonable or unreasonable if the parties contemplated such conduct when entering in to the agreement. Refuse to accept the provision or increase your bid price to cover the potential additional costs.
6. Termination
Don’t get caught in the termination trap. Although termination is the last thought on your mind when reviewing your subcontract agreement, it’s a potential outcome that can’t be ignored.
Simply put, termination for cause permits an owner or contractor to terminate the contract based upon the default of the subcontractor. On the other hand, termination for convenience allows the owner or contractor to terminate the subcontractor’s services at anytime for any reason at the owner’s convenience.
Where’s the trap? Contractors are reluctant to write in provisions that can be construed as unclear and may require costly litigation to determine fault. So, they avoid these disputes by terminating contracts for ‘convenience’ that are inherently void of definitional ambiguities.
Related: 9 Keys to Success after Winning the Bid
Continuously contemplate termination as a possibility. Consistently address actual costs, delineate their purpose and regularly monitor the percentage of work complete. You’ll need this information to receive compensation should your services be terminated.
7. Arbitration
If there is a dispute between the parties, arbitration provides an efficient method of settlement by a neutral third party outside of court. On the surface, the option for arbitration appears like a no-brainer. However it may be a wolf in sheep’s clothing.
Compared to going through the court system, there are advantages. Arbitration is generally less expensive because it is more efficient and less complicated. It is more flexible because the arbitrators are not held to the same principles as established by the courts.Arbitration hearings are usually conducted in a private setting.
There are drawbacks to consider, though. Fees range between $300 to $600 per hour, the arbitrator’s decision is usually binding with no option to appeal and there’s always the question of the arbitrator’s objectivity. Usually the parties retain the services to help them through the process, adding additional costs. Carefully consider that when agreeing to arbitration, you are giving up your valuable right to litigate in court.
8. Waiver of Subrogation
If an owner suffers a property damage loss and its insurer pays for that loss, subrogation is the legal mechanism that allows the insurer to “stand in the shoes” of the owner and seek damages from those who caused the loss. If the contractor caused the property damage, either by defective work or otherwise, subrogation allows the insurer to sue the contractor to recover the amount it paid to its insured.
In a waiver of subrogation provision, the owner and contractor agree to waive their rights of recovery against each other to the extent the loss is covered by their insurance.
Some insurance companies bar these provisions. You could jeopardize your insurance coverage if you impede the carrier’s subrogation rights. It’s always a good idea to carefully review your insurance policy and communicate with your carrier before agreeing to a waiver of subrogation.
