Construction Subcontracts 101

As a subcontractor, you probably review A LOT of construction contracts handed to you by general contractors.  Here are a few tips for your next contract review.

Bare Necessities.  If a general contractor hands you a 30-page contract to sign, you can bet that it’s not full of provisions to protect your interests as a subcontractor.  A long contract may be a sign that the general contractor is trying to push their construction risks down on you.  As a general rule, a shorter contract is usually better for you.  However, you shouldn’t ever skimp on basic terms.  The construction subcontract should, at a minimum, always clearly identify the parties, the project, the scope of work, the price (or method of determining price), and payment provisions.  The scope-of-work provisions in particular is the clear exception to the shorter-is-better rule.  More detail is better because scope-of-work issues are among the most frequently litigated construction issues, and can be difficult (and expensive) to resolve.

Indemnification.  Indemnification provisions where one contractor tries to make another contractor contractually liable for its own liability are likely invalid under Utah’s anti-indemnification statute. [1]  Simply put, Contractor A generally cannot make Contractor B legally responsible for claims of personal injury, property damage, or economic loss caused by Contractor A.  However, there are some limited exceptions, and some allocation of risk can be accomplished through insurance or other provisions, so don’t simply ignore the indemnification (or similarly structured insurance provisions) by assuming they are unenforceable.

Pay-If/When-Paid.  Contractors sometimes try to push the risk of non-payment down on lower tiered contractors through the use of pay-if-paid or pay-when-paid provisions. The result is the contractor doesn’t have to pay the subcontractor unless (pay-if-paid) or until (pay-when-paid) the contractor is paid by the owner.  Outside of Utah, some courts have held that pay-if-paid provisions are unenforceable, but the practice appears to be allowed under Utah law.[2]  If that’s not a risk you’re willing to take, be sure to remove or modify such a provision before you sign the contract.  Pay-when-paid provisions are generally less risky because courts have generally held that they require the contractor to pay within a reasonable time, even if payment is never received from the owner.[3]

Other Specific Provisions – In addition to the specific provisions discussed above, other construction-specific contract provisions to be familiar with include provisions relating to: site conditions; commencement of work; scheduling; changes/change order; delays; completion of work; contract termination; retention; warranties; waivers; payment offsets; back-charging; bonds; insurance and subrogation; mechanic’s lien; damages (including liquidated damages); and construction claims.

If you have any questions, feel free to give me a call.

[1] Utah Code Ann. § 13-8-1.

[2] Utah Code Ann. § 13-8-4.

[3] See In re Davidson Lumber Sales, Inc., 66 F.3d 1560, 1564 (10th Cir. 1995).

Skoubye, Nielson, Johansen Attorneys Salt Lake City Utah

Mark B. Thornton