Signing a Contract is still your Choice
By: Brian P. Deeb
Too often I am called upon to review Subcontracts and General Contracts which contain patently unfair provisions, yet have been agreed to and signed by both parties to the Contract. The majority of these cases are the result of problems that arise because of the very provisions which I would characterize as “unfair” and should have been negotiated and modified (or deleted) prior to signing the contract. When questioned the response is usually the same – “I didn’t have a choice – it was either sign it or I wouldn’t get the job, and I needed the job.”
This scenario is known in legal terms as an “adhesion” contract, where the “weaker” party has no realistic choice as to its terms. However, it is important to note that you do have a choice and that choice is quite often to walk away from a contract which could potentially create a loss for your business or a strain on your cash flow. The necessary element in making this choice is to become educated and informed before such choice is made. You must carefully read each and every provision of the contract you are being asked to sign BEFORE you sign it and understand all of the parameters of each such provision. If you don’t understand the provision, you need to seek competent help from an attorney who can assist you in understanding the implications of such provision and help you analyze the effect on your organization and the overall profitability (and desirability) of the job.
Some of more serious provisions to look out for include the following:
(1) Contingent Payment Clauses: These are still legal if the language in the contract is sufficiently clear. These provide that payment to the Contractor by the Owner is a “condition precedent” to payment becoming due to the Subcontractor. This could have serious consequences for a Subcontractor who has finished his contract and has to wait on final payment due to disputes between the Contractor and Owner which are unrelated to the Subcontractor’s work.
(2) Shifting of Risk for Unforeseen Site Conditions: Again, these are legal if set forth clearly in the Contract. It would provide that a certain party has the obligation to examine the site and be familiar with all conditions which may affect the Work, including subsurface conditions. If this provision is broad enough, and specific enough, a party may not be able to recover any extra monies if unexpected site conditions are encountered.
(3) Delay Damage Clauses: These clauses can be particularly burdensome depending on the scope of reasons for the delay and the penalties for delay. Some provisions would impose delay damages even if the delay was caused by the acts of others if the delay could have been avoided by working in other areas, increasing manpower, etc. With penalty clauses running into many hundreds of dollars a day, a party being subject to such a penalty due to the acts of others could easily watch its profits turn into losses in a very short period of time.
(4) Scope of Work Not Shown on Drawings or Specifications: This is an increasingly burdensome provision which requires a party to perform whatever additional labor and materials are necessary for a complete working system whether or not such materials are called for in the specifications or drawings. This provision is often stated broadly enough to allow owners or contractors to insist upon the performance of what would normally be “extras” under the guise of a “complete, working system”.
(5) Progress Payment Provisions: These provisions need to be studied carefully and, if necessary, negotiated. If the “autonomous” architect has the absolute power to decide percentages of completion with no regard to any standard, cash flow problems could result if materials need to be paid sooner than monies become due under the progress schedule. If the cash flow being offered under the progress schedule is insufficient to meet the cash flow needs of the organization, this provision must be modified.
These are but a few of the many provisions which any contracting party needs to consider carefully in making a choice whether or not to enter into a contract to perform labor or services on a particular project. It may be a painful decision to simply say no and walk away. However, in some instances such a decision may be the very best for your company and for your future business. The choice is yours to make – and yours alone.