3 Contract Provisions to Avoid at All Costs - Webinar

In this blog, presented by SunRay Construction Solutions and Alex Barthet, Principal, The Barthet Firm, you will learn in detail about the three main contract provisions in Florida that should be avoided at all costs.

Why Your Contract Matters?

To put it simply, the reason why your contract matters is because it is the rulebook. It acts as a guiding principle which is supposed to be used by the parties involved. Which is why it is always recommended that your contract should be as detailed as possible. This will help you to quickly understand what to do when certain situations arise.

Also, even though the contract is usually ignored until a dispute arises, you must review and negotiate the contract before you sign up for the project so that you are not surprised with the terms included in the contract when you are mid-way into the project. A key point to remember is that in most cases, the contract will almost always control the outcome of the case.

No Right to Stop Work

Apart from including all the relevant provisions in the contract, there are three contract provisions that should be avoided. Depending upon your role in the construction project, these provisions may either be beneficial or harmful for you. Let’s take a look at the first provision – no right to stop work.

Let us assume that you have the below provision in your contract:

Subcontractor shall diligently proceed with the work during any dispute, even as it relates to payment or changes. The existence of a dispute shall not be grounds for any failure to perform by subcontractor.

a. If you are the general contractor, then this is a great provision because you can ensure that your subcontractor works even if there is a payment dispute. The subcontractor will also have to follow the dispute resolution process which usually involves mediation with a third-party, litigation, or arbitration.

b. If you are the subcontractor, then this provision is definitely not in your favor because you will need to continue working even if you are not getting paid. This is why it is very important to have the right to stop work provision in your contract.

Here is another example of a provision:

Subcontractor can slow or stop work without liability or penalty if it has not been paid its draw request in 30 days after submission.

a. This is a great provision for a subcontractor because they have the right to stop work if they do not receive payment within 30 days of submitting their request. Now, this deadline of 30 may change to 45 or 60; however, the fact is that as a subcontractor you can stop your work on the project.

Since it is not easy to negotiate other payment terms like pay-if-paid and pay-when-paid, the best option is to include the provision which clearly states that the subcontractor has the right to stop work. However, if you fail to add this provision and sign the contract, then no matter what, you will have to continue working on the project even if you are receiving your payments.

Short Notice and No Opportunity to Cure

The second provision that we will discuss is short notice and no opportunity to cure. Let’s look at the provision below and find out how we can fix this.

Should subcontractor violate a provision of this Agreement, or, at any time refuse or neglect to supply a sufficient number of skilled workmen or neglect to supply materials of the proper quality, or fail in any respect to prosecute the work with promptness and diligence, or fail to repair or remediate defective work or materials, or fail in the performance of any of the representations, warranties, or agreements herein contained, contractor shall be entitled, upon one (1) calendar day written notice subcontractor, to provide such proper and suitable labor and materials and to deduct the cost thereof from any money then due or that may thereafter become due to subcontractor under this Agreement, or at the election of contractor, terminate the employment of subcontractor.

a. What this provision means is that if you as a subcontractor do anything wrong, then the contractor can give you one calendar day notice to supplement your forces, hold your money, or terminate you.  

b. It is impossible to successfully cure an issue in a day which means that you don’t really have any substantive rights.

Here is how you can fix this provision:

Contractor shall provide subcontractor ten calendar days detailed written notice to cure any performance issue or delay or claim or before any payments are delayed or held back or any amounts are chargeable to subcontractor.

a. The intent of this provision is to basically ask the other party to slow down.

b. The contractor needs to provide a detailed, written notice of what exactly is wrong and then give you 10 calendar days to cure that issue.

c. You are basically asking the contractor to give you sufficient time to fix the issue before you are back charged, or your forces are supplemented, or you are terminated.

These provisions are also effective if you are a sub subcontractor, and you have a contract with the subcontractor.

Acceleration

The third provision that we are going to discuss is the unilateral right to accelerate. Here is a sample provision:

Subcontractor shall accelerate, decelerate, stop, demobilize, and remobilize its men and materials (and the men and materials under its control) to maintain the project schedule as amended by the owner, prime contractor, or contractor, all of which shall be included in the Agreement price.

a. What this means is that the owner, prime contractor, or contractor can for example ask you to remove everything from the project site for the next three weeks and then come back and six weeks later they ask you to do the same, or they ask you stop working on a certain floor and start working on another floor, etc.  

b. What they are effectively doing is controlling the ability and the means and methods of your production in a way which may neither be convenient nor cost-effective for you. But since you signed the agreement that you will do all of this without asking for a change order, it will backfire on you.

Below is a sample provision that you can try to fix the above provision:

Any and all changes in the schedule or delays caused by those other than subcontractor shall be the subject of a Change Order entitling subcontractor to additional time and compensation.

a. In simple terms what this sample provision will do is it will give you some rights to make a claim for time and money to the extent that the changes requested affect your work, schedules, materials, etc., and you are not the cause of it.

Bonus – Note Getting it in Writing

Here are some other important things that you should keep in mind -  

a. All agreements should be in writing. A written agreement means that you always have something to refer to in case of any disputes rather than just depending on a verbal agreement.

b. All terms, assumptions, and exceptions must be in the agreement. If a term doesn’t exist in the agreement, then it doesn’t exist as a term between the parties. Sometimes when you are at the negotiation table, the other party may say that so-and-so provision doesn’t matter, or it doesn’t apply to you, or you should ignore it. But remember that if it is in the contract, they can enforce it whenever required. So, ensure that if you are not okay with something, do not leave it in the agreement.

c. Written agreements can minimize ‘convenient memories.’ It means that if you have something in writing, you can always hold it up in front of the other party if they say that they have not agreed to it.

d. Estimates, bids, quotes, and proposals are potential contracts. So, make sure that you get them signed by the other party and include all the terms and conditions in those documents. So, if that is the only document that gets executed, then you can rest assured that all the terms and conditions have been included by you and signed by the other party. For example, if you have an estimate, you can include all the terms and provisions, such as insurance requirements, payment terms, right to recover legal fees, etc., on the back of the estimate and get it signed. This in turn will enable you to execute the estimate as your contract.

i. Sometimes, you may be handed another contract as the project progresses and this contract may have different terms and provisions. So, remember that if you are executing the subsequent document, then it may undermine all the terms and conditions of your first contract.

e. Exception: Sometimes no agreement is better than a one-sided agreement. For example, you are in the process of negotiating the contract, but you have also started your work. And let’s say that even after three months on the project, you and the contractor have not yet fully negotiated the agreement terms. However, if the contractor urges you to sign the contract or part ways, then you are in a situation where you will need to sign it and, in your hurry, you may have missed reading the terms and provisions.

After a couple of months, you realize that one of the terms with regard to the scope of work had changed from what was originally determined. Now, there is additional scope of work but at the same price. Since you have already signed the contract, you will need to take it up. In such a situation, it is better to have no written agreement than a one-sided agreement.

Remember that you will get some pushbacks if you go ahead with the sample provisions provided in this blog; however, the important thing to remember is that you need to read your contract, understand the provisions and the risks involved. This will enable you to make educated, proposed changes to the contract.

Free Tools

You can check out this free tool by going to www.ContractDetective.com. It is a free, artificial intelligence tool where you can upload a PDF or Word version of your construction contract and within minutes it will send back a highlighted version of your contract, pointing out 10 different dangerous contract terms that you should be aware of, such as consequential damages, pay when paid, hidden conditions, indemnity, etc.  

These provisions also have a link attached to a brief video description explaining the provisions. So, do check out this free tool.