Contractors and Contracts: Reading the Fine Print
By Elizabeth A. Walters, Esq.

With blind faith, too many contractors sign contracts without knowing exactly what they are agreeing to. Often, the party reviewing the subcontract (a contract with another contractor) simply checks the dollar amount and signs the contract. I would hazard a guess that at least 50% of construction subcontracts are not read from beginning to end, let alone the attachments to the subcontract.

There is no doubt that if you are the party that the contract is being presented to (versus a contract you prepared), the terms will be prepared to protect the presenting party. It is not whether the terms will be “ugly,” but just how ugly they will be.

One example of this happened to a welding subcontracting client several years ago. Payment was not made and litigation began. Instead of being able to litigate the case in the county where the job was located, there was a venue provision stating that any litigation would be in the general contractor’s hometown. This was not only many hours from my client’s place of business, but was also a small town which was difficult to get to, and where the general contractor had the hometown advantage in the litigation.

My client had no idea of this provision until litigation was needed and I reviewed the contract. Had he read the contract before he signed it, he may have been able to alter, or remove, the venue provision (or, at the very least, know the venue provision was there so as not to be blind-sided down the road).

Another danger is to sign the subcontract assuming that the terms of your proposal, bid, submittal, or quote have been incorporated into the subcontract. Unless your proposal is attached as an exhibit and referenced within the subcontract—or everything from your proposal is in the subcontract—there is a high likelihood that the terms in the subcontract will supersede those terms in your proposal.

All too often, I have to give the bad news to a contractor that the scope of work they thought they were providing for the contract amount is not the scope they agreed to when they signed the contract. Instead, the scope is often much broader and, as a result, more expensive for the contractor. The exclusions set out in the proposal are often nowhere in the subcontract.

One of the top issues in construction litigation is regarding extras/change orders. Contractors want to be paid for the extra work they believe is not within the original scope that they had agreed to provide. The other side’s goal is to get as much work provided at the original contract amount. As a result, most (if not all) subcontracts have at least one provision that addresses extras/change orders. It is no oversight that this type of provision can be seen several times in a subcontract and exhibits to the contract.

The party presenting the contract usually states that no extra work will be paid for unless the work is approved in writing before the extra work is performed. As those who work on construction projects well know, much of the work needed on jobs is “extra” work that the subcontractor is requested to immediately perform. Unless the subcontractor is aware of all terms in the subcontract addressing extras, there is a good chance he will be fighting in court seeking payment for the extra work.

Although nobody can foresee what lies ahead on any given job, knowing what is in the contract before signing and starting the work will be your best weapon in guiding you through the issues on the job.

Ms. Walters is a California-based attorney specializing in construction collection/mechanic’s lien law, including irrigation companies. She may be reached at eaw@eaw-law.com.

This article is for informational use only and does not constitute legal advice.