Key Construction Contract Terms for Subcontractors

Prior to the start of a project, it is smart for subcontractors to ensure that they are protected from future issues which could cost them money and cause frustration. Below are a few key terms that should be included in subcontractor contracts.

Scope of Work – A comprehensive scope of work will outline what the subcontractor is responsible for. Knowing what is and is not part of a subcontractor’s obligation is critical in protecting them down the road.

Payment Terms – For subcontractors, payment terms are crucial. Subcontractors want to ensure that they receive regular draws from the contractor even if issues arise with the contractor or between the contractor and owner. Payment terms should allow for the subcontractor to stop work until payment is received.

Pay When (or If) Paid Clauses – This contract term may be found in the “Payment Terms” clauses of a contract. Note that they are void as against public policy and therefore are unenforceable in North Carolina. See N.C. Gen. Stat. §22C-2.

Change Orders – Changes in scope are bound to occur in any size construction project. The best way to avoid future disputes is to include language that sets out a process for submitting and getting approval on change orders before the new work is performed. Change orders document changes in the scope of work that have been agreed upon by the subcontractor, contractor and owner.

Force Majeure – A force majeure clause allocates the risk of loss if performance is hindered, delayed, or prevented because of an event that the parties could not have anticipated or controlled. These clauses have become more relevant during the times of COVID-19. Historically, force majeure clauses included fires, floods, and hurricanes. Recently, more contracts are including global pandemic as one of the protected events.

Subcontract Termination – The parameters determining when a subcontractor or contractor can terminate the contract should be spelled out in a contract in detail. This will minimize gray areas and confusion when conflict arises between parties. Additionally, subcontractors should ensure that the provision entitles them to payment for the work that has been completed in the event the subcontract is terminated.

A401 Contractor-Subcontractor Agreement – Standard form contract used industry-wide. Forms are available for purchase, but should always be revised to match the project and reviewed by counsel.

ConsensusDocs – Standard form contracts available online and created by members of the construction industry. As with any forms, these documents should be tailored to the project and parties and reviewed by counsel.

These key terms are just the foundation for a well written contract. For additional information and assistance with you construction contract needs contact Hannah Sheridan & Cochran and let one of our experienced attorneys assist you.