President’s Letter – March 2018
Best Practices – Contract Negotiations
We’ve invested time and money in estimating a project, reviewing all the specifications, drawings and contract documents, communicated with our suppliers and vendors, priced out all the materials and labor, calculated the risks of the job and submitted our bid. Great news!! We have been awarded the project. It is critical that we not relax and assume the hard part is over. If we do, we put our entire investment at greater risk.
One of the biggest mistakes any of us can make is not negotiating a fair contract for our services. Unfortunately, this happens more frequently than you might think. One of the first things we all need to understand and accept as fact is that almost all general contractors write contracts that are slanted in their favor. In many cases, they are seriously slanted against the trade contractor and put us at a disadvantage before we ever start.
It sounds elementary and it shouldn’t have to be said, but rule number one is, we should never sign a contract we haven’t read and understood. We should never think that because we have a relationship with the customer that they will take care of us and not enforce the contract.
Another common belief is that trade contractors are never successful negotiating any of the conditions in their contracts. Well, that’s exactly what the general contractors want you to believe. When we read the contracts, the first thing we must determine is, “Am I willing to take the risks assigned to me and sign this contract? If not, then I must identify the objectionable clauses and either strike them or draft acceptable language I can agree to.” At the end of the day, if we aren’t able to negotiate acceptable language, we must make the business decision to either sign what we have or graciously walk away.
Some of the key clauses that need our attention are:
Payment terms, including any clauses about “pay when paid” or “pay if paid” as a conditional precedent. Some states have laws regulating this language. This means that the contractor only has to pay you “if” he gets paid or at some time “after” he is paid.
Set off provisions, which allow contractors to hold money on additional projects under contract with them other than the project in question.
No damage for delays, which puts all the risk of the construction schedule on the trade contractors and does not allow any reimbursement of costs for delays even if we are not at fault.
Work force supplementation, which allows the contractor to charge you if they supplement your crews, with or without notice or default.
Back charge clauses, which allow the contractor to backcharge the trade contractor without notice or with limited notice for an unlimited list of things.
Since I’m not an attorney and can’t give legal advice, the most important thing I can say is that you should consult with an attorney prior to signing contracts. Once you understand some of these clauses you can begin to negotiate with greater success. It’s always a good idea to work toward having your proposal with all your inclusions, exclusions and clarifying notes included as part of the contract.
Companies that regularly practice these principles are usually Best in Class contractors. That’s something we all aspire to achieve.
Keep on tiling!
Martin Howard, President NTCA
Committee member, ANSI A108