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13 Risk Management Tips for Subcontractors, by Subcontractors

Billd held a Subcontractor Meetup to address how subs can implement better risk management provisions in their contracts. Here’s what 72 subcontracting executives from across the country said when asked for their best advice on the topic.

About the Contributor

Billd Meetup Attendees

Billd Meetups are attended by experienced subcontractors from all over the country, who share their best tips and techniques they've learned throughout their careers.

Business Outcomes

  1. Treat Purchase Orders Like Contracts, and Keep Them Simple: POs work like contracts, so review them just as carefully. Opt for less language; simplicity and clarity to reduce the risk of misinterpretation. According to insurance professional Drew Boyd, it’s easier for a lawyer to do some maneuvering and invalidate something within the PO if it’s long winded and complex. Also, when starting work before a formal contract is in place, itemize the tasks in POs for clarity. This helps you outline your exact responsibilities, which can protect you if a dispute or emergency comes up. 
  2. When Taking Over Work That Another Sub Started, Draw Hard Contractual Boundaries: Participants discussed how they sometimes take over work from other subs who weren’t meeting expectations on a project. Not only is this common, it comes with exceptional risks. If you do it, you’re encouraged to draw up ample contractual protections for yourself. This way, you don’t take the fall if something goes wrong on account of the first sub’s mistakes. Boyd recommends adding a contractual addendum that states that you’re assuming a high-risk role in a dire situation as a favor to the GC, essentially bailing them out of a bad situation. As a result:
    • You’re only accountable for the work you’ve performed, and not what the other sub did. 
    • You’ll follow the PO as a basis for how you’ll progress on the job.
    • You want X payment terms, X indemnity terms and X insurance requirements, in accordance with your preferences.
    • This document supersedes everything else in this subcontract.
  3. Implement a Limitation of Liability Cap and Mutual Waiver of Consequential Damages: According to one participant, as a sub, it’s in your best interest to have a limitation of liability cap with no carve-out for indemnity or insurance, if you can achieve that. You should also push for a waiver of consequential damages, and offer it on a mutual basis to make it appealing for both you and the other party.
  4. Request the Builder’s Risk Policy and Consider Installation Floater Insurance: Request a copy of the Builders Risk policy and review its risk of loss provisions; you’re an insured party within this policy. Consider obtaining installation floater insurance, which covers movable property, like building materials, while they’re being installed during a construction project. This coverage is usually kept active until the materials are installed and put to their intended use, and will pay you directly instead of the project owner or GC if there’s a builder’s risk loss. It also helps you secure lower deductibles. Sometimes the GC will only give you a summary of the Builder’s Risk policy. Either way, engage your insurance agent or broker as needed so they can guide you through the policy.
  5. Rely on Consultants and Don’t Get Too Comfortable: It almost goes without saying, but rely on a team of professional consultants to better understand your contract and the risks within them. Even if after countless projects you’ve started to feel more confident in your ability to understand your contracts, always assume that the ground is shifting under your feet. Laws can change, and you need a contracts lawyer, contracts manager and insurance agents to help light the way. 
  6. Review These Critical Contract Points: When asked if there were things that a subcontractor should “jump to” when reviewing a contract, subcontracting exec Kyle Follet recommended the following framework: 1) You want to know what you’re on the hook for. 2) You want to know how someone can get out of this contract, on your side and theirs. 3) You want to know the payment terms. Furthermore, during contract review, be wary of:
    • How change orders are handled
    • References to schedules that don’t even exist yet
    • Contractual privity
    • An incomplete scope
    • Liquidated damages
    • Payment conditions
  7. Make Sure Your Proposal Makes It into the Contract as a Subcontract Exhibit: Plenty of subcontractors have been bitten by not doing this in the past. You want all of your inclusions and exclusions from the proposal to make it into the final contract. The proposal should include a tight scope, clarifications, exclusions and terms and conditions. If you can’t get your entire proposal added as an exhibit, push for just the terms and conditions. 
  8. Establish Expectations Before Entering the Contract: Follett recommends having forthright conversations with the GC about how you work and what you expect from a GC, so that they know what you stand for when doing business with them. 
  9. Utilize Technology in Contract Review: Explore tools like DocumentCrunch, an AI platform, for more efficient contract review. It can quickly review your contract and pull the information most important to you.
  10. Make Additions In Lieu of Just Redlines: Some subs have found that adding rather than removing parts of a contract is easier to get accepted. Rather than “marking up the living daylight” out of a contract, as one sub put it (an action that can cause tension with the GC), push for the addition of terms that can help you accomplish what you need to. This is a strategic maneuver on your part, because it’s more palatable to the GC.
  11. Clarify Redlines in Contract Negotiations: Have one-on-one discussions with owners and GCs to clarify your proposed changes. To enhance clarity even more, work with your legal team to suggest the exact wording you want in the contract. 
  12. Combat Pay When Paid Conditions: According to Contracts Manager Maegan Spivey, if you’re worried that a “Pay When Paid” project will see you waiting months for payment, then address it with the GC and make sure the contract reflects what you agree to. Communicate that, in the event of non-payment after a certain amount of time, you will exercise your right to lien the project. Also, include your right to stop work in the event of non-payment. 
  13. Maintain a Non-Adversarial Tone: Address redlines diplomatically, avoiding confrontational language. Be polite, not disrespectful or accusatory. Comment on each condition in a way that justifies the approach without being combative. Reference your project history and talk about times this happened to you before, making it clear that you want to get ahead of the problem now. 

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