There are a number of critical contract issues in every construction
contract. Each contract is made up of three elements - offer,
acceptance and consideration. When a subcontractor reviews
a set of plans and specifications, then provides a bid, this
is called an "offer". The terms of the subcontractor's
offer should be included on his proposal/bid form(s) and/or
document(s). When bidding on a project, the subcontractor
sets many of the terms of his own subcontract by strong use
of a written proposal/bid form.
Typically, Subcontract Agreements are not available at the
time of bidding. Because of this, when a Subcontract Agreement
is sent (to the subcontractor who has the winning bid) by
a general contractor, it is a counter-offer from the general
contractor to the subcontractor. This counter-offer, in the
form of the Subcontract Agreement, usually contains additional
and/or different conditions, general conditions and clauses
than what the subcontractor's proposal/bid form contained.
The subcontractor is free to accept or reject the Subcontract
The bidding documents contain the terms and conditions of
the prime contract (the contract between the Owner and General
Contractor) as well as the specifications and plans. A subcontractor
is charged with the knowledge of all the bidding documents
(even work outside his scope) whether or not he read, or even
saw in some cases, those documents. While a subcontractor
can negotiate the terms and conditions of the subcontract,
almost never can he negotiate the prime contract. Should the
Subcontractor negate (or reject) that prime contract, or any
portion thereof, he is creating a "non-responsive"
bid and is running the risk of having his bid rejected and
his contract being awarded to another subcontractor.
When the bid is awarded (either verbally or in writing),
it can be said that the offer was accepted, consideration
(money) is identified and a contract exists. It sounds so
simple. However, put a group of diverse contractors in a room
and ask how many have read the general conditions in the specifications
and you are lucky if 5% of the room has read these clauses.
These general conditions (all the pages between the Instructions
to Bidders up to "cutting and patching") is typically
indicated as §01000 of the specifications. These are
the rules of the job. In these very critical documents are
the instructions for what to do in any of the anticipated
situations on the project.
An example of what can be missed due to assumptions by the
crew are those relating to the "Order of Precedence".
When a contract contains instructions that are susceptible
to two or more reasonable interpretations, these are considered
"ambiguities". If the ambiguity is "patent"
(obvious or should have been obvious), then the duty is for
the contractor to inquire before the bid. If the ambiguity
is "latent" (potential but not evident), the burden
is on the owner as the author of the contract documents. The
general rule is that the owner pays for latent ambiguities.
The "order of precedence" clause is designed to
help the owner out of these situations by giving the contractor
rules of interpretation.
What about a project where the specifications say that you,
Drywall Dan, have to provide all "access panels indicated
on the drawings" as part of your contract. When you look
at the drawings to see how many access panels you have to
provide, you see 40 panels clearly shown on the drawings,
and you bid the contract accordingly. After the project starts,
the Owner instructs you to provide 120 access panels as shown
in §15000 and §16000 of the specifications. There
is a big difference between the two. Who wins?
The "Order of Precedence" clause will state either
that "specifications control over drawings" or they
can also hold that "drawings control over specifications".
If there is no "Order of Precedence" clause, the
courts will typically only consider the general rule of "specific
over general". As this tends to favor contractors, a
smart owner will put in a solid Order of Precedence clause
to answer as many of the latent defect issues in his favor
as possible. If you don't pay attention to the cluase and
assume that the rule is always "drawings over specs"
your project could be doomed from the start. This is especially
true in federal public works projects which are notoriously
complicated in this area.
In the case above, when the "specifications control
over the drawings", Drywall Dan is sunk. Although the
access panel issue is clearly a latent ambiguity which, left
untreated would result in owner liability, the contract addressed
the possibility of this problem and provided the owner's answer
before the question was asked. So long as this does not violate
public policy, the courts will look to the Order of Precedence
Without an actual knowledge of the general conditions on
each project, subcontractors are playing different types of
poker without knowing the game rules. You cant win high-low
poker with a royal flush.
Here is a list of some of the general condition clauses that
can have a direct affect on the success of your project, if
you dont pay attention to them:
- Progress Payments (when is it due? Is there a "condition
- Retention (How much and when is it due?)
- Change Orders (Overhead & profit; time extensions;
- Delay (Notice and Time Impact Analysis)
- Scheduling (who has scheduling responsibilities? What
of schedule is required? Is the subcontractor required to
complete and maintain a schedule?)
- Order of Precedence (What is the order, do specs rule
drawings or do drawings rule over specs?)
- Notice (How many days after a delay to you have to give
notice? How is notice to be delivered? verbally, by mail,
by registered mail?)
Every project manager should be intimately aware of the general
conditions to the project as part of his/her project administration
effort. If it proves too difficult to read or you simply dont
have enough time to bother, you put your project and maybe
your job at risk.
Douglas D. Harding is a licensed California
attorney who concentrates his efforts in construction law
and the problems of subcontractors. Since 1985, Doug has been
a consultant specializing in subcontractor project administration,
management, scheduling and claims services. He has developed
and given hundreds of Project Management Workshops which train
subcontractors in project documentation, using the project
schedule as both a "sword and a shield", and anticipating
claim situations to avoid/document losses. Doug testifies
as an expert throughout the states of California, Arizona
and Nevada and is a full-time partner in the firm of Capital
Project Solutions, LLC. in Sacramento, California. He can
be reached at:
1501 28th Street, Suite 100
Sacramento, CA 95816