Contracts and Subcontracts - That’s Why They Call it Contracting

Contract: (n) a legally enforceable agreement between two or more parties with mutual obligations.

Subcontractor: (n) an individual (or in many cases a business) that signs a contract to perform part or all of the obligations of an-others contract.

If your business is in any part of the mechanical trades, indeed any facet of the construction trades, you are more than passing familiar with contracts and subcontracts. Did you jump into the subcontracting business fully informed on the vagaries, the ins and outs of contracts and subcontracts? Most of you would have to answer no... some, hell no!

The fact of the matter is that just about every business in the world today operates on some level of contractual obligation. It is one of the crown jewels of the legal profession, and has been the cornerstone of commerce since before the Roman Empire. Contracts have been codified, argued over, parsed and generally minced into a fine powder through years and centuries of trial and contest. Simply put, the most important feature of a contract is that one party offers an arrangement that another accepts.

That seems pretty straightforward, doesn’t it? Well, nothing about contracts and subcontracts are straightforward. In point of fact, a simple handshake agreement can be considered a contract or a subcontract. Care to guess what would happen in court today if one party tried to enforce a “handshake” contract? It would be ugly... and probably a draw at best… “he said such and such” and “no, he said this and that.” What a nightmare!

In ancient times disputes might have been settled with weapons, contests of physical prowess, or perhaps the taking of personal property. Today the weapons are words wielded by attorneys or arbitrators and the taking personal property other than monetary remuneration is unlikely.

All of which is to say that contracts and subcontracts are powerful and important tools which are an integral part of our businesses. Earlier in this article I posed the hypothetical question, “Did you jump into business fully informed on the vagaries, ins and outs of contracts and subcontracts?” While there are exceptions to every rule, I’ll go out on a limb and say that the vast majority of subcontractors in the plumbing, pipefitting and HVAC industry were no more than slightly familiar with contracts and subcontracts when they got into business. Most, if not all, had no idea how truly Machiavellian those instruments really were.

What it Says, is What it Says...

Speaking of subcontracts; when you receive a subcontract for a job you bid on what do you do? Do you sign it and send it back to the general contractor after checking if the dollar amounts are correct? If you do, you are either living in a fool’s paradise, or are playing Russian roulette with your business.

Let us assume for the sake of argument that you are bidding on a small commercial strip shopping center (plumbing or HVAC, it really doesn’t matter). You are advised that you have been awarded the contract for that portion of the work and a subcontract agreement is sent your way. To be properly proactive about the business, this is how I would recommend you handle that document:

1- Read every line, of each and every page of the entire document. This includes any cover letter that accompanies the document.

2-Make photocopies of each and every page of the document and put them into your job folder or binder (to be replaced by the final, signed copy of the contract once that has been done).

3-Strike through and initial ANY clause, condition or statement with which you either do not agree or do not intend to comply. This includes what is commonly referred to as “boiler plate.”

4- Attach a copy of your original bid to the subcontract, return it to the contractor and respectfully request that it be included as part of that subcontract.

5- Wait for the screaming to subside.

No matter how much the contractor is going to twist and turn over your marking up his precious subcontract, (“you CAN’T touch the boilerplate” is a favorite whine I’ve heard many times... yes, you can!) the fact is, you will be responsible for doing EVERYTHING, I repeat, EVERYTHING in the document that you sign your name to. Do not be threatened or coaxed into accepting clauses with which you do not agree, under any circumstance. You will do so at your business’s peril.

The Devil is In the Details

What are some of the things you might have to do, over and above the work you have contracted for? Well, you might be required to provide a portion of the “hold harmless” insurance for the general contractor, making you responsible for work that you have no part in. You might be agreeing to a ridiculously unrealistic time schedule for your work. You might even be held liable for work not installed by you but which your work attaches to. Further, you might be agreeing to a “paid when paid” clause or a “paid IF paid” clause, by which you will receive your money WHEN, and IF, the general is ever paid by the owner. Caveat: These clauses have been held illegal and unenforceable in many places, but there are still some jurisdictions where they are enforceable.

These are just a few of the little gems to be found in subcontract agreements today. They are placed in there to trap the unwary subcontractor into doing work that he has not agreed to or providing things that he should not have to, all to the benefit of the contractor or owner. If you want to stay in business today, you are going to have to be as dedicated to making the contract a livable document for your company as you are about the work you do and your reputation.

The Brooklyn, NY-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, NY, in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].