5 Issues Every Subcontractor Should Think About on Every Project

Subcontractors are essential to the success of any construction project and are often relied on to provide feedback and solutions to the general contractor regarding various problems that might arise on a project. Subcontractors frequently have to work on multiple projects of differing sizes at the same time and in different locations. Because of the strenuous demands placed on subcontractors, they often are too busy to put in place the comprehensive systems needed to fully address key issues that they might encounter on their projects. As a result, they frequently do not realize that they have a legal problem on a project until it is too late to take appropriate steps to minimize or eliminate the problem. Successful subcontractors know, however, that spotting issues early on is key to building a thriving business and avoiding unnecessary lawsuits. This article outlines five key issues that should be at the forefront of every subcontractor’s mind, regardless of the size of the project.

Scope of Work
Subcontractors must ensure that their understanding of their scope of work equates with the scope of work specified in the contract documents. One of the most litigated issues in construction centers on whether a party satisfied their scope of work under the contract documents. Frequently, subcontractors do not take the time to ensure that their scope of work is clearly articulated in the contract documents. Oftentimes, clarifying the scope of work in the contract documents requires the subcontractor either to answer basic questions about their anticipated work on the project or to provide more details about how they actually will go about their work. For example, if a mason is hired on a project to tuckpoint a building, the contract documents must be absolutely clear whether the tuckpointing is for the exterior or the interior masonry or both. Likewise, if you are not tuckpointing the entire facade, the contract documents must specify the condition of the mortar joints that will trigger your duty to tuckpoint. Finally, the contract documents must specify whether you are expected to apply a water sealant to the building. This is just one example of how a subcontractor must address the gaps that might exist in how their scope of work is articulated in the contract documents. Failure to clarify these issues in the contract documents leaves the subcontractor vulnerable to potential legal issues down the road.

Insurance
Subcontractors must be sure that they are satisfying their insurance obligations on all of their projects. Although the subcontractor’s insurance obligations typically are standard across the industry in that the subcontractor is usually required to have a commercial general liability policy, a workers’ compensation policy, and an automobile liability policy, subcontractors must make sure that they have the required policy limits and that there are no other insurance policies that they should have to protect the company, even if not expressly required under the contract documents.
Subcontractors that work on multiple projects typically have different insurance policy limit requirements across their various projects. To avoid potential issues, subcontractors must make sure that their policies are satisfying the policy limit requirements across all of their projects, at all times. To do this, subcontractors must have a working knowledge of their insurance policies and review each and every contract to ensure that their policies meet the requirements for the project.
Additionally, subcontractors must ensure that, even if not expressly required under the contract documents, they have the right type of insurance policy for a project to protect the company if something happens. For example, if on a particular project a subcontractor takes it upon itself to alter blueprints because it knows of a better way to construct a building, then the subcontractor may need professional liability insurance in addition to the standard policies previously mentioned. This is just one example of why subcontractors must have a working knowledge of their insurance policies and must be vigilant during every project to determine whether they are being asked to undertake a responsibility that may not be covered under their existing policies.

Payment
Subcontractors must be vigilant about whether they are timely getting paid so that they can protect their lien rights. Under Maryland law, a subcontractor or materialman has 120 days after doing the work or furnishing the materials to provide proper notice to the owner of its intention to claim a lien. This 120 day period can easily be missed by a subcontractor or materialman, especially in today’s construction environment when many general contractors delay payment to their subcontractors.
To protect the company and to ensure that it has full recourse should it not be paid on a project, a subcontractor must quickly submit payment requests and have an early warning system in place when a general contractor fails to make payments at various time periods during this 120 day continuum. As part of the early warning system, the subcontractor must have affirmative steps that it will take once various deadlines for the receipt of payment are missed, regardless of the excuse given for nonpayment. Failure to put an adequate early warning system in place and to be vigilant about accounts receivable could result in the subcontractor missing their opportunity to claim a lien on a project, which could significantly reduce the chances of ultimately getting paid.

Document and Correspondence Retention
Retaining documents and correspondence between the subcontractor and the other parties on a project is critical, especially if something goes wrong. In today’s construction landscape, a lot of communications take place via text message or via e-mail, including conversations between subcontractors and general contractors. A subcontractor must be methodical in capturing and saving all documents and correspondence it has with other parties on a project. The subcontractor must have this in place for every single project it handles, regardless of how “small” the project might be. While this exercise may seem unnecessary, it could be absolutely critical if something goes wrong during or after the project.
By saving all documents and correspondence, a subcontractor makes it easier and more efficient for legal counsel to reconstruct the events that led up to the issue, which allows legal counsel to more effectively represent the company.

Legal Team
A subcontractor must have a legal team in place that is prepared to represent the company on projects where there appears to be an elevated likelihood of litigation. By having a legal team in place to consult with and, if appropriate, to take the lead in drafting correspondence to document your issues on a project, you give the company the best chance to succeed should litigation arise. By involving legal counsel early on, the legal team is often able to resolve the issue before it turns into full-blown litigation or is able to document the issue adequately so that, if litigation does arise, there is ample documentation on the issue for purposes of positioning the company favorably for trial.
Consulting with legal counsel on select projects that appear to be leading towards litigation does not have to be expensive. Indeed, we work with subcontractors and offer flexible fee structures to allow subcontractors to access the legal services they need at competitive rates. Let us put our construction expertise to work for you and contact us today via e-mail at jay@staffordtrialteam.com or via telephone at (301) 968-2384 and find out how we can be a resource to your business.

Disclaimer: This article is made available for educational purposes only and to give you general information and a general understanding of the law, not to provide specific legal advice. The article content should not be used as a substitute for legal advice from a licensed professional attorney.

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Written by Law Firm of J.W. Stafford, L.L.C.

Attorney Jamaal (“Jay”) W. Stafford has extensive experience counseling and representing clients facing complex and challenging legal issues. He puts his experience to work with each client to help them get their desired results, no matter what legal situation they are facing. Each service that is offered is backed by his experience, education, professional training, and passion for employment law and litigation.