Costly Contract Clauses, Part 2

To protect your company from unnecessary risk, remember to evaluate contracts carefully. In most cases, contracts protect both parties involved, but sometimes they can be used to take advantage of a contractor. Below are a few more “costly clauses” to look out for.

Lien Forms

Let alone everything else, lien forms can do more damage than anything else in the General Contractor arsenal. There are many types of lien release forms on the market, each requiring careful analyzation . You could sign an initial form and sign away all rights, including your right to retainage. There are or should be only two formats you need to be using.

First, the conditional lien waiver:

The conditional lien waiver will limit your lien to only the amount you have NOT been paid.

Second, the final lien waiver:

This form removes all rights to lien and should NEVER be signed until you have received your final payment in full.

Contingent Payments

A contingent payment clause will set terms on when you are paid. Two such clauses are “pay when paid” and “pay if paid”. The “pay when paid” clause requires you to wait until the GC is paid. This could delay your payment significantly. Most states allow this clause and assume that this means a “reasonable amount of time” while allowing your right to be paid. On the other hand, “pay if paid” forfeits your right to payment if an owner goes bankrupt or just refuses to pay. This clause should be struck out of any contract you intend to sign. There are a few states that have outlawed the “pay if paid” provision such as California and New York, never the less, you should thoroughly review your contract before signing.

No Damage for Delay or Acceleration

Very few contractors understand delay or acceleration and the impacts of cost to the contractor. You have all seen this happen, for example, the steel is 6 weeks late but the completion date stands still, or the contractor suddenly has 200 men on the job and expects you to be completed in a day.

Each of these cause additional cost to you to cover additional mobilization, demobilization, more crews, overtime or cost to expedite at a later date. You can even get yourself in more trouble trying to accelerate a job which can result in loss of productivity, high overtime and job accidents. When an employee is hurt or worse, this could mean disaster for you, but that’s another article.

On the flip side, most GC contracts are in favor of the GC. They, along with the owner, are entitled to liquid damages if you delay or accelerate. Preserve your right to recover your additional expense in the case of scheduling delays or accelerations.

This site is for informational purposes only and does not contain legal advice.

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