Subcontracts-POs

What is a contract?

• Legally Binding Promises
• Two-Party (Written) Agreement
• Risk Management Tool
• Subcontract vs. Purchase Order
  • Subcontract: Material and Labor
  • Purchase Order: Material ONLY delivered to the jobsite

 

Brinkmann Subcontract

• Drafted specifically to Brinkmanns requirements through years of experiences, including those still being learned.
• Project team MUST understand all terms and conditions of the Subcontract Agreement and be in FRONT of the issues and not become REACTIVE.

 

Sample Brinkmann Subcontract

  

Sample Brinkmann Purchase Order

 

Compliance/Returned Executed Subcontract

• Insurance requirements for Subcontractors
  • All subcontractors are required to submit Certificates of Insurance to R.G. Brinkmann Company.  In accordance with Article 1.11.5, R.G. Brinkmann Company shall be listed as "Primary Additional Insured".  The owner will also have to be listed as additional insured.  No payment will be made without an official Certificate of Insurance, which complies with the subcontract agreement.
• Marked-up Contracts
  • Review previous agreements with subcontractor on past projects.
    • Work through terms based on previously signed subcontracts
• Review with Director

Sections of the Contract

• Project Information
• Articles 1.6, 1.7, 1.8, and 1.9: Scope and terms
• Article 1.11: Insurance - Must be specific to your owner contract
• Article 4: Flow through provision from owner contract contract
• Article 5: Payment terms
• Article 6: Timely performance
• Article 7: Default/Termination issues
• Article 8: Changes
• Article 35: Enumeration of Contract Documents

Materials

• "...is responsible to receive, unload...storage of materials..."
• "...is responsible to provide their own equipment for all unloading, hoisting or staging..."
• Article 1.6: Subcontractor shall furnish all...delivery, handling, loading and unloading of materials...all necessary hoisting of Subcontractors materials and/or equipment... and all incidentals and accessories necessary...

Equipment

• "...is responsible to provide their own equipment for all unloading, hoisting or staging..."
• Article 1.6: Subcontractor shall furnish...lifts (all terrain if required)...

Schedule

• "...reviewed the construction schedule... will staff the project to meet the schedule"
• Article 1.6: ...diligently prosecute and complete the Subcontract Work in accordance with the project schedule as reasonably determined by Contractor and adjusted from time to time...Time is of the essence.  Subcontractor shall not impede, delay or hinder the work of Contractor or others

• “…has review the construction schedule and has included the manpower necessary…”

• Article 6.1 - …diligently prosecute and complete the Subcontract Work in accordance with the project schedule as reasonably determined by Contractor and adjusted from time to time…Time is of the essence.  Subcontractor shall not impede, delay or hinder the work of Contractor or others

Meetings

• "Attendance of all meetings relating to progress of this work"
• Article 6.2: Subcontractor shall attend meetings as reasonably required by the Subcontract Documents and Contractor to plan, coordinate, record and depict the progress of the Project...

Taxes

• "...shall include all applicable federal, state, county, city, use tax and any special taxes as applicable to the project location"
• Article 11.2: ...pay all local, state, and federal taxes... business license taxes, sales, use, occupation, gross receipts and like taxes, arising out of the ownership, acquisition, furnishing, installation, inspections or use of materials, equipment, or other personal property, or furnishing labor or services in respect to the Subcontract Work

Temporary Power

• "...plan on providing and utilizing generators...."
• Article 12.1: Subcontractor represents that it has satisfied itself and has become fully acquainted with the nature and location of the work contracted hereunder, the general and local conditions, particularly those bearing upon... electric power... the character of equipment and facilities needed preliminary to and during prosecution of the work... which in any way might affect the Subcontract Work, or the cost thereof.

Temporary Power and Safety

• "...All temporary extension cords... and shall include GFCI..."
• Article 12.1: ...electric power…the character of equipment and facilities needed preliminary to and during prosecution of the work…which in any way might affect the Subcontract Work, or the cost thereof.
• Article 14.1 – All Subcontract Work is to be completed in strict compliance with all Federal Occupational Safety and Health Act (OSHA) regulations as well as Contractor’s safety requirements.

Layout and Coordination

• "All layout and field engineering related to this work…as well as coordination…with all other trades”
• Article 12.2 - Provisions have been included by Subcontractor for layout from control provided by Contractor as well as coordination of the Subcontract Work with all other trades and the overall design to avoid conflicts during the project.

Coordination

• "...shall closely coordinate with other subcontractors...”
• Article 12.2 - Provisions have been included by Subcontractor…as well as coordination of the Subcontract Work with all other trades and the overall design to avoid conflicts during the project. Subcontractor waives all claims due to lack of coordination or improper layout by Contractor

Safety

• "All work is to be done in strict accordance with all OSHA regulations, as well as Brinkmann Constructors’ safety requirements”
• Article 14.1 - All Subcontract Work is to be completed in strict compliance with all Federal Occupational Safety and Health Act (OSHA) regulations as well as Contractor’s safety requirements.

Clean Up

• "Daily clean-up of debris generated by this Contractor...”
• Article 25.1 - Subcontractor shall (a) at all times keep the building and premises clean, orderly and free from debris and unsafe conditions resulting from Subcontractor’s work; and (b) leave each area clean as required by the Subcontract Documents and at a minimum “broom” clean, orderly and free of debris…and in good condition upon discontinuing work in such area. 

Prime Contract Clauses

• Indemnity
• Mechanic’s Liens
• Notice
• Differing Site Conditions
• No Damage For Delays
• Liquidated Damages
• Consequential Damages
• Termination
• Substantial Completion
• Forum Selection/Choice of Law/Venue/Attorneys’ Fees

Prime Contract: Indemnity

Broad Form Indemnity

Contractor shall indemnify, defend and save harmless the Owner, and its officers, directors, employees and agents, from and against all liability, loss, cost or expense (including attorney’s fees) by reason of liability imposed upon the Owner, arising out of or related to Contractor’s Work, whether caused by or contributed to by the Owner or any other party indemnified herein.

Intermediate Form

The Contractor shall indemnify and hold harmless the Owner for all damages, losses, or claims that arise as a result, in whole or in part, from the negligence, or error, omissions, or failure to perform by the Contractor, its employees, its agents, or its Subcontractors. 

Limited or Narrow Form

§ 3.18 INDEMNIFICATION

§ 3.18.1 To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.  (AIA – A201)

How broad is the clause?

• Indemnitees – how broad is the class?
• What could you have to indemnify the other party for?
  • Limited to bodily injury and property damage?
• Is the obligation beyond reimbursement? Is there an obligation to defend?

Are you obligated to indemnify others for their own actions?

Are the indemnification obligations mutual?

Mutual Indemnity - ConsensusDOCS 200:

10.1.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, the Owner’s officers, directors, members, consultants, agents and employees, the Architect/Engineer and Others (the Indemnitees) . . .

10.1.2 To the fullest extent permitted by law, the Owner shall indemnify and hold harmless the Contractor; its officers, directors, members, consultants, agents, and employees, Subcontractors or anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable . . .

Prime Contract:  Mechanic’s Liens

Mechanic’s Lien Indemnity – Typical Clause

§ 15.5.4 Provided the Owner has fulfilled its payment obligations under the Contract Documents, the Contractor shall defend and indemnify the Owner from all loss, liability, damage or expense, including reasonable attorney’s fees and litigation expenses, arising out of any lien claim or other claim for payment by any Subcontractor or supplier of any tier. Upon receipt of notice of a lien claim or other claim for payment, the Owner shall notify the Contractor. If approved by the applicable court, when required, the Contractor may substitute a surety bond for the property against which the lien or other claim for payment has been asserted.

Mechanic’s Lien Indemnity – Issues

• Brinkmann hasn’t been paid.
• Brinkmann disputes subcontractor’s claim.
• Right to contest lien.

Mechanic’s Lien Indemnity – Alternative Language

§ 15.5.4 Provided the Owner has made full payment to Contractor for the the Work that is the subject of the lien or claim, the Contractor shall defend and indemnify the Owner from all loss, liability, damage or expense, including reasonable attorney’s fees and litigation expenses, arising out of any lien claim or other claim for payment by any Subcontractor or supplier of any tier. Upon receipt of notice of a lien claim or other claim for payment, the Owner shall notify the Contractor. If approved by the applicable court, when required, the Contractor may substitute a surety bond for the property against which the lien or other claim for payment has been asserted. Contractor shall be allowed to contest the lien or claim so long as it has provided substitute security in the amount of 150% of the value of the lien or claim.

Disbursing Agreement – Lien Indemnity

Indemnitor will hold harmless, protect and indemnify Title Company from and against any and all liabilities, losses, damages, expenses and charges including attorney’s fees and expenses of litigation, which Title Company may sustain under any policy of insurance respecting the land resulting directly from any mechanic’s lien, or claim thereof, or which Title Company may sustain in the enforcement of this Agreement.  Indemnitor’s obligations to hold harmless, protect and indemnify Title Company shall only apply to the extent that the Indemnitor has been paid for the work that is the subject of the mechanic’s lien or claim.

Advanced Lien Waiver / No Lien Clause

As a condition of Owner entering into this Contract with Contractor, Contractor agrees that it shall not assert rights to or claim a lien, or encumbrance of any type or kind, including any mechanic’s lien on any portion of the land, buildings, equipment, fixtures, or materials that constitute or form a part of the Project.

Advanced Lien Waiver – Issues

• Waive all lien rights on the project.
• Mechanic’s lien is often the only security you have.
• Owner’s are often single purpose LLCs.

Lien Subordination – Typical Clause

Contractor hereby subordinates any mechanics’ and materialmen’s liens or other claims or encumbrances that may be brought by Contractor against any or all of the Work, the Site or the Project to any liens granted in favor of Lender, whether such lien in favor of Lender is created, attached or perfected prior to or after any such liens, claims or encumbrances, and shall require its Subcontractors and Sub-subcontractors to similarly subordinate their lien, claim and encumbrance rights. Contractor agrees to comply with reasonable requests of Owner for supporting documentation required by Lender in connection with such subordination, including any necessary lien subordination agreements by Contractor.

Lien Subordination – Issues

• If owner defaults on loan and property must be sold, bank gets paid first.
• There may not be enough value in the property to pay Brinkmann.
• Watch for these clauses in lender documents (e.g., Consent, Indemnity, Disbursing, etc.).

Prime Contract:  Notice Provisions

• A notice of claim provision typically specifies the procedure that must be followed in the event of a claim.
• Often provides that failure to give timely notice of any claim constitutes a waiver of that claim.
• In Missouri, notice of claim provisions are generally enforceable.  Gillioz v. State Highway Comm’n, 153 S.W.2d 18 (Mo. 1941).  However, such provisions may be waived or modified.  Gilmartin Bros., Inc. v. Kern, 916 S.W.2d 324 (Mo.App. E.D. 1995).
• Create a Notice Cheat Sheet!
• Strictly follow the notice requirements.
• Revise notice trigger language in contract to Contractor’s observance or knowledge of event giving rise to the claim.
• You don’t want notice running from “occurrence” of the event.

Prime Contract: Differing Site Conditions

• Subsurface conditions or existing structures
• General Rule:  Contractors take the risk for changed conditions
• Differing Site Condition Clause – Shifts the risk for changed conditions to the Owner under certain circumstances

TYPE 1 and TYPE 2 CLAIMS

§ 3.7.4 Concealed or Unknown Conditions.

If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or

(2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, * * *

(From AIA A201-2017)

Notice of the Potential Claim Is Important

§ 3.7.4 Concealed or Unknown Conditions.

* * *, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 14 days after first observance of the conditions. * * *

(From AIA A201-2017 General Conditions)

Prime Contract:  No-Damage-For-Delays

Typical Clause

§  The Owner shall not be liable to the Contractor and/or any Subcontractor for claims or damages of any nature caused by or arising out of delays. The sole remedy against the Owner for delays shall be the allowance of additional time for completion of the Work, the amount of which shall be subject to the claims procedure set forth in the General Conditions.

• Is there a ‘no damages for delay’ clause?
• Is it incorporated into your subcontracts?
• Is ‘delay’ broadly defined, e.g. disruption, acceleration, interference, etc.?
• Force majeure relief?

Prime Contract: Liquidated Damages

• Is the amount reasonable?
• Does an incorporated document contain a liquidated damages clause?
• Is there a cap on the amount of liquidated damages?
• When do LDs stop running?

Prime Contract: Waiver of Consequential Damages

§ 15.1.6 CLAIMS FOR CONSEQUENTIAL DAMAGES

The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract. This mutual waiver includes

.1  damages incurred by the Owner for rental expenses, for losses of use, income, profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons; and

.2  damages incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.

This mutual waiver is applicable, without limitation, to all consequential damages due to either party’s termination in accordance with Article 14. Nothing contained in this Section 15.1.6 shall be deemed to preclude an award of liquidated damages, when applicable, in accordance with the requirements of the Contract Documents.  (AIA A201-2017)

• Mutual or unilateral?
• Are consequential damages defined?
• Defined by examples?
• Limited to certain types?
• Consider a cap. 
• Shouldn’t have LDs and consequential damages.

Prime Contract: Termination

Termination for Default

• Termination for default considered a drastic and harsh remedy
• Usually requires notice and opportunity to cure prior to termination

Termination for Convenience

• Can terminate without cause
• Typically specifies (or limits) recovery in the event of no-fault termination

§ 20.2 Termination by the Owner for Cause

  § 20.2.1 The Owner may terminate the Contract if the Contractor

.1  repeatedly refuses or fails to supply enough properly skilled workers or proper materials;

.2  fails to make payment to Subcontractors for materials or labor in accordance with the respective agreements between the Contractor and the Subcontractors;

.3  repeatedly disregards applicable laws, statutes, ordinances, codes, rules and regulations, or lawful orders of a public authority; or

.4  otherwise is guilty of substantial breach of a provision of the Contract Documents or

.5  fails to timely perform the Work and any part of the Work, and/or fails to achieve Substantial Completion and Final Completion within the time periods provided in the Contract Documents

Termination For Convenience

§ 14.4.3 In case of such termination for the Owner’s convenience, the Owner shall pay the Contractor for Work properly executed; costs incurred by reason of the termination, including costs attributable to termination of Subcontracts; and the termination fee, if any, set forth in the Agreement. (AIA – A201 2017)

Termination Issues

• How much (or little) notice is required to terminate?
• Do you have a right to cure?
• Are you able to stop work or terminate for delayed payment or nonpayment?

Prime Contract:  Substantial Completion

§ 9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use. (AIA A201-2017)

• Watch for language granting Owner authority to determine substantial completion.
• AHJs

§ 9.8.1 The date of Substantial Completion of the Work (or designated portion thereof as may be hereafter agreed by Owner) is the date determined by Owner when the Work is sufficiently complete, in accordance with the Contract Documents, so that the Owner (or its tenants) can occupy or utilize the Work or such designated portion thereof for the use for which it is intended with all of the installations, parts and systems related thereto and required by the Work hereunder functional, accessible, operable and usable by the Owner for their intended usage.  Such completion shall include, as applicable, all temporary certificates of occupancy or other permits of authorizations by governmental agencies having jurisdiction thereof, necessary to permit such usage.  Notwithstanding the foregoing, Contractor shall obtain the final certificate of occupancy before any temporary certificate(s) of occupancy expire and shall be responsible for any costs to the Owner if the Owner is required to abandon any use or occupancy of the Project arising out of the expiration of a temporary certificate of occupancy.  Only minor and incidental corrective work under Owner-approved punchlists and final cleaning (if required) beyond cleaning needed for the Owner's full use may remain for Final Completion. 

Forum Selection, Choice of Law, Attorneys’ Fees

• Where is the venue for resolution of disputes?
• What law applies?
• Arbitration or Litigation?
• Is it mandatory or does one party have the power to choose?
• Are the venue, choice of law and dispute resolution methods consistent up and down the contract chain?
• Is there an attorneys’ fee provision?
• Is it based on the ‘prevailing party?’ Is that term defined?

Brinkmann Standard Subcontract

Pay-if-Paid

5.7    Contractor will use Owner funds to pay Subcontractor within ten (10) days after receipt and Contractor shall have no obligation to pay Subcontractor for the Subcontract Work, or any claims related thereto, unless and until Owner pays Contractor for the same.  Contractor’s receipt of funds by payment from Owner shall be a condition precedent to Contractor’s obligation to pay Subcontractor.  Subcontractor hereby acknowledges that it relies on the credit of Owner, not Contractor, for payment of Subcontract Work, and the parties agree that Subcontractor shall bear the risk of Owner’s nonpayment.

Subcontract: Pay-If-Paid

Compromise Language

5.12  Notwithstanding anything to the contrary in Article 5 of this Subcontract Agreement, if Owner is financially able to pay and Owner's refusal to pay Contractor is without fault of Subcontractor (or any sub-subcontractor or supplier to Subcontractor of any tier) and wholly the fault of Contractor or its other subcontractors or suppliers, then nothing in this Article 5 shall limit Subcontractor's right to receive payment or recover payment against Contractor or its surety.

THIS LANGUAGE SHOULD ONLY BE USED AS A LAST RESORT.

Subcontract: Indemnity

10.1  To the fullest extent permitted by law, Subcontractor shall defend and indemnify Contractor and all others whom Contractor is obligated to defend and indemnify by the Contract Documents, (collectively “the indemnified parties”) from and against any and all suits or claims alleging damages, losses and expenses, including attorneys’ fees, attributable to injuries to persons or damage to property (including loss of use), arising out of or resulting from Subcontractor’s Work, including all suits and claims that arise during and after construction of the Project, except to the extent such suits or claims are caused by the negligence or fault of the party seeking indemnity under this Article or of any other party under the control of such party seeking indemnity.  Subcontractor understands and agrees that this Article obligates Subcontractor to reimburse any of the indemnified parties for attorneys’ fees and costs incurred by any of them as a result of such suits or claims, except to the extent such fees and costs result from the negligence or fault of the party seeking indemnity under this Article or of any other party under the control of such party seeking indemnity.  Subcontractor understands and agrees that this Article 10 also obligates Subcontractor to pay any and all attorneys’ fees and expenses incurred by any of the indemnified parties in connection with enforcing the obligations of this Article. 

10.3    Subcontractor agrees to indemnify, defend and hold harmless Contractor, Owner, A/E or any surety on the Project from any and all real or spurious claims, demands, suits, damages, interest, litigation expenses, court costs, arbitration expenses, attorney’s fees, costs and expenses of whatsoever kind or nature, whether arising before or after completion of Subcontractor’s work hereunder, to the extent that Subcontractor, its sub-subcontractors, suppliers, invitees or others acting on Subcontractor’s behalf fail to fully perform any and all of the obligations of the Subcontract.

Subcontract: Risk of Loss

Indemnity & Risk Of Loss: Sub Example
Indemnity, Insurance, & Risk of Loss: Any defense, indemnification, hold harmless, additional insured or similar obligations (collectively “Indemnification”) imposed on Subcontractor under the Agreement shall be limited to any claims, demands, damages, defense expenses (including reasonable attorneys' fees and litigation costs) or liabilities (collectively “Loss”) to the extent caused by Subcontractor’s negligence in or relating to the performance of its Work. [SUB] assumes all risk of loss for all its materials until incorporated into the project. [SUB] will not be responsible for any damages after installation unless damages are caused by [SUB]. Contractor acknowledges and agrees that [SUB] carries a self-insured retention of $500,000.

Subcontract:  No Damage For Delays

6.4    No payment of any kind, for compensation, costs, expenses or for damages, or otherwise shall be made or owed by Contractor to Subcontractor because of any such delay even though Subcontractor’s extension of time request be granted, unless as a condition precedent thereto Owner pays Contractor compensation or damages because of such delay, and then, as and when Owner pays such compensation or damages to Contractor, Subcontractor shall receive from Contractor that share of such compensation or damages that can be agreed to or proven to have been directly attributable to such delay.

Common Subcontractor Question: What if Brinkmann is the cause of the delay?

Schedule & Delay

Schedule & Delay: Sub Example

Schedule & Delay:  A Project Schedule must be agreed to by [SUB] before commencement of the work.  Changes to the Project Schedule will not be valid and binding unless agreed to by [SUB]. If [SUB] is delayed at any time in the commencement or progress of the work, by any act, or neglect, or failure to respond, of the Contractor, or by any other subcontractor, or by changes ordered in  the work; then the contract time, and cost, shall be adjusted accordingly.  Any schedule accelerations that are requested or required, except due to the extent caused by [SUB], will be at an additional cost to Contractor.