Why Subcontractors Should Have Their Contracts Reviewed

When a subcontractor is awarded a job, the head contractor typically issues a purchase order that comes with a contract document titled "Terms & Conditions," "General Conditions," or "Subcontractor Agreement." Subcontractors are strongly encouraged to engage a contract lawyer to review these contracts and provide written advice. Here are four key reasons why this is essential.

Improved understanding

A written contract review enables a Subcontractor to properly understand the effect of both the relevant legislation and key terms such as work, payment, variations, insurance, liability, indemnity, control of and access to site, and defects liability period.

If a Subcontractor properly understands the key terms, this significantly reduces the risk of subsequent breaches of contract and costly disputes with the Headcontractor.

Effective summary

A contract review provides a Subcontractor with a convenient summary, which, a Subcontractor can continually revisit to guide its action as fresh contract milestones arise.

An effective summary helps Subcontractors safely navigate through lengthy contracts running over a significant period of time; and contracts with complex clauses and interplay between definitions, Schedules, General Conditions, Special Conditions, and references to Headcontractor policies.

Identifying Risk

A contract review identifies the main sources of risk and the terms which a Subcontractor must promptly and strictly comply with.  Here are three typical risks which are highlighted in a contract review: the situations in which a Headcontractor may terminate a contract, the obligations imposed on a Subcontractor following such a termination; time bars and restrictions such as for claiming an extension of time or compensation from an informal variation notice; or, the circumstances in which a Subcontractor may recover loss for injuries sustained by its workers on site.

Amending a Contract

A contract review identifies ‘deal breakers’ and clauses which pose a high, disproportionate risk for a Subcontractor.  When advising a Subcontractor, a contract lawyer can suitably address a deal breaker in a contract by recommending that a clause be deleted; and/or recommending that a clause be amended to establish a more balanced allocation of risk; and, drafting a viable alternative to the deal breaker clause, ensuring that a Headcontractor’s interests are accounted for in a way that is more less harmful to a Subcontractor.

Conclusion

One of the major misconceptions among Subcontractors is that it is only worth getting legal advice if and when a dispute has commenced.

However, there is often more value for a Subcontractor and less legal costs associated with getting legal advice before a contract has been entered into; rather than getting legal advice after a contract has been entered into and a dispute has commenced, in which case, the Subcontractor is heavily restricted in the available recourse.

Vogt Legal specialises in assisting Subcontractors, including in respect of contract reviews.  

Get in touch today for a free consultation.