- Features | April 13, 2017
Top 10 Specialty Contract Provisions to Include, Exclude, or Modify
Specialty contracts control the relationship between a specialty contractor and a prime contractor or, in some cases, a project owner. So it is important for specialty contractors to negotiate their contracts to be, at least, mutually beneficial to the parties and, if possible, favorable to the specialty contractor. Of course in reality, some parties take a hard line on their contracts and refuse to negotiate, which might lead one to question the advisability of entering into a relationship with such parties. In any event, when negotiation is possible, consider the following points:
Include Coordination and Supervision Obligations
The duty to coordinate and supervise work is one of the most important obligations of a prime contractor. Because trade and specialty contractors generally do not contract with each other, they do not exert control over each other, such as enforcing schedule deadlines and coordinating work in a sensible sequence. The failure to properly perform these key functions can wreak havoc on a specialty contractor’s job performance. It is, therefore, a good idea to expressly impose the obligation of coordination and supervision on the prime contractor. This is true; even though in some states the law imposes the obligation even if not stated in the contract.
Include Schedule Obligations
The duty to establish and maintain a schedule is another typical obligation of a prime contractor. But many specialty contracts expressly or implicitly allow the prime contractor to modify the schedule at will, sometimes causing hardship and additional costs to the specialty contractor. This is particularly true for specialty contractors at the end of a job, such as electrical and mechanical trades. To limit the associated risk, specialty contracts could include a provision that requires scheduling activities to be coordinated with specialty contractors and other trades, with their input being ncorporated into each schedule and update. Some contracts go further and require scheduling in a manner that allows the specialty contractor to efficiently perform its scope. By including such provisions, a specialty contractor would have more leverage to obtain additional compensation or other concessions when schedule changes have negative impacts.
Include Payment Deadlines and Interest
If the project owner or prime contractor needs financing, the place to go is a bank - not its specialty contractors. But when they withhold or delay payment without justification, the project is funded off the backs of specialty contractors. To remedy this problem, specialty contracts should include payment deadlines and, if payment is not received on time, the imposition of interest. The interest rate should be high enough to encourage prompt payment, but not higher than applicable usury laws.
The federal government and some states have prompt payment statutes. If these statutes provide sufficient protection, then it is not worth using up any scarce negotiation leverage on a payment deadline or interest provision. But if the statute is inadequate or requires incorporation of the statutory provisions, such as the federal government’s prompt payment statute, then it is necessary to include them.
Include Termination or 4 Suspension Provisions for Specialty Contractor
Most specialty contracts allow the project owner or prime contractor to terminate for cause or for convenience, but few extend the privilege to specialty contractors. Those who have the bargaining power should consider including a provision that permits the specialty contractor to terminate or suspend the contract for certain important defaults. Though most states permit termination for a material breach of the contract, it is not always obvious which breaches rise to a material level. So termination or suspension provisions permit the specialty contractor to identify certain defaults that permit it to suspend work or terminate the contract and end the relationship. Such defaults may include failure