Get solutions for your legal issue. 612-568-0215
Thompson Tarasek Lee-O'Halloran PLLC

What's in Your Contract?

Some experienced contractors seem to intuitively understand the basic terms of their project. Others may be able to quickly identify two or three key terms to watch for when a subcontract hits their desk for approval. But if you've ever had lingering doubts about what you've agreed to in your subcontracts, here are three key concepts to keep in mind. 

"Incorporated by Reference"

Incorporation by reference allows a contract to include other documents without actually reciting them, word-for-word, above the signature line. This powerful tool is frequently used in construction subcontracts to incorporate the obligations found in the general contract, the drawings and specifications, the general and supplementary conditions, the bond, any addenda, and so forth. These incorporated provisions will apply whether or not you've actually obtained and reviewed them.

If you do not obtain these documents ahead of time, in a very real sense you do not know what your subcontract contains. Is this a pay-if-paid project? Is the contract subject to arbitration? Are there specification sections that affect your work that you haven't yet seen? If you don't have the full picture, the best time to get it is before you sign the subcontract.

Indemnity and Insurance

Minnesota's anti-indemnity law continues to change practically each legislative session. It changed for building and construction contractors in 2013 and after that it changed again, this time for design professional contracts. These legislative changes do not exist in a vacuum - the subcontracts you're being asked to sign are continuing to evolve to address these changes.

For example, many form contracts still require the subcontractor to indemnify the contractor for its own fault or negligence. Such a provision should not be enforceable under the 2013 amendments to the anti-indemnity law, unless one of the remaining exceptions applies. For example, certain types of insurance can be required to cover indemnity obligations, including project specific insurance, and insurance to protect from vicarious liability or liability under a warranty.

Another "loophole" of sorts concerns the idea of a "defense" obligation. Contract law allows you to agree to provide a defense for your upstream counterparts, perhaps even for liabilities that are not permitted by the anti-indemnity statutes. Under this reasoning, your contract could, in effect, require you to hire a lawyer for the general contractor, even for claims where the law does not permit the general to require you to indemnify them.

The best way to address these issues may be to use your resources and be pragmatic. If the indemnity provision is enforceable, your best move may be to work with your insurance agent to confirm that you have the right insurance to cover that obligation. If it is not enforceable, you may have a basis to negotiate a mutually agreeable change to the indemnity provision before you sign the document. If it can't be negotiated, a short conversation with your legal adviser can help you settle on the best approach.

Notice of Lien Rights

Finally, when you enter your subcontract, remember your mechanic's lien rights, which are very powerful collection tools. If you are not paid, a mechanic's lien gives you an enforceable right in the real property that you improved through your work, including the ability to force a judicial sale of that property to pay your bill. The law also allows you to recover the attorney fees you expend in the process. Every experienced contractor can name at least one project where mechanic's lien rights made the difference between a profitable project and a lost cause.

Under the law, mechanic's lien rights cannot be waived ahead of time as part of your contract. Nevertheless, they can be lost if you fail to provide notice of your lien rights to the project owner (sometimes called "pre-lien notice"). If you don't provide this notice when it is required, the mechanic's lien statute says you will not have a lien.

There are several exceptions to this requirement but the bottom line is this: provide the notice anyway. A simple form of notice to owner should be included in all of your subcontracts, and a simple form of notice should be sent to every project owner. Notice to owner is very cheap insurance for your lien rights, and it will save you a lot of headaches when it comes time to collect that final payment.

Conclusion - Know Your Contract

These are just a few practical suggestions, and this article is by no means exhaustive. But even if you only remember these basics, you might just avoid the uncomfortable discovery that you only thought you knew what was in your subcontract.

No Comments

Leave a comment
Comment Information
Email Us For a Response

Learn More About How We Can Help You

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Thompson Tarasek Lee-O'Halloran PLLC

7101 York Avenue S
Suite 255
Edina, MN 55435

Phone: 612-568-0215
Fax: 612-564-6976
Edina Law Office Map