ConstructionPro Week, Volume: 5 - Issue: 19 - 05/13/2016

Subcontract Formation Frequently Not Pretty

By Bruce Jervis


Subcontract formation is a problematic aspect of construction contracting. Work is defined and prices are quoted before the prime, or general, contractor has even bid on the project. Prime contractors usually have “standard” subcontract forms, terms and conditions to which a subcontractor may object. It is frequently difficult to determine whether a subcontract has been created, and if so, on what terms?


In a recent case, the parties agreed on the scope of work and price, but haggled over the terms and conditions. The prime contractor said the subcontractor couldn’t commence work without a signed subcontract. The sub proposed an addendum to the prime’s standard subcontract form. More negotiations followed. The sub commenced work without any signed documentation. The prime did not object and allowed the sub to complete its work, at which time the sub requested payment. The prime contractor refused to pay.


A North Carolina appellate court ruled that the prime contractor’s standard terms and conditions were not binding on the subcontractor. No subcontract had been formed. As such, the sub could not claim payment under an express subcontract, but could sue under an implied-in-fact contract.


Scenarios such as this are far too common. Subcontractors perform work without the establishment of clear terms and conditions. If something goes awry, a dispute is almost inevitable. Have you seen similar situations? Your comments are welcomed.



To complicate matters. A good client to GC contract will bind the sub-contractors to the prime contract. Sometimes, sub-contractors either fail to review or are not given the opportunity. Either way the quotes received by the prime contractor are pre agreement or contract. This open the Prime to a change request from the sub contractors that may not be pass on to the client. Negotiation with a sub-contractor could bust the GC budget for that discipline.
Posted by: Tom Ferguson - Friday, May 13, 2016 11:02 AM


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