Unreasonable subcontract terms should not be agreed to and you should be on the lookout for general contractors who try to force them upon you.

Roofing contractors often serve as subcontractors for general contractors or project managers under subcontract agreements. Unfortunately, as a subcontractor, you do not always have the ability to have much say in the form of subcontract agreement adopted by the general contractor. Depending on economic and market conditions, general contractors may have the ability to tell subcontractors who want to renegotiate agreement terms to "take it or leave it." This is a reality of the market place. However, unreasonable subcontract terms should not be agreed to and you should be on the lookout for general contractors who try to force them upon you. You should be especially aware of general contractors with whom you have no prior business relationship and, if the general contractor is unwilling to change unreasonable terms, it is usually a good indication that it is a company with whom you do not want to do business. There are countless ways in which general contractors slant their agreements to their advantage. However, there are common contract terms that can be particularly hazardous to subcontractors such as those that are described below.

Overreaching Indemnification

By indemnifying, the subcontractor promises that it will stand by its work and protect the general contractor from all claims, including those for defective work, injuries and property damage. General contractors generally will not hire subcontractors without the inclusion of such a provision, and they are not unreasonable. Special care must be given to the language it contains, however. What the subcontractor must avoid is a provision that obligates it beyond acts and omissions arising from which it or its employees performed. Indemnification clauses that require the subcontractor to indemnify the general for work beyond the subcontractor's control is not reasonable, and in many states, not enforceable. A reasonable general contractor will agree that the indemnification clause should be limited to only those damages caused by the subcontractor or those under its control.

"No Damage for Delay" Provision

Delays on construction projects can cause a subcontractor increased material and labor costs that severely impact anticipated profit. Obviously, delays caused by the subcontractor are the subcontractor's own responsibility. However, subcontractors may be delayed on a project as a result of the general contractor's disputes with other subcontractors, poor project coordination, lack of funding, or other reasons completely beyond the control of the subcontractor. If a subcontractor is delayed for reasons beyond its control, it should be able to seek compensation for damages sustained. It is not uncommon for a general contractor to try to include a "no damage for delay" clause that states the subcontractor cannot recover for any project delays, regardless of the cause. This type of clause is not favorably looked upon in many states and is usually strictly construed against the general contractor.

If a subcontractor is devoting significant manpower and resources to a project, an unexcused delay can be critical. As a subcontractor, you should do your best to limit the delay provision so that delays beyond the subcontractor's control are compensated.

Liquidated Damages Clause

A liquidated damage clause allows a general contractor to assess a pre-defined fee or fine upon the occurrence of a delay or contract breach by the subcontractor. Generally, liquidated damages are only useful where measuring the actual damages for contract breach is difficult or impossible to ascertain. In most construction situations, damages for contract breach can be calculated and compensated. It is the burden of the general contractor to prove its damages by demonstrating the specific losses incurred as a result of the contractor's breach. A liquidated damage clause usually works to the advantage of the general contractor and allows for agreed fixed sum damages in the event of a breach. These fixed sum damages are usually far beyond the contractor's actual out-of-pocket loss. While liquidated damages are frequently disallowed by many courts, it is the best practice to have it removed from the subcontract before the work begins.

"Termination for Convenience" Clause

A "termination for convenience" clause gives the general contractor the right to terminate a subcontractor at its discretion - with or without cause. Contractors frequently try to include this provision into their contracts to provide them with complete authority over all aspects of a project. When a subcontractor gets terminated according to such a provision, it will get paid for the material and labor costs it has incurred to that date. The major problem with this arrangement, however, is that the expense of construction projects are usually front-loaded, so that subcontractors are actually working at a loss in the beginning; profits are not realized towards the later stages of the project. A subcontractor terminated early in the project without cause or recourse could result in serious unrecoverable losses. If the general contractor is insistent upon having a termination for convenience clause in its subcontract, it should compensate the subcontractor for its pro rata anticipated profits through the date of termination.

Unilaterally Enforceable Arbitration Provisions

Arbitration and other informal dispute resolution processes provide parties with alternatives to courtrooms and lawsuits to have their problems resolved. Because of their relative informality, speed and lower cost, arbitration provisions are appearing with increased frequency in all business contracts, and subcontract agreements are no exception. A unilaterally enforceable arbitration provision gives the right to force arbitration only to the general contractor, allowing it to force arbitration at its own whim, giving no choice to the subcontractor. In this setting, the general contractor can cause the subcontractor to endure the expense and time of court, where it may not have the financial means to compete. Alternatively, the general contractor could force arbitration where presentation of the dispute in front of a jury would provide the subcontractor with a strategic advantage. The subcontractor should ensure that it has equal dispute resolution rights as the general.


Discussing the terms of a subcontract agreement with your general contractor will give you a strong indication at the outset of the project as to how your future relationship will be. General contractors who include unreasonable terms in their contracts and who are unwilling to alter them so they are reasonable are general contractors who want you to assume all the risk and be under their total control. In a perfect word, these are people that you would not want to do business with. However, given the realities of the relationship between powerful general contractors and the possibilities of lucrative subcontract agreements, you may find yourself in a position of not being able to negotiate many terms in their form agreements. Looking for these types of provisions will allow you to start your relationship with the general contractor with your eyes wide open. It is ultimately your decision as to whether to agree to the terms, negotiate them, or say no thank you.