Contracting for Profitability for Subcontractors in the Trades
It’s Women in Construction Week and a good time to discuss how subcontractors in the trades (plumbing, heating, electrical, etc.) can maximize the value of their contracts.
It’s no secret that contracting as a subcontractor is a challenging undertaking. If you consider the order of priority, a subcontractor’s interests fall below the interests of the owners, investors and contractors.
Subcontractors are often asked to take on a significant portion of the risk—funding work for undefined periods of time. And with competition so fierce for every job, many subcontractors are reluctant to push back on the unfavorable terms.
Here’s the reality. Contracts are meant to be negotiated. Here’s another fact. If you don’t ask, you will never receive.
What should you ask for? It depends a lot on the deal, but there are some foundational asks that will help ensure you’re contracting for profitability.
Refuse “pay when paid.” When you accept “pay when paid” you’re saying that the contractor is only obligated to pay you if they get paid. You risk investing hundreds of thousands of dollars into material and labor and may never see a dollar. Nothing eats into profitability like delinquent accounts.
Refuse unlimited liability. Every contracting party wants to ensure they are off the hook should an issue arise. Contractors and Owners are no different. You as the subcontractor should not agree to take on full liability for anything that may go wrong during the project. Limit the scope of your obligations (indemnity or liability) directly to the work performed by you and your personnel. Anything else is not your responsibility.
Reject unlimited warranty work. Never sign a contract that requires you to warrant the work for an undetermined period of time. Wear and tear are real. Your work will not last until the end of time, and you should never claim it will. When you make warranties without time limits, you are promising to perform warranty work indefinitely. That’s an unknown, potentially costly drain on your revenue. If you do decide to take that risk, your payment under the contract should reflect that increased risk.
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