Are You Prepared to Prevent and Recover From a Subcontractor Default? Part 2
Every party to a construction project enters the contract with the intention of performing the job to the best of their ability. However, our Jacksonville construction lawyers understand that construction projects come with their own set of challenges for each party. Subcontractors, in particular, have to carry a large amount of risk which could affect their ability to perform. Unfortunately, defaults can occur if these problems are not prevented. In part one we discussed these potential impacts on projects. In this section, we will give you more tips for preventing and recovering from defaults.
One of the best ways to prevent default is through successful subcontractor selection. This is done through subcontractor pre-qualification where you take the time to assess their ability to complete the project work from a manpower, experience, and financial standpoint. When you do not prequalify subcontractors you are taking a major risk. You need to get familiar with their business, which entails reviewing their safety practices, past litigation cases, and whether they have a surety bonding. If you are unaware of how to determine a subcontractor’s qualifications, you could benefit from the legal advice of a Jacksonville contractor lawyer.
Depending on your professional relationship with your subcontractors, they may or may not divulge when they are experiencing problems. This is why it is critical that you monitor subcontractors consistently for signs of defaulting. Some of the signs that should raise red flags include a delay in project materials, a decrease in their workforce, or late payment to their subs or suppliers.
Ensure They Are Bonded
Protect yourself and manage your risks with subcontractor bonds and subcontractor default insurance. A surety can verify that the subcontractor is qualified to perform the contracted work and will manage the default if one occurs. The subcontractor’s subs and suppliers will be paid by the surety and the project will continue on. In the case of subcontractor default insurance, the general contractor is in charge of prequalifying the subcontractor as well as managing the default and filing a claim. In this case, the subcontractor’s subs and suppliers are not protected in the event that the subcontractor defaults.
When all else fails, you may have to terminate the subcontract, but this requires careful thought. Terminations are costly and may require you to rebid the work which will lead to cost increases and delays. This is why terminating a contract is something you should decide with the legal guidance of a Jacksonville construction lawyer.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.