The Early Warning Signs of Subcontractor Default Part 1
Our Clearwater construction attorneys know that one of the biggest risks general contractors and construction managers face is the risk of subcontractor default. When a subcontractor defaults, costs increase, delays happen, and the reputation of the contractor and owner is damaged. The good news is that some issues can be caught early. This article will share some of the tell-tale signs that a subcontractor may default. Part two will conclude this series.
Incomplete and Inaccurate Contract Documents
The first warning sign that a subcontractor may default is a poor presentation of contract documents. Contract documents that are inadequate increases the risks for all parties in the form of cost increases and project delays. These cost overruns and project delays lead to claims for time extensions and demand for more compensation. These demands are met with resistance from owners; if a litigation ensues, parties will require the expertise of a Clearwater construction attorney.
An Increase in Change Orders
Project changes are inevitable on some projects. Change orders are a tool which helps to manage those changes. As one would imagine, the mismanagement of these change orders can create a host of problems. If a subcontractor fails to use them properly either by forgetting to complete them or forgetting to bill clients altogether, this can add confusion to projects. Additionally, a default can result when a subcontractor abuses change orders by bidding low on projects and than later submitting numerous change orders. This can cause the contract price to increase. Additionally, a subcontractor one who performs work on unwritten change orders may also potentially default.
A Weak Surety-Subcontractor Relationship
A weak surety-subcontractor relationship is a sign that the subcontractor has not been properly vetted by the surety. Sureties provide bonds to contractors that are qualified. It is the surety’s responsibility to evaluate a subcontractor’s ability to perform the work that needs to be bonded and to consider the subcontractor’s character, capacity, and finances prior to providing the bond. A surety bond is the best way to prevent subcontractor default and to ensure that payment is made to the subcontractor’s subs and suppliers.
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.