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This is the second article of a two-part series that identifies some potential traps that subcontractors may find in a

contract. Part one examined payment terms, attorneys’ fees provisions and “incorporation” and “flow-down” clauses.

This article discusses contract provisions that require continuation of the work in the face of a dispute, that require

notice of certain events, and that place limitations one’s ability to recover additional compensation.

1. Continuation of Work

Contracts often have language requiring the subcontractor to continue work regardless of whether the parties are

embroiled in a dispute. This type of clause could impose a serious financial burden if the dispute involves change

order pricing, compensation for acceleration, delays or extras, or the contractor’s withholding of payments for alleged

deficiencies or delays. It essentially forces the subcontractor to continue work even though it is not getting paid.

2. Notice Requirements

The construction subcontract will also likely be filled with language requiring the subcontractor to provide written

notice of certain issues or events. It is extremely important to be aware of these notice requirements as failure to

comply with them can result in a loss of the subcontractor’s rights or a waiver of its claims, remedies and defenses.

The following highlights a few of the areas where a subcontractor is typically required to provide notice:

A. Time Extensions

Subcontractors inevitably encounter delays on the project which are caused by the owner, the contractor or another

subcontractor. These delays sometimes make it impossible or unfeasible for the subcontractor to meet its performance

deadlines. Although the contract may give the subcontractor the right to obtain an extension of time to complete the

work, this right can be lost if the subcontractor fails to provide timely written notice of the delay or to make a timely

written request for extension. The following is an example of a notice requirement that impacts a subcontractor’s right

to seek an extension of time:

             occurred.”

          B. Prefatory Work

In most instances, the work of others must be completed properly before the subcontractor can perform its work.

Subcontracts commonly have language requiring the subcontractor to give written notice of unfinished, deficient or

defective preceding work before the subcontractor commences its own work. These contract clauses typically provide

that a subcontractor, who fails to give timely notice of the nonconforming condition, assumes all liability for correcting

the condition regardless of whether it was caused by others.

          C. Additional Compensation

Sometimes, a subcontractor will incur additional or unexpected costs as a result of acceleration of the work, changed

site conditions, extra work, or even delays or interference caused by the owner, contractor or other subcontractors. The

contract may contain language establishing a procedure for seeking additional compensation for such events.

However, the subcontractor is almost always required to provide timely written notice of its claim. Failure to do so

may preclude the subcontractor from receiving additional compensation. Consider the following example:

“All claims which Subcontractor has or wishes to assert against Contractor must be

             presented in writing to Contractor not later than 10 days after Subcontractor is aware

             or should be aware that a claim will or does exist, even thought the exact nature of the

             claim and the amount of the claim may not be determinable at that time.”

3. Limitations on Recovery of Additional Compensation

The last topic covered in this two-part series relates to contract provisions that limit the amount of additional

compensation. These provisions typically apply when a subcontractor is forced to accelerate the work or perform extra

work, encounters changed site conditions, or is faced with delays or interference caused by the owner, contractor or

other subcontractors. The limitations can be implicit or expressly stated.

Contracts oftentimes implicitly limit the subcontractor’s recovery for claims or additional compensation to the amount

that the contractor may be able to recover from the owner. In this situation, contractors argue that the subcontractor is

not entitled to any additional compensation if the contractor was not successful in recovering from the owner.

Consider the following example:

             recovers from Owner in his recovery on claims.”

Express limitations, on the other hand, restrict a subcontractor’s ability to seek additional compensation on an
item-by-item basis. For example, the subcontractor may be able to recover additional compensation for extra work only
if a formal written change order had previously been issued. Similar provisions apply to overtime. A “no damages for
delay” clause attempts to limit recovery of costs arising from scheduling changes, delays, acceleration and interference

or coordination issues. Here is an example of that type of clause:

In summary, construction contracts often contain language that can trap an unwary subcontractor. The goal of this

two-part series was to make you aware of some of the pitfalls found in typical contract provisions. Our hope is that by

being aware of these “dangerous” provisions, you will be able to implement procedures to review, evaluate and

negotiate each construction contract prior to signing, and to handle disputes should they arise during the performance

of the work.

Douglas Colville is a partner at the law firm of Dymond • Reagor • Colville, LLP

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