How to Deal with One-Sided Contracts

By: Rex A. Christensen, Esq.

Signing a contract for a large job can be both exciting and intimidating. The prospect of working on a high-profile project conjures thoughts of increased visibility for your company and additional work resulting from a job well done. Unfortunately, on almost any medium to large project, each subcontractor will be required to sign and agree to a long and complex subcontract. It would be difficult for any contractor to understand everything in the standard subcontract agreement an overwhelming stack of documents including general terms and conditions, special terms and conditions, plans and specifications, cross- references to building codes and industry guidelines, and other confusing terms. Almost every one of these terms is calculated to give an advantage to the general contractor.

Many contractors simply sign these contracts and hope for the best. Although such blind faith can work on occasion, some simple steps can make the contracts more agreeable.

1. Ask the General to Change Certain Terms. Remember, general contractors like to use the same contract with each subcontractor for the sake of simplicity. As long as they are using their standard contract, you can expect that it will favor them in almost every detail. This does not mean that they are unwilling to negotiate. Remember, the general has selected you as its subcontractor, and may agree to remove or replace a few of these one- sided terms to close the deal. What the general loses in simplicity it makes up by getting the subcontractor it wants.

2. Remember That Not All Contract Terms Are Enforceable. Some contracts contain unenforceable terms. For example, most subcontracts contain a "pay-when-paid" clause. A valid pay-when-paid clause means that the general has no obligation to pay you until he is paid by the owner. Under Arizona law, however, these clauses are enforceable only if they contain certain wording. Similarly, a contract which runs contrary to the prompt- payment laws can only be enforced if it meets certain statutory requirements.

These are just two examples of contract terms which may not be enforceable. Unfortunately, unless you know they are unenforceable, you are likely to simply accept them at face value. For this reason, if you are concerned about a particular contract provision, and if you have been unable to convince the general contractor to change it, consultation with an attorney about the enforceability of those terms may be appropriate.

3. Be Willing to Walk Away From A Bad Contract. In the end, your best defense may be your willingness to walk away from an unfavorable contract. It is true that even a bad contract can have some good consequences it may allow you to keep your business open and meet payroll until a good project comes your way. However, the negative effects of entering into a one-sided contract will often outweigh the good. At best, a one-sided contract will tie up your resources so you are forced to pass on the next good job that comes along. At worst, such a lopsided agreement may cause you to lose your profit (or even more), which in turn may force you into litigation or bankruptcy.

Be careful when entering into a new contract. Although you will never be able to convince a general contractor to get rid of all the one-sided wording in a contract, with a few prudent changes to the contract and an understanding of which terms will be enforceable, you can go into the new project with confidence.

Construction Law Articles

By: Rex A. Christensen, Esq.
Rex A. Christensen, Esq.
CHRISTENSEN LAW FIRM
2168 East Williams Field Road, Suite 200-A
Gilbert, Arizona 85295
(480) 378-2400
rex@rexachristensen.com