Negotiating a Sub Contract

ctioa-home-maintopimage
CERAMIC TILE INSTITUTE OF AMERICA, INC.
12061 Jefferson Blvd., Culver City, CA 90230-6219

CTC Graduate Field Report

Subject: Negotiating a Sub Contract

By
Gil Chotam, CTC (6/04)

You should build into your company’s routine specific steps to address recurring issues while negotiating fair contract terms.

Develop your own proposal form that, among other things, confirms your understanding about the scope of work, scheduling, and of course, terms of payment. You should consult your own attorney in the development of your proposal form.

Once the general contractor indicates that you will be awarded the subcontract, it is time to demonstrate your concern about being paid promptly by emphasizing your need for fair payment terms. Among the provisions you should pay special attention to those dealing with timing of payment, entitlement to payment, retainage, lien and bond rights, no damage for delay, dispute resolution, and others.

The suggested list below could help subcontractors to identify important and sometimes dangerous contract clauses.

Comment: This checklist is provided for education and illustrative purposes only. It is not to be considered as an exhaustive list of subcontract issues. It is always advisable to consult with an attorney in connection with the negotiation and execution of any contract.

1. Entire Contract

  1. Were representations made by the general contractor which is not included in the subcontract?
  2. Is the subcontractor’s bid document included by reference in the subcontract? If so, have any inconsistencies been resolved? Attach your proposal as an addendum to the contract outlining the scope of work
  3. Does the subcontract refer to the plans and specifications and schedules you relied on in your bid?
  4. If the sub is bound by all the general’s duties as to the owner, is the sub also given the same rights against the general as the general has against the owner?
  5. Does the subcontract require the sub to acknowledge that he has “read the general contract”? If so, review it before signing subcontract

2. Scope of work

  1. Have you reviewed all the documents listed as the construction documents?
  2. Have you reviewed the General Conditions section, including “Order of Precedence”? (What is the order, do specs rule over drawings or do drawings rule over specs?)
  3. Does the contract obligate the subcontractor to the same obligations that the general contractor has to the owner? If so, have you reviewed the general contract?
  4. Is the scope of the work clearly and concisely defined?
  5. Does the scope of work require the subcontractor to perform work to Code even if the plans and specifications do not meet Code requirements?
  6. Is there a broad “drag net” clause requiring sub to fill all gaps in the description of work?
  7. Are the referenced plans and specifications vague or ambiguous? Are you aware of the Contra Proferentum Rule ?
  8. Do the contract specifications include construction methods you are not familiar with?

3. Contract Price

  1. Is the method for determining the cost of extra or additional work defined?
  2. If the contract is a time-and-material subcontract, is the responsibility for each of the items of costs clearly defined?

4. Payment

  1. Is payment to the subcontractor made expressly contingent upon owner’s payment to general? If so, attempt to delete expressed contingency. Risk of non payment due to lack of funding should not be borne by the sub
  2. Is there a provision for interest if payments are not paid within the agreed terms? Consider insertion of annual interest rate for payment not paid within 30 days of when due. (Careful not to exceed maximum lawful rate of interest).
  3. Consider insertion of right to attorney’s fee and other costs of collection incurred to obtain monies owing but unpaid.
  4. Does the payment provision provide for joint checks without first receiving your permission?
  5. Are the dates set out in the subcontract for payment?
  6. Can the subcontractor stop work in the event the progress payments are not timely made?
  7. If there are mechanics lien release forms, who is required to provide them?
  8. Review the lien release forms to ensure that they comply with the appropriate statutory requirements.
  9. Determine from whom you will need mechanics’ lien release forms.
  10. Has the general provided a payment bond to the owner?
  11. Has a copy of the bond been requested?

5. Retention

  1. What amount is applied to retention? Does the general contract call for retention? If so, is the same amount called for by the subcontract?
  2. Will its payment be held up by general’s problems at the end of job?
  3. Does subcontract call for retainage to be reduced to the same level as held against general; otherwise, the general contractor can benefit from over-retaining from its subcontractors and investing such sums for its own use. As a job nears completion, a general contractor that has over-retained from its subcontractors will owe more to those subcontractors than the owner owes. Under such circumstances, a general contractor has little incentive to bring a job to completion.
  4. Is performance bonds provided for under the subcontract? If so, challenge the necessity for retainage; on public work, a contractor must provide a performance bond guaranteeing its completion of the contract. If a contractor defaults on a project the owner has recourse to the surety. There is no need for the owner to hold retainage as a second safety net.
  5. Is payment provided for under the subcontract? If so, challenge the necessity for retainage; a contractor can’t sue for a payment bond if its work is not satisfactory to the terms of the contract. Therefore, a payment bond not only serves as protection against non-payment from the owner, but serves as assurance that work is satisfactory.

6. Time

  1. Does the subcontract describe a specific time for the project to start?
  2. Does the subcontract provide sufficient time for your start after notification?
  3. If the subcontract incorporates by reference a schedule, have you reviewed the schedule and found it acceptable?
  4. Does the subcontract bar you from recovering monetary damages in the event of delays caused by a party other than yourself?
  5. Does the subcontract provide for a reasonable time to notify the general contractor of a delay?
  6. Does the subcontract allow for additional time only in the event of delays caused by persons other than the general contractor or owner?
  7. Does the subcontract provide for unreasonable liquidated damages in the event that the subcontractor causes a delay?
  8. Are liquidated damage clauses from the general contract incorporated by reference into the subcontract?

7. Changes in the Work

  1. Who has the authority to authorize changes in the work? If limited to office personnel, modify it to field personnel.
  2. What are the terms for payment for changes in the scope of the work? Can sub be locked into substantial changes in unit quantities without variation of unit prices?
  3. Does the subcontract require the subcontractor to perform disputed additional or change order work?
  4. Is payment for change contingent upon the general’s receipt of payment from the owner for such changes?
  5. Does the general contractor have an unlimited right to require the subcontractor to provide and perform changes in the work even if the amounts to be paid for change order work have not been defined? Is this acceptable?

8. Bonding of Subcontractor

  1. Does the subcontract require the subcontractor to obtain a bond? If so, are you bondable?
  2. Who is responsible for paying the cost of the bond?
  3. If a bond is required, when must the subcontractor post the bond?
  4. In the event that a bond may be required at any time, will it be sufficient cause to justify ejection of the subcontractor from the job if the subcontractor encounters financial difficulties which prevent him from receiving a bond?
  5. To what extent must the surety company be acceptable to the owner?

9. Liens

  1. What provisions for lien release are in the subcontract? Do they meet California Civil Code requirements?
  2. What obligations are placed on the subcontractor in the event that its sub subcontractors or material men lien the project? Is the subcontractor allowed or required to bond around the lien?
  3. If the project is for numerous single-family detached residences, May the subcontractor lien each individual unit as it’s completed without being deemed in breach of the subcontract?
  4. Is the subcontractor required to keep the project free of liens from its suppliers, even if the general contractor is behind in progress draws?

10. Provisions for Inspection

  1. What right does the general contractor have to inspect work in progress being performed offsite?
  2. What rights do the general contractor and/or the owner have to inspect subcontractor records as to increased costs and/or change orders?

11. Materials and Work Furnished by Others

  1. Does the subcontract require the subcontractor to be responsible for the defective work of others after the subcontractor starts furnishing material or performs work over the work done by other subcontractors?
  2. If the answer to previous question is yes, have you reviewed the work of those other subcontractors?

12. Protection of Work

  1. To what extent is the subcontractor required protecting the work of others?
  2. Must the subcontractor repair work of others even if the work was damaged by parties other than the subcontractor?
  3. Does the subcontractor have insurance which covers him for damages caused by others but assumed by way of this type of contractual provision?
  4. Does the owner or general contractor provide for Builder’s Risk Insurance?

13. Labor Relations

  1. Does the subcontract require the subcontractor to be bound by the general contractor’s union agreements?
  2. Does the subcontract permit the general contractor to terminate the subcontract if another subcontractor refuses to work behind a reserved (dual) gate system?
  3. Does the subcontract language hold the subcontractor responsible for delays due to a labor dispute or picketing directed at it? The subcontractor should be responsible only if it fails to perform where performance is possible. Language requiring the general contractor to set up a reserved (dual) gate system is desirable.
  4. Does the subcontract require payment of state or federal prevailing rate requirements? If so, are the rates specified, and have you added your increased ”paperwork” overhead to your bid price?
  5. If this is a prevailing wage project, is the subcontractor required to independently determine the prevailing wage rates regardless of rates attached to the bid package?
  6. Does the contract allow the general contractors to pay off union trust fund liens and deduct the amount paid from amounts owed the subcontractor, or eject the subcontractor from the job; in the event such a lien is filed?

14. Recourse by Subcontractor

  1. Under what conditions can the general contractor cancel the subcontract?
  2. Can the general contractor cancel the contract for its own convenience?
  3. What constitutes a ”material breach of contract” which would allow the contractor to cancel the subcontract? For example, is there a provision allowing the contractor to cancel in the event of a minor breach of contract?
  4. Does the general contractor have the right within its sole discretion to determine if there is a breach of contract?
  5. What are the remedies in the subcontract for a default?
  6. In the event of a default, is the general contractor allowed to keep the subcontractor’s equipment and materials until the work is completed?
  7. What is the jurisdiction for litigation in California, or another locale?
  8. Is the subcontractor required to continue to perform if there is a dispute between him and the general contractor?
  9. Is the subcontractor required to continue working despite any dispute, including nonpayment?
  10. Does the subcontract allow the contractor to back-charge the subcontractor without notice or prior approval?

15. Indemnification

  1. How broad is the indemnification provision in the subcontract – e.g., does it require the subcontractor to indemnify under all conditions except when the general contractor is solely negligent?
  2. Does the indemnity clause match that included in the contract between the contractor and the owner?
  3. Does the subcontractor’s insurance provide for contractual liabilities, including indemnification obligations assumed under subcontract indemnification clauses?

16. Insurance

  1. Does the owner maintain builder’s risk insurance?
  2. Does the subcontractor maintain comprehensive general liability insurance on an occurrence basis with broad form coverage, including endorsements for excavation collapse and underground, contractual liability, products and completed operations, and premises coverage?
  3. Do you have sufficient insurance to meet the requirements established under the subcontract?
  4. Does the subcontract require you to name the owner as an additional insured under your policy? If so, will the cost of doing so be prohibitive?
  5. Have you reviewed the insurance requirements with your insurance professional?

17. Claims Resolution Procedure

  1. Does the subcontract provide for arbitration? If so, what is the forum for arbitration (e.g., American Arbitration Association)?
  2. Are there limitations on the time in which the subcontractor must request arbitration?
  3. Must the subcontractor wait for the general contractor and the owner to arbitrate an issue of dispute prior to proceeding with his own arbitration?
  4. Is the subcontractor bound by the results of any arbitration between the general contractor and owner?
  5. If there is a dispute over a change order or other continuing dispute, must the subcontractor continue to perform until the project is completed and arbitration commences?
  6. Does the subcontract claims- resolution procedure limit discovery at the time of arbitration or trial?
  7. Does the claims resolution procedure limit the ability to join other responsible parties in the event of a dispute?

18. Safety Practices

  1. Does the subcontract require the subcontractor to indemnify the general contractor for claims of the subcontractor’s employees against the general contractor which are related to OSHA violations? This can result in a double payment; one for workers compensation, and one for reimbursement to the general contractor for recoveries obtained from the general by the employee.
  2. Who is responsible for establishing safety requirements and coordinating safety on the job site?

19. Warranty

  1. Does the warranty in the subcontract represent a contractual obligation or guarantee which would require the return to the site and correction of defective workmanship?
  2. Does the warranty provision require the subcontractor to conform all work to the requirements of the subcontract documents? If so, will the field conditions vary from the specifications and plans?
  3. When does warranty begin to run? From completion of installation or from acceptance by the general or owner?
  4. Are there are any warranty provisions between the general contractor and the owner which are incorporated by reference into the subcontract?
  5. If the subcontractor fails to replace or correct defective work does the subcontract provide remedies that will exceed the actual cost of replacing the defective work?
  6. What effect, if any, do the warranty provisions have on your insurance coverage?

20. Use of Subcontractor’s Equipment

  1. Does the subcontract establish a fee for the use of the controls equipment, e.g., scaffolding?
  2. Does the subcontract fully describe any agreements relative to the use of the contractor’s equipment by the subcontractor?

21. Temporary site Facilities

  1. Who provides?
  2. Who pays for?
  3. Who risk?

22. Assignment of Subcontract

  1. Does the subcontract limit your use of sub-subcontractors on the project?
  2. Does the subcontract allow the general contractor to assign the subcontract to a new contractor without first seeking the subcontractor’s approval?

23. Independent Contractor
a. Does the independent contractor clause fully describe your relationship with the general contractor?

24. Clean-Up

  1. Who provides for the clean-up?
  2. Who pays for the clean-up?
  3. Are there any provisions for back-charging clean-up work, and at what rate?

25. Attorney’s Fees

  1. How broad is the subcontract clause concerning attorney’s fees? e.g., does it allow attorney fees incurred for acts short of actually filing a lawsuit?
  2. Are the attorney fees recoverable in arbitration proceeding as well as in litigations?

26. Special Provisions
a. Do special provisions typed in or included as addenda fully describe any oral agreements or understandings that you have with the general contractor?

Note: The term “Education through Association” have a very significant meaning, when it comes to discussing this subject matter. The American Subcontractor Association has done and still doing a tremendous work educating its members. I’d highly recommend anyone (but at least any subcontractor) interested or involved with reading, modifying or creating a contract to join the ASA

Example of special provisions you may add to your Bid/Proposal form
1. [Subcontractor] will not provide any work which is not part of the Ceramic Tile Trade (C-54) including but not limited to:
a. Disconnecting, connecting and moving of appliances.
b. Disconnecting, connecting and moving of plumbing items.
c. Cutting and refitting of carpet and linoleum type flooring.
d. Disconnecting and refitting of wood base.
2. [Subcontractor] will not be held liable for any damages resulting out of work which is requested by the contracting party and which is not part of the Ceramic Tile Trade (C-54).
3. Before demolition of counter tops contracting party is expected to remove or protect contents of cabinets. [Subcontractor] will not be held liable for any damages occurring to contents of cabinets.
4. Grounds, anchors, plugs, hangers, door frames, electrical, mechanical, and other work in or behind tile / and or slab shall be installed before tile / and or slab work is started.
5. All materials must be selected and approved prior to commencement of work and an installation schedule must be established. If selected materials are to be changed by contracting party involving another delivery trip, an additional charge will be added to the contract.
6. The contract amount is based on new construction only, although we will do our best to keep the work area neat and clean [Subcontractor] will not be held liable for any damages to items that has been prematurely installed or delivered to the house. These items include but not limited to: carpets, hardwood floor, wall paper, new paint or any other items that was delivered to the house because of urgencies of the contracting party.
7. [Subcontractor] will not start measuring, scheduling crews for work, or installing unless all pertaining items are ready and prepared as discussed beforehand with all responsible parties. If [Subcontractor]is directed to begin or proceed work on the project and the project site is not prepared for tile/stone installation or being occupied by other trades, preventing us from working, a special trip charge of $000.00, per person will be added to the contract
8. Should Subcontractor’s payment be delayed because (a) Owner fails to make timely payment of amounts certified and approved, or (b) Owner Representative fails to make timely payment after receiving funds from Owner for contract amount. [Subcontractor’s] work, or (c) because Owner declines to approve or certify payment for reasons not the fault of or directly related to [Subcontractor]may suspend work after giving at least three (3) days written notice to Owner of the intent to suspend and the date of intended suspension. Should the [Subcontractor’s] work be thereafter suspended for at least 21 calendar days, [Subcontractor] may terminate this Contract upon written notice of termination to Owner.
9. No provision of this Contract shall serve to deny [Subcontractor’s] entitlement to full payment each calendar week for properly performed work or suitably stored materials. Payments shall be due seven (7) days after Billing Package is received by Owner from
10. Interest shall become due and payable on any of [Subcontractor’s] Invoice that remains unpaid after the payment due date. The rate of interest shall be 1 ½% per month, or as follows:
11. [Subcontractor] shall be entitled to an equitable adjustment in the price of the work, including but not limited to any increased costs of labor, including overtime, or materials, resulting from any change of schedule, acceleration, out of sequence work or delay caused by others for whom [Subcontractor] is not responsible. [Subcontractor] shall not be required to commence or continue work unless sufficient areas are ready to ensure continuous work.
12. If contracting party elect to purchase his own tile/stone material, but require the subcontractor to provide him with material takeoff; Materials quantities estimates provided by [Subcontractor] are provided as a service and are not intended to be a warranty as to quantity of tiles required by the buyer.
IN NO EVENT SHALL [SUBCONTRACTOR] BE LIABLE FOR ANY DAMAGES WHICH MAY RESULT FROM SHORTAGES OR OVERAGE OF TILES. BUYER EXPRESSLY ASSUMES ALL RESPONSIBILTIES REGARDING QUANTITY OF TILES ORDERED
13. If an architect is not involved, the builder is expected to have expert knowledge of complete system design, or provide it. If the [Subcontractor] is consulted, [Subcontractor] will limit himself to merely suggesting that the sub-floor system provided by the builder is compatible with the underlayment/tile installation system he is going to install. In no event [Subcontractor] be liable for any damages, whether in contract or in tort, stemming from the structural integrity, i.e. type of floor joists, spacing of the joists, length of span and deflection including any damages which may result from the improper selection and/or placement of substrate material
14. If concealed or unknown physical conditions are encountered at the jobsite that differ materially from those indicated in the contract documents or from those conditions ordinarily found to exist, the contract amount and the contract time shall be equitably adjusted.

Example of Addendum to subcontract
Note: The American Subcontractor Association has created a much more comprehensive version of such addendum, which is being updated regularly and is provided free for its members

ADDENDUM TO SUBCONTRACT

Subcontractor hereby accepts the terms of the attached subcontract subject to Contractor’s agreement with the terms set forth in this Addendum which shall supersede any conflicting terms in any other contract document. Any of the Contractor’s terms or conditions in addition or different from this standard addendum are objected to and shall have no effect. Contractor’s agreement herewith shall be evidenced by Contractor’s signature hereon or by permitting Subcontractor to commence work for the project.

1. Subcontractor shall be paid monthly progress payments on or before the 30th of each month and can be extended only for a maximum period of 60 days for the value of work completed plus the amount of materials and equipment suitably stored on or off site. Final payment shall be due 30 days after the work described in the Proposal is substantially completed. No provision of this agreement shall serve to void the Subcontractor’s entitlement to payment for properly performed work or suitably stored materials or to require the Subcontractor to continue performance if timely payments are not made to Subcontractor for suitably performed work or stored materials or to void Subcontractor’s right to file a lien or claim on its behalf in the event that any payment to Subcontractor is not timely made.

2. The Contractor will withhold no more retention from the Subcontractor than being withheld by the Owner from the Contractor with respect to the Subcontractor’s work.

3. All sums not paid when due shall bear an interest rate of 1½% per month or the maximum legal rate permitted by law whichever is less; and all costs of collection, including a reasonable attorney’s fee, shall be paid by the Contractor.

4. No back charges or claim of the Contractor for services shall be valid except by an agreement in writing by the Subcontractor before the work is executed, except in the case of the Subcontractor’s failure to meet any requirement of the Subcontract Agreement. In such event, the Contractor shall notify the Subcontractor of such default, in writing, and allow the Subcontractor reasonable time to correct any deficiency before incurring any cost chargeable to the Subcontractor.

5. Contractor is to prepare all work areas so as to be acceptable for Subcontractor work under the subcontract. Subcontractor will not be called upon to start work until sufficient areas are ready to insure continued work. The Contractor shall furnish all temporary site facilities including suitable storage space, hosting temporary electrical and water at no cost to Subcontractor.

6. Subcontractor shall be given a reasonable time in which to make delivery of materials and/or labor to commence and complete the performance of the contract. Subcontractor shall not be responsible for delays or defaults where occasioned by causes of any kind and extent beyond its control, including but not limited to: delays caused by the owner, general contractor, architect and/or engineers, delays in transportation, shortage of raw materials, civil disorders, labor difficulties, vendor allocations, fires, floods, accidents and acts of God. Subcontractor shall be entitled to equitable adjustment in the subcontract amount for additional costs due to unanticipated project delays or accelerations caused by others whose acts are not the Subcontractor’s responsibility and to time extensions for unavoidable delays. The Contractor shall make no demand for liquidated damages for delays in excess of the amount specified in the subcontract agreement and no liquidated damages may be assessed against Subcontractor for more than the amount paid by the Contractor for unexcused delays to the extent actually caused by Subcontractor.

7. The Subcontractor’s equipment and work are guaranteed for a period of one year from the date of substantial completion or use by the Contractor’s customer, whichever is earlier.

THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
The exclusive remedy shall be that Subcontractor shall replace or repair any part of its work which is found to be defective. Subcontractor shall not be responsible for damage or defect caused by abuse, modifications not executed by the Subcontractor, improper or insufficient maintenance, improper operation or normal wear, tear and usage.

8. Work called for herein is to be performed during Subcontractor’s regular working hours. All work performed outside of such hours shall be charged for at a rate or amounts agreed upon by the parties at the time overtime is authorized.

9. Contractor shall, if the Owner does not, purchase and maintain all risk insurance upon full value of the entire work and/or materials delivered to the jobsite, which shall include the interest of Subcontractor.

10. The Subcontractor shall indemnify and hold harmless the contractor, Owner, Architect or others from damages only to the extent such damages were caused by any negligent act or omission of the Subcontractor or anyone for whose acts the Subcontractor is liable.

11. Should Subcontractor’s payment be delayed because (a) Owner fails to make timely payment of amounts certified and approved, or (b) Contractor fails to make timely payment after receiving funds from Owner for Subcontractor’s work, or (c) because Owner declines to approve or certify payment for reasons not the fault of or directly related to Subcontractor’s work, then Subcontractor may suspend work after giving at least five (5) days written notice to Contractor of the intent to suspend and the date of intended suspension. Should the subcontractor’s work be thereafter suspended for at least 21 days, Subcontractor may terminate this subcontract upon written notice of termination to contractor.

Dated: ________/________/________

Contractor: ____________________________

Subcontractor: __________________________
By: __________________________________

By: ___________________________________
Title: _________________________________

Title: __________________________________
Example of Amendment to subcontract:
AMENDMENT TO CONSTRUCTION SUBCONTRACT
BETWEEN [SUBCONTRACTOR] AND [GENERAL CONTRACTOR]

The subcontract dated December 10th, 2002 with Exhibit A dated March 1, 2002 for 2nd and 3rd Floor Tile and Stone is hereby be amended as follows:

1. As noted in Exhibit ‘D’, item #3, Owner approved PCO#348 provides for invoicing a 50% deposit for slab and stone materials based on approved submittals and the schedule of values and will be paid against invoice. A copy of approved PCO#347 is attached. A Schedule of Values will be attached to the invoice for 50% deposit.

2. Material Deposits: No retention will be held on the deposits for materials. See item #3.

3. When materials are delivered to the site [Subcontractor] shall inventory the materials and coordinate with the General Contractor for concurrent review by the Interior Designer. [Subcontractor] shall then submit a written confirmation to the General Contractor that all materials are complete (no missing tile, correct material, no chipped or broken tiles, etc.) stating acceptance by [Subcontractor] with an attached approval from the Interior Designer. With this written confirmation, an invoice for the balance of 50% for the materials on site, either in total or for materials as specifically identified in the review/confirmation, will be submitted for payment with no retention held. Such invoices will be processed per the provisions of this Contract Amendment.

All materials will be ordered per approved submittals and samples. Deviations in shade and veining will not be reason for disapproval by the Owner and/or Interior Designer based on the following disclaimer from [Supplier]:
Marble, Travertine, Granite and Limestone are products of nature and no two pieces are exactly alike. You and your installer must inspect the material prior to installation and prepare any blending required to meet contracting party approval prior to installation. Absolutely no claims will be accepted for any reason after material is installed.
All stone material sold is subject to variation in shade. Absolutely no allowance made on tile & stone material after installation. No guarantees made against crazing. No claims considered unless made within 15 days after receipt of goods. Under no circumstances will our responsibility exceed the cost price of the tile supplied to our costumers. All sales made in accordance with [Supplier] “limited warranty policy”. No warranties and representations other than representations set forth on this statement, whether expressed or implied in law, are made and, in lieu of such warranties and representations, the sole responsibility of [Supplier] and [Subcontractor]is as set forth herein.

If any materials are missing from a delivery or damaged, with mutual agreement by the Owner Representatives, [Subcontractor] and the General Contractor, a dollar amount sufficient to complete this item shall be agreed upon by all parties and withheld from the invoice until such material is delivered to the site and accepted per the provisions of item #3. Sufficient amount shall be 2 times the actual cost of the material missing or to be replaced.

4. When a specific area is installed 100% complete, being a zone, ½ of a zone, or a portion of a zone, [Subcontractor] will notify General Contractor in writing that the ‘area’ is complete and ready for punch list review. The General Contractor shall promptly establish a correction punch list, which will not exceed 5 working days from notification to General Contractor that the zone, area or specific rooms are 100% complete.

5. A written punch list of items requiring correction or completion will be given to Bathman Tile and Marble, Inc.; when they consider punch list work complete, and before its workers leave the site, they will submit written notification to the site superintendent that the punch list work is complete and ready for final acceptance review.

6. With receipt of notification, General Contractor will schedule an acceptance review meeting with Owner representatives, Interior Designer and General Contractor as quickly as possible and not to exceed 5 working days from receipt of notification. A [Subcontractor] representative shall be present at the acceptance review meeting.

7. With approval by Owner representatives and General Contractor of the given area, an invoice for 10% labor retention will be submitted by [Subcontractor] The General Contractor will then include this retention invoice in the most current month’s payment request to the Owner. Since this date cannot be foreseen relative to monthly payment request dates, and with the understanding that interim invoices will not be submitted, the retention invoice will be paid to [Subcontractor]within 30 days but not to exceed 60 days from the date of receipt of the retention invoice.

8. With mutual agreement by both the Owner Representatives and General Contractor, final approval may be issued for an ‘area’ even if a specific punch list item is left to be completed. The dollar amount sufficient to complete this item shall be agreed upon by all parties and withheld from the retention invoice until the specified punch list item is complete, at which time the remaining invoice will be submitted per the terms of the Contract Amendment. The sufficient amount shall be 2 times actual labor cost for the specific work to be completed.

9. 100% progress billings and notification of completion for punch list review can be concurrent, or within the same monthly period. Notification for punch list review can be submitted prior to 100% progress billing if the work is 100% complete but the date of completion occurs prior to the monthly invoice submittal date of the 20th.

10. The above procedures will continue until all areas, zones, guest rooms and common areas are 100% complete.

11. Monthly progress billings for work not yet 100% complete and ready for final inspection will be invoiced per contract as progress invoices with 10% retention on the labor amount.

12. Invoices for retained funds per the above amendment terms, or release of invoiced retention funds will not be delayed or put on hold due to change order work requested by the Owner at the specific area of work for which a retention invoice has been submitted.

13. [Subcontractor] will remain responsible for materials on site until they are installed complete and accepted by the Owner Representatives, including material damage, material shortages, protection during storage, transporting into the building and during installation. The Owner and/or General Contractor will not be responsible for any materials supplied by [Subcontractor] per contract section 11, Indemnification subsection 11.3 Risk of Loss and Section 19, Protection of Work, regardless of payments to [Subcontractor for such materials, until they are installed and accepted.

Signed:

_______________________________________________________________ __________________________________________________________________
[SUBCONTRACTOR] [GENERAL CONTRACTOR]

Date: _______/______/______ Date: _______/______/______

Contra Proferentum Rule.

The rule is expressed in Anson’s Law of Contract; a version approved by SCC in Hillis Oil (1986), 71 N.S.R. (2d) 353, 360.
” The words of written documents are construed more forcibly against the party using them. The rule is based on the principle that a man is responsible for ambiguities in his own expression, and has no right to induce another to contract with him on the supposition that his words mean one thing, while he hopes the court will adopt a construction by which they would mean another thing, more to his advantage.”

Or, as found in Cheshire and Fifoot’s Law of Contract (9th Ed.), at pp. 152-3.
” If there is any doubt as to the meaning and scope of the excluding or limiting term, the ambiguity will be resolved against the party who has inserted it and who is now relying on it. As he seeks to protect himself against liability to which he would otherwise be subject, it is for him to prove that these words clearly and aptly describe the contingency that has in fact arisen.”

(This passage was approved by Estey, J., in Consolidated Bathurst v. Mutual Boiler [1980] 1 S.C.R. 888,900-901, who went on further to say: “Even apart from the doctrine of ‘contra proferentum’ as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract.”

Cacchione, J., in Weir v. Canada Post Corp. (1995), 142 N.S.R.(2d) 198: [34] In Hillis Oils v. Wynn’s [1986] 1 S.C.R. 57; … 71 N.S.R.(2d) 353; … 25 D.L.R.(4th) 649, Justice Le Dain, writing for an unanimous court, found an ambiguity in the relevant clause and stated at p. 657 D.L.R.:
‘The rule is, however, one of general application whenever, as in the case at bar, there is ambiguity in the meaning of a contract which one of the parties as the author of the document offers to the other, with no opportunity to modify its wording.’

“[35] In applying the ‘contra proferentum’ rule to Clause 11.3 it was incumbent on the drafter of this contract, the defendant, to use clear and unambiguous terms on the effect of the second sentence in Clause 11.3 if it actually wanted to include a unilateral, untrammeled termination provision irrespective of the other termination and default provisions contained in the contract. The defendant’s proposed interpretation is, in my view, simply a self-serving attempt to justify its unjustified termination of the plaintiff.
” [36] Accordingly, Clause 11.3 did not authorize the defendant to unilaterally terminate the contract as it did and the defendant is, therefore, liable for this breach of contract.”

References:
ANSI For the Installation of Ceramic Tile 1999
AIA A201 and A401
William C. Last, www.lhfconstructlaw.com
American Subcontractor association, www.asaonline.com
Guidelines for a Successful Construction project (Associated General contractor of America, American Subcontractor association, and American Specialty Contractors (2002)