PCCA Journal|4
th
Quarter 2010
23
immunize a contractor from having
to pay twice for its subcontractors’
debts. The solution to the problem is
only partial and involves a series of
steps, the totality of which will cover
most of the problem.
Intake
The first step involves subcontrac-
tor selection. Pay attention to the
quotes you receive and the experi-
ence of those who are quoting. If
one subcontractor quote is markedly
lower that the rest, be suspicious
and inquire. If the subcontractor
is one not normally quoting that
particular kind of work, be suspi-
cious. Lean economic times often
cause subcontractors (and general
contractors) to venture off into areas
of construction work for which they
are ill equipped, and therefore they
are ignorant of the some of the most
important price considerations. Ad-
ditionally, even experienced subcon-
tractors bid work cheaply in order
to keep their crews busy so as not
to lose them to competitors. Unfor-
tunately in the heat of bid prepara-
tion, there is not time for thoughtful
reflection so your analysis must
be immediate and quick. Common
sense must be your guide here: if
something looks too good to be true,
it probably is not true.
Bond and Lien Waivers
Next, as a condition of periodic
payments to your subcontractors,
demand lien and bond claim waiv-
ers from subcontractors at any tier,
and that means sub-sub-sub-subcon-
tractors and suppliers. The problem
is that many general contractors do
not even know who their immediate
subcontractors have used as sub-
subcontractors, let alone who that
subcontractor used as a subcontrac-
tor. Even if you obtain lien waivers
from every entity of which you are
aware, unless everyone in the chain
has made full disclosure, there will
be those of whom you are not aware
and therefore against whom you
cannot protect yourself. Neverthe-
less, you could protect yourself from
substantially most of the potential
claimants by requiring two things:
(1) require your subcontractors to
disclose in writing the existence
of any subcontractors and supply
contracts they have entered into and
(2) require lien waivers from your
subcontractors and those sub-sub-
contractors and suppliers, and if the
sub-subcontracts are large enough,
from even the sub-sub-subcontrac-
tors themselves. The effectiveness of
this portion of the cure depends on
the truthfulness of your subcontrac-
tors. The waivers should contain
an indemnity clause such that if a
payment does not get passed down-
stream and the general contractor
has to pay twice, the subcontrac-
tor agrees to assume the financial
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