Careful planning may keep subcontractors from defaulting

| May 25, 2021 | Contracts

Problems with subcontractors can significantly delay a construction project. When people need to hire subcontractors, they should take steps to ensure that these workers will not default on the project.

Many real estate developers may think that subcontractors are more likely to default when the construction industry is not doing well financially. According to Engineering News-Record, subcontractor defaults are more likely to occur when the industry experiences financial success. This is because some people want to take advantage of all the available projects and overextend themselves. This causes them to run out of capital and workers.

Request pre-qualification

One of the best ways to keep subcontractors from defaulting is to investigate a company beforehand. People should ask to see financial statements from all potential subcontractors. They may also want to evaluate the gross earnings for the past three years. These details can help people determine whether the company has adequate assets to complete the work. Additionally, developers can see whether a subcontractor has a history of defaulting on projects.

Write a detailed contract

Sometimes, subcontractors may default even after people perform a thorough investigation. The Houston Chronicle says that people should make sure the contract includes information about potential defaults. They should list out what kind of work the subcontractor will perform, as well as the consequences for failing to complete the job. People may, for example, include a pay-if-paid clause. This tells subcontractors that they will not receive payment from the contractor if the developer does not approve the work. A clear contract can make the next steps clearer for all parties.

Even with the best precautions, developers may find that a subcontractor still defaults on the work. When this happens, people may need to turn to dispute resolution so that they can finish the project.