Thanks to the Unfair Terms for Small Business, we believe that the tide is finally turning for subbies to negotiate their subcontracts. This is a true and positive story about a subcontract negotiated by a subcontractor.
Frequently, subcontracts are signed without amendment, mostly because most subbies think that unless you sign it without amendment you won’t get the work. But about a month or two ago we were involved in negotiating a subcontract in which the builder agreed to about 90% of the changes the subbie requested (and we wrote).
The part that is really unusual about this case was:
There was no existing relationship between the subcontractor and the builder;
The Unfair Terms for Small Businesses did not apply; and
The subcontractor negotiated the changes (we just wrote them).
The Back Story
The subbie came to us with a 110 page Australian Standard subcontract. It had been substantially changed – all against our subbie. Due to the confusing nature of the contract it was very hard for the subbie to identify which clauses were nasty and which ones were okay.
No previous relationship
There was no existing relationship between the builder and the subbie, which caused our subbie to be nervous because they were unsure about the builder’s ability to pay or how the builder treated its subbies.
Unfair Terms
It was a short term contract and the contract price was over $1million so the Unfair Terms for Small Business did not apply. However, we are still until this day unsure whether the builder knew that. Perhaps the builder agreed the changes because the builder thought the new law applied to the contract because our subbie was a small business.
Want to read more about Unfair Terms for Small Business?
Subbie Negotiated
As a law practice we were very mindful to keep the subbie in control of the negotiation. We prepared amendments (with commentary), equipping the subbie negotiator to better understand the contract and make the best decisions for his business on what to negotiate.
There were a number of rounds of amendments during negotiations where the builder would accept some and then re-amend other parts, and where we carefully checked the changes and re-advised the subbie each time. In the final phase of the negotiation we went through the final changes and advised which were the “must haves” and which were the “nice to haves”. For other more recent negotiations, we have colour coded the amendments to help our subbies even further with their negotiations.
Although some of the clauses were “nice to haves” our amendments were not necessarily one-sided and merely sought to restore balance and fairness to the contract and remove as many of the extremely risky clauses included. At all stages the subcontractor was in control of what was negotiated and shared with the builder, with us working quietly behind the scenes in support of the subbie.
How much did it cost?
As a business owners we understand it is a balancing act between getting good advice and the cost you pay for that advice. When looking at legal fees, it’s important to think about what your financial risk is. Most subcontracts come with at least 10%- 30% risk. If you could reduce the risk by at least 10% by spending less than 1 or 2% on legal fees wouldn’t it be worth it?
In this case the subbie spent approximately 0.5% of the contract price on legal fees.
So what does this mean for you?
Although a contract may look okay, a number of very nasty clauses can be deceiving and are only nasty once viewed in light of legislation and case law so it is always best to get a construction lawyer to look over the contract.
If you are a small business and the contract is for less than $300,000 or the contract is less than $1 million and it is over 12 months you may be able to rely on the Unfair Terms for Small Business in your negotiations.
Even if the Unfair Terms for Small Business does not apply (or you are not sure), try negotiating your contract and see what happens. You might be nicely surprised; our client subcontractors certainly have been!
If you have a construction lawyer look over your contract it does not mean that you have to lose control of the negotiation.
If the builder will not negotiate and there are harsh terms in the subcontract, assess the risk of those harsh terms occurring and whether the deal is actually worth agreeing. Some contracts are just bad deals and it is better for your budget, business and wellbeing to simply walk away.
Cautionary Tale: On at least two occasions, we have been able to warn subbies when the contract was so bad that we believe the builder just had no interest in paying at all. On those occasions the builder was insolvent within 6 months of our warning.
Contact Us
For a conversation about your matter, call our friendly team at 07 3128 0120 or contact us here.
