For the past three years, U.S construction companies have been dealing with a struggling market. Starting in early 2001 and accelerated by the 9/11 attacks, the construction climate has cooled outside homebuilding. No one knows this better than subcontractors. ENR’s Top 600 Specialty Contractors ranking and analysis reflect this trend, with revenue for the group falling for the third straight year (see p. 38). Only recently have specialty contractors had a slight turnaround.

Any time the market is tough, contractors become more aggressive. For general contractors, this may take the form of tough and even questionable bidding practices and onerous contract provisions. The victims generally are downstream. Subs in the scramble for work–any work–will take the bait even though it is not particularly palatable. They may end up choking on it, but they also hurt the industry as a whole by creating the illusion that there is an approved open season on subs.

General contractors, in turn, are being pushed and pulled in directions they don’t necessarily want to go by the competition, owners and the markets in general. But if the generals demand and subs accept pay-if-paid, hold-harmless or additional insureds clauses, why should generals stop asking for them?

There are no simple solutions. One possible path is for state legislatures to recognize the problem and provide minimum fundamental protections for subs. At first blush, that only makes sense on public projects where the state may end up holding the bag when a project turns sour. But most state legislatures take the position that construction contracts are matters for the parties to negotiate. This is reflected in the recent analysis of state laws protecting subcontractors by the American Subcontractors Association, Alexandria, Va. New Mexico is the only state receiving a passing grade (barely) for laws protecting subs across the board.

Subcontractors should be savvy enough to understand the nature of the bargains they make. But there is a point where contract terms and business practices become so egregious that government must address them on public policy grounds. There are plenty of examples: usury is outlawed, the courts will not enforce contracts for illegal or immoral purposes and interstate commerce has been an excuse for government to regulate all sorts of business activity.

It is time for state legislatures to reconsider the degree of business abuse being heaped on subcontractors. One place to start is "pay-if-paid clauses," which some states now prohibit. Subs generally have little connection to owners and have no say in general contract negotiations. Why should they take the risk of nonpayment to the general contractors?