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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. ENRs 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 workany workwill
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 dont 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?
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