By Leslie A. Boe, Dysart Taylor Cotter McMonigle & Brumitt, P.C.

Construction is one of the most demanding industries— rising material costs, complex contracts, tight deadlines, changes in scope of work, and payment disputes can create a constant undercurrent of stress. Over time, that strain doesn’t just affect productivity—it affects mental health, sleep, and overall well-being. The good news is that much of this pressure can be reduced by managing risk—both on the front end, and throughout the project.

The first step to managing risk begins long before work starts –at the contract stage.  It is important for you to understand what contract clauses shift risk from the general contractor to you, and that these are negotiated to alleviate risk. If the general contractor is unwilling to negotiate terms, it may be necessary to walk away from the project.

Once the contract is in place and the focus shifts to day-to-day project management, how you and your team document, communicate, and respond to issues will determine whether small problems stay manageable—or spiral into major stress.

This article will discuss key factors to consider both at the contract stage and once the project is underway to best manage risk, and therefore reduce your stress.

Start Strong:  Better Contracts Mean Less Risk and Less Stress

Negotiating clear, balanced agreements is key to managing risk.  First, it is important to have a clear contract that is understood by all parties.  Unclear contracts create uncertainty, and uncertainty creates stress.   It is important for you to know your rights from the beginning.  For example:  What are your rights if payment isn’t made timely?  When can you stop work? How are disputes resolved -mediation or arbitration or litigation? Do you have to keep working during a dispute? Can you get your attorneys fees paid? Understanding your rights in advance and knowing the path forward protects both your business and your mental health.

Next, it is important to have a balanced contract, so you must review all contract documents carefully to identify clauses that shift risk to you as the subcontractor. These clauses should be negotiated wherever possible.  Key terms you need to be aware of and negotiate or manage during the project include:

• “Pay-If-Paid” Clauses.  If possible, you should replace “pay-if-paid” with “pay-when-paid” clauses.  “Pay-if-paid” clauses, if enforceable in your jurisdiction, will shift all the risk of owner non-payment onto you because the general contractor is not required to pay you if payment is not received by the owner. In contrast, a “pay-when-paid” clause is interpreted by most courts to require payment within a reasonable time.
• “No-Damage-For Delay” clauses.  A “no damages for delay” clause in a subcontract will protect the general contractor from financial liability due to project delays by limiting your remedy for delays to time extensions only.  These clauses should be negotiated to allow you to recover damages for delays beyond your control.
• Overreaching indemnity clauses.  A fair indemnity clause requires a subcontractor to indemnify only for losses caused by its own actions or negligence and not those of the general contractor or owner. While some jurisdictions will not enforce broad indemnity clauses that shift liability to you for other’s negligence, it is best if those clauses are not in your subcontracts to begin with.

An additional contract clause a subcontractor must be aware of is a “flow-down” or “flow-through” clause.  These clauses are found in most subcontracts and require you comply with terms of the prime contract which could impose obligations on you that you may be unaware of.  Because of this, it is important to request and review the prime contract if your subcontract includes a “flow-down” or “flow-through” provision. A typical “flow-down” clause will look something like:

Subcontractor agrees to be bound by all terms and conditions of the prime contract that are applicable to the Subcontract Work, and shall assume toward the Contractor all the obligations and responsibilities that the Contractor assumes toward the Owner under the prime contract.

Stay Strong:  Manage the Project with Confidence

Managing risk throughout performance of the project starts with training and empowering your team to document and communicate effectively.  Proper documentation and communication will reduce the risk of misunderstanding and provide a record of the facts.  When conflict arises, you’ll be confident you have the evidence to support your claims or defenses.  Key matters to train your team on include:

• Document the project effectively. Daily reports, photos, invoices, and project emails aren’t busywork—they are necessary.  Good claims and defenses are lost when proper documentation doesn’t exist to support them.  A solid paper trail turns “he said, she said” into “here’s the record.”
• Track Notice Requirements. Don’t underestimate the role of your contractual notice requirements here. Many contracts impose strict deadlines for providing notice of changes, delays, or differing site conditions. Missing them can mean losing your claim entirely. That risk alone creates constant background worry. The solution?  Negotiate reasonable notice requirements, and make sure all your team members are aware and following them by building a system that tracks deadlines for you.  Calendar alerts, project software, or even a spreadsheet with reminders can be used as a reliable process.
• Keep Communication Professional.  Sloppy texts or frustrated emails often fuel disputes. Treat every message as part of the official record. Be clear, professional, and fact-based.  This reduces the risk that casual words will be twisted against you and your employees later—and it lowers the stress of wondering whether you “said too much” in the heat of the moment.
• Changes.  Follow contract procedure with every change.  Often changes do not get noticed immediately because there is uncertainty as to the actual impact, whether in time or cost; however, notice should be given immediately. To make sure this happens, train field personnel to notify the project manager immediately when: site conditions differ from the plans or specifications; work is directed that falls outside the agreed scope; additional time is needed to complete work; or your work is delayed by the performance of other subs, the general contractor, the design professional, or the owner.

Next, understand dispute resolution procedures before a dispute arises.  Few things spike stress like being blindsided by conflict. But if you know the dispute resolution process in advance, you are prepared for the way forward.

Finally, secure your right to payment.  Financial uncertainty is one of the most prominent stressors in construction. Many disputes boil down to money—extra work, site conditions, or unforeseen costs. Contract clauses are important here as well.  Be aware of your rights if payment is not received, and protect your mechanic’s lien and bond rights by being mindful of deadlines you must meet to assert those claims. While many jurisdictions will not enforce a contract clause waiving your lien rights, if such a clause appears in your subcontract it should be stricken.  Always retain your lien rights and ask for a copy of the payment bond at project start. Knowing you have recourse reduces financial worries.

The Bottom Line

Construction is stressful, but unmanaged risk makes it worse. Each proactive step you take—negotiating fair contract terms, documenting the project, calendaring deadlines, and securing your right to payment—manages that risk.  Protecting your rights is the surest way to protect your peace of mind.

 

About the Author:

Leslie A. Boe is a Director and Shareholder at Dysart Taylor Cotter McMonigle & Brumitt, P.C. in Kansas City, where she advises construction industry clients on risk management, contract negotiation, and dispute resolution. With more than 20 years of experience, she is a frequent speaker and published author on construction law and is committed to helping project teams protect their rights and reduce stress by limiting risk. In addition to her legal practice, Leslie is actively involved in community leadership and professional development initiatives.  Contact Leslie at 816-714-3053 or lboe@dysarttaylor.com