The 7 Deadly Sins of Contract Negotiations for Subcontractors

Contract negotiations can be a minefield for subcontractors. While the allure of a big project is strong, overlooking critical details during negotiation can lead to significant financial and operational headaches down the line. To help you navigate these treacherous waters, we've identified the "7 Deadly Sins" subcontractors often commit, along with how to avoid them.

1. Sloth: Failing to Read and Understand the Entire Contract

This is perhaps the most common and damaging sin. Skimming through legalese or assuming standard clauses can be a catastrophic mistake. General contractors often use their own custom contracts, which can contain onerous terms.

• The Fix: Read every single word. Don't just focus on the scope and price. Pay close attention to payment terms, dispute resolution, change order processes, indemnification clauses, insurance requirements, and scheduling. If you don't understand something, ask for clarification or consult with legal counsel.

2. Pride: Believing You Don't Need Legal Review

"I've signed dozens of contracts, I know what I'm doing." This hubris can cost you dearly. Contract law is complex and constantly evolving. What seems like a minor clause can have significant legal ramifications.

• The Fix: For any substantial project, invest in legal review by an attorney specializing in construction law. They can identify hidden risks, negotiate favorable terms, and ensure your interests are protected. The cost of legal review pales in comparison to the potential cost of a bad contract.

3. Wrath: Allowing Emotions to Dictate Negotiations

Getting angry, frustrated, or desperate during negotiations can lead to poor decisions. Whether it's a tight deadline or a perceived slight, letting emotions take over will cloud your judgment.

• The Fix: Approach negotiations with a calm, rational, and professional demeanor. Focus on facts, figures, and favorable terms. If you feel emotions rising, take a break and re-approach the conversation when you're thinking clearly. Remember, it's a business transaction, not a personal battle.

4. Gluttony: Overcommitting on Scope and Schedule

The temptation to land a large project might lead you to agree to an unrealistic scope or an aggressive schedule that you can't genuinely meet. This often results in rushed work, cost overruns, and strained relationships.

• The Fix: Be realistic about your capabilities and resources. Thoroughly assess the project requirements and your capacity before agreeing to a timeline or scope. Build in reasonable contingencies for unforeseen circumstances. It's better to decline a project you can't confidently deliver than to take on one that jeopardizes your reputation and finances.

5. Envy: Ignoring Your Own Costs to Match Competitors

Trying to undercut every competitor by slashing your prices without a clear understanding of your own costs is a race to the bottom. While competitive pricing is important, sacrificing your profit margin based on what you think others are bidding is unsustainable.

• The Fix: Know your numbers inside and out. Accurately calculate your labor, material, overhead, and profit margin. Bid based on your costs and the value you provide, not solely on what you believe others are charging. Be prepared to walk away if the project doesn't offer a fair return.

6. Lust: Being Blinded by the "Big Name" General Contractor

Working with a well-known general contractor can seem prestigious and open doors to future opportunities. However, even large, reputable firms can have unfavorable contract terms or slow payment practices. Don't let their name alone overshadow due diligence.

• The Fix: Research all general contractors thoroughly, regardless of their size or reputation. Check their payment history, references, and any past litigation. A big name doesn't automatically equate to fair terms or reliable payments.

7. Avarice: Neglecting to Negotiate Change Orders and Extras

Many subcontractors lose significant money by failing to properly document and negotiate changes to the original scope of work. "We'll just sort it out later" is a recipe for disaster.

• The Fix: Establish a clear and documented change order process before starting work. Any deviation from the original contract, no matter how small, should be formally documented, priced, and approved in writing. Don't proceed with extra work until you have a signed change order in hand. This protects you from disputes over additional costs.

By avoiding these 7 deadly sins, subcontractors can significantly improve their contract negotiation outcomes, protect their bottom line, and build stronger, more profitable relationships with general contractors. Remember, a well-negotiated contract is the foundation of a successful project.