If you run a subcontracting company, you’re already familiar with stress. Calculating and offering bids, lining up labor and materials and getting jobs done on time take a lot of concentration and coordination. The last thing you need is a lawsuit to have to defend against on top of all of that. It’s good to know how your company might be sued, so that you can be ready for it if it does come.
Delay claims and extended overhead claims
As you well know, before any job begins you sign a contractor-subcontractor agreement. This is a legally binding contract that outlines the rights and responsibilities of both parties. It’s important to read your agreement carefully to understand the types of things that the contractor could seek compensation from you for.
For example, sometimes unavoidable delays occur in the construction process, such as delays in the delivery of materials, inclement weather, unavailability of labor or something else. If the client brings a lawsuit against the contractor for these delays – and the extended overhead costs that accompany them – the contractor might decide to name you in the lawsuit as well in an attempt to receive indemnification for a portion of the recovery that they have to pay the client.
Liquidated damages
Check to see if your agreement has a liquidated damages clause. This is a set amount that you both agree that you can recover in the event of a breach by the other party.
If your agreement has a liquidated damages clause, and the contractor alleges that you breached the contract or cost them money through delays, they may try to use it to withhold part of the payment they owe you instead of bringing you into a lawsuit. If so, you may need to be the one to bring a lawsuit in order to challenge the withholdings and get the full payment that the agreement entitles you to.
A lawsuit can sometimes be crippling to a subcontracting company. That’s why it’s best to be aware of the types of lawsuits you may encounter in your career, so that you can be ready for them, and avoid them when possible.
