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PROTECTING
YOURSELF WHEN SUBS STORED PAID MATERIALS AT ITS YARD… Many
times, particularly with special order materials, these materials will
be stored in the subcontractor’s yard prior to the delivery to the project
site. A common example would obviously be a steel sub who completes steel
fabrication on time, but the completion is prior to the general contractor’s
need for the steel. The sub will expect payment for the materials as soon
as it’s ready to deliver to the project site, not necessarily when a general
contractor is ready to accept it. The owner will generally not pay for
the material unless it is sure that the material is safely stored.
My observation
is that construction contracts typically do not spell out how to protect
each party’s interest in a situation such as this. I recently noted that
excellent "Agreement for Storage of Materials at Subcontractor’s Yard"
written by a Philadelphia construction attorney by the name of Richard
H. Lowe. This agreement, because of its length goes beyond the scope of
this article, but if you are interested in the agreement, let us know
and we will fax a copy to you. The best way to avoid conflict between
the general, the subs or any of the sub’s material suppliers and the owner
is for all parties to sign an agreement that spells out how their interests
and those of the owner will be protected when the sub for stored material
is paid. In exchange for getting paid, the subcontractor will agree to
safely store, segregate and insure material at no extra cost to the contractor
or the owner and to get a lien release from its suppliers.
A well-written
agreement covering the storage of material off-site yields some very specific
benefits as follows:
- It protects the
material. Requiring the sub to safely store the material will diminish
the risk of vandalism, theft or other possible casualties.
- It segregates material
requiring the sub to segregate the material will reduce the chances
that the sub will use the material on another project before it is delivered
to the construction site.
- The agreement will
require that the material be insured. Requiring the subcontractor to
insure the stored material will cover the cost of replacing the material
if it is destroyed or stolen.
- Such an agreement
reduces or eliminates the risk of liens on the project. Requiring the
sub to get a release of lien from its material suppliers will reduce
the chances that the supplier will file a lien on the project.
I have
seen a number of instances where projects have been compromised by off-site
material storage being vandalized, stolen or for some explainable reason
just not being there when it was to be delivered to the construction site.
Whenever an owner and/or contractor pays any sub for storage of off-site
material, it would be my recommendation that an agreement for the storage
of the material be signed by all parties. Once again, if you would like
us to fax you a copy of the "Agreement for Storage of Materials at Subcontractor’s
Yard" written by Mr. Richard H. Lowe, Esq., we will be happy to do so.
Simply call our office and ask to talk to anyone in the Bond Department.
Also, if you have any additional questions, I would be happy to discuss
it with you. Any information that I pass along to you, however, is worth
what you pay for it. For any definitive interpretation of the agreement
or this process, you might want to talk to your attorney.
* * *
"What
a sober man has in his heart, the drunken man has on his lips." - Danish
proverb
"Then
trust me, there is nothing like drinking. So pleasant on this side of
the grave; it keeps the unhappy from thinking and it makes the valiant
more brave." - Charles Dibin
"The
secret of drunkenness is, that it insulates us in thought, whilst it unites
us in feeling." - Emerson
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Owner-assigned
subcontracts are almost always disastrous. In almost every situation that
I have witnessed where the owner of a private project has required one
or more subs to be used by the successful bidder has turned out poorly
for the general and the owner.
In the
instances that I have seen, the projects have been large and the general
contractor has been most interested in doing the project, so they have
accepted the owner’s directed sub and have lived to regret it. Before
submitting any bid or concluding any negotiations on a project where there
is an owner directed to subcontractor, unless you have worked with that
subcontractor previously, and know the quality of the work and the ability
of the sub to complete a job of that size, frankly my recommendation would
be to simply walk away from the project. If, on the other hand, you decide
that you want to proceed with your negotiations or bid, I would stipulate
in my bid that you won’t accept a directed subcontractor on the project
unless you and the sub can come to mutually satisfactory terms and agreements
as it relates to the project. This will give you an opportunity to negotiate
with the sub and even though the owner may be willing to pay the sub more
than other bids you will get, at least the terms and conditions of the
contract as it relates to your being able to control the project would
be something you can negotiate as the general contractor. Projects seldom
turn out well when a subcontractor on the project has a relationship with
the owner that allows them to have undue influence with the owner at the
same time you are contractually bound to them for the project. It’s almost
impossible to win under those circumstances unless the sub performs flawlessly.
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