Understanding and Overcoming Construction Contract Paradigms

When it comes to construction contracts, there are many preconceived notions about what terms and conditions can and cannot be negotiated. Understanding these paradigms—and knowing how to navigate them—will make you a better negotiator and help you secure more favorable terms in your contracts.

What is a Paradigm?

A paradigm is a preconceived idea or model of how things are or should be. It's often a way of thinking inside the box, accepting things as they are without challenging them. When it comes to construction contracts, paradigms can create unnecessary hurdles during negotiations.

Six Common Construction Contract Paradigms for Subcontractors

Here are six common paradigms in construction contracting, particularly for subcontractors, and how to overcome them:

1. "The General Contractor's Terms Are Non-Negotiable"

False. All contract terms and conditions are negotiable, as long as what’s negotiated is legal. For example, while you can’t agree to something illegal (like bribing local inspectors), you can certainly negotiate payment terms that create a positive cash flow or refuse to add unnecessary insurance requirements.

2. "I'll Be Disqualified if I Challenge the General Contractor's Standard Terms"

This is another misconception. There's no such thing as "standard terms and conditions." Just like there's no such thing as a “standard construction project,” every set of terms is negotiable. If you provide value by delivering safe, on-time work at a competitive price, general contractors are usually willing to negotiate.

3. "I Must Accept All Flow-Down Provisions from the General Contractor's Contract with the Owner"

Flow-down provisions are another unnecessary hurdle. The contract between the general contractor and the owner is not your concern. You didn’t agree to those terms, so why should you be bound by them? You have a separate contract with the general contractor, and you can negotiate the commercial terms and conditions independently.

4. "The General Contractor Has No Money, So I Must Accept Paid-When-Paid or Paid-If-Paid Terms"

This paradigm is especially harmful. Paid-when-paid or paid-if-paid terms shift all the risk to the subcontractor, allowing the general contractor to build the project using your money. Always negotiate for payment terms that ensure a positive cash flow. Subcontractors aren’t charities—they need consistent payments to stay afloat, and general contractors have access to funds to pay you on time.

5. "Anti-Indemnity Legislation Will Protect Me from Risky Indemnity Clauses"

Not necessarily. While 43 states have some form of anti-indemnity legislation, many of these laws only protect subcontractors from broad form indemnities, which transfer all the risk to the subcontractor. However, intermediate form indemnities, which transfer almost as much risk, may still be allowed. It's important to fully understand your state's anti-indemnity laws and negotiate indemnity clauses that limit your liability.

6. "I Can't Out-Negotiate the General Contractor's Lawyer"

Don’t be intimidated by a lawyer on the other side. Lawyers are often predictable in their negotiation strategies, which can actually make them easier to deal with. A well-prepared subcontractor can anticipate the lawyer’s arguments and counter them effectively. Surprisingly, it’s often tougher to negotiate with a commercial representative who has on-the-job experience because they tend to be less predictable.

Conclusion

Don’t let these construction contract paradigms get in the way of securing better terms. All terms and conditions are negotiable, and as a subcontractor, you have the right to protect your cash flow, limit your liability, and negotiate a contract that works for you. With the right preparation, you can overcome these preconceived notions and negotiate with confidence on your next project.