October 2019
Level With Me By JeremyWyatt
Winning the End-of-Project Backcharge Game
I represent a lot of subcontractors working on commercial construction projects, and more and more I have been seeing an end-of-project game where general contractors (especially the larger ones) try to solve project problems by pushing costs down onto subcontractors that have nothing to do with the problem. In my experience, these problems typically arise from one of three areas. First, the general contractor may have issues with the project’s owner (such as delays, owner-general contractor backcharges, or liquidated damages). All too often, a general contractor might take whatever costs come from its dispute with the owner and split them amongst all project subcontractors, regardless of whether a particular subcontractor had anything to do with the problem. That is patently unjust. Second, the general contractor may have serious issues with another project subcontractor and, even though that single subcontractor is at fault, the general contractor shares the costs of that subcontractor’s failure with other subcontractors on the project. A classic example is where one subcontractor is late in finishing their project work and the general contractor forces all succeeding subcontractors to greatly accelerate their own project work without any additional compensation. Third, (and I will admit that this is grounded on my own gut feeling, though I feel in my bones that it is true — I am just waiting
for the case where I can prove it!) some general contractors take a look at the end of a project and, if their profit percentage isn’t what they expected, they make up that profit by pushing spurious backcharges down on subcontract, essentially lowering their costs and raising profits by simply refusing to pay subcontractors. Mechanically, these problems hit subcontractors in a couple of ways. On the one hand, a general contractor might simply issue a backcharge: for example, making a subcontractor responsible for liquidated damages assessed by the owner. This is the more formal method and easier to spot. On the other hand, the general contractor may hide the ball a bit and, instead of issuing a backcharge, order a subcontractor to perform additional end-of-project work (at additional cost to that subcontractor) in order to resolve an unresolved project problem. A recent example of this in my own practice was where a drywall subcontractor finished installation of drywall on one floor of a project (sealing in almost all of the wiring on that floor). Then an electrical inspector informed the general contractor that the entire floor’s wiring needed to be redone. The general contractor obviously (and rightly) demanded that the electrical subcontractor fix its error, but also (unjustly) required the drywall subcontractor to repair or replace every area that the electrical subcontractor damaged in its own repairs without paying the drywall subcontractor a single dime for that additional, unplanned work.
Continued on Back ...
jwyatt@harrisonlawgroup.com
www.HarrisonLawGroup.com
(410) 832-0000
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