Subcontracting Relationships

It is important for the owner to know in advance if a contractor plans to utilize subcontractors to perform portions of the work. The general conditions of the specifications should state that the owner has the right to approve (without consent being unreasonably withheld) the use of any subcontractors on the project. The owner should also be aware that problems between the contractor and the subcontractor can adversely affect the completion of the project.

In most instances, the contractor will not compensate its subcontractor until it has first received a progress payment from the owner. Therefore, in the instance that the owner delays payment to the contractor, it is possible that the subcontractor will also see a delay in payment from the contractor, even if the dispute does not involve the subcontractor's work. This can lead to a suspension of the work by the subcontractor, and a further delay of the project. Ultimately, the contractor has responsibility to perform the work according to the schedule, and the line of authority places the weight of contract enforcement with the owner and contractor.

It is good practice for large projects to require the contractor to provide a payment bond. This will help to ensure that the contractor is compensating its subcontractors for work they have performed on the project. The bond will also help to protect the owner from recourse that a subcontractor may take against the owner to demand payment. It is typical to require a payment bond in the amount of at least 50% of the contract price.

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