Results 1 to 9 of 9
  1. #1

    Default Liability of a Subcontractor Who Walks Away from a Job

    My question involves a consumer law issue in the State of: Hawaii

    A subcontractor bid a project, received a signed subcontract agreement, started the work, and upon starting the work realized that they bid too low and cannot afford to finish the work. The subcontractor walked off the job. The subcontract agreement allows general contractor to find another subcontractor to do the work and it appears that the subcontract agreement allows general contractor to charge subcontractor for the added cost of hiring another contractor. For example, if original subcontract agreement was $100k and the cost of new subcontractor is $150k, can the general contractor collect the $50k from the original subcontractor?

    If so, would general contractor have to sue the original subcontractor? Is this typical? Or, what typically happens when a subcontractor cannot finish their work on a job site?

  2. #2
    Join Date
    Jan 2006
    Posts
    38,646

    Default Re: Walking Away from Subcontract Agreement After Work Started

    There was no performance bond required? Bad bad move

    The original sub may be able to be held liable for the higher cost of the new sub but I’m hoping your numbers are just an example. There would be something wrong if there is that much disparity and if the first sub and the replacement. The general should have noticed something that big and reviewed the original bid more closely.

    Anyway, a lot depends on what the original subs bid stated. Many contractors specify what the bid includes and if the first sub did this and the work causing this issue was not included in the bid, the sub isn’t likely going to be held liable for work he didn’t bid on.

  3. #3
    Join Date
    Nov 2013
    Posts
    6,290

    Default Re: Walking Away from Subcontract Agreement After Work Started

    Quote Quoting lookingforanswer!
    View Post
    If so, would general contractor have to sue the original subcontractor? Is this typical? Or, what typically happens when a subcontractor cannot finish their work on a job site?
    Your example is not realistic. If the subcontractor bid $100K was paid (whatever money he was paid) and performed $100K worth of work (labor and materials) then walked off the job, the new subcontractor couldn't possible be bidding $150K to complete the job.

    You don't get to recover for labor and material that was supplied.

    What does your subcontract agreement say about overruns? Did you try to come to terms for the completion of the job or did you think you would try to hold the sub to lose money to your benefit? Does the contract have a liquidated damages clause or a force majeure clause?

    Mistakes can be made in a bid. Unforeseen circumstances can arise once a job is started that cost the subcontractor more than was expected.

    The facts matter and we don't have them. If the sub took your money and ran, sue him. Otherwise, if he gave you $100K or the amount paid to him worth of labor and material suing him would be a waste of time unless your contract says otherwise.

  4. #4
    Join Date
    Nov 2015
    Location
    47.606 N 122.332 W in body, still at 90 S in my mind.
    Posts
    1,384

    Default Re: Walking Away from Subcontract Agreement After Work Started

    This is way too simplistic though I don't fully agree with Budwad or JK.

    With a job cost of that size I'm surprised there wasn't a requirement for a completion/performance bond. That would've been included in the Request for Quote RFQ). This would allow the General Contractor (GC) to obtain the funds for completion from the bonding company and the bonding company would go after the sub. This is a simple explanation but is kind of the overall process of attaching a bond.

    Estimating a proposed contract is not terribly straightforward and requires accurate drawings, scope documents and any other project requirements be made available in the outset. If there are issues in determining the requirements the PM will submit a Request for Information (RFI) and that RFI and the subsequent answer should be sent out to all bidders so everyone has the same information. If the project scope is changed at some point a long the way from the original proposed scope or requirements then the contractor should submit a Change Order Request (COR) that would include a budget and proposed scope for those changes. If these changes are significant enough it could be argued that the contract is no longer valid but the sub would have to review their CONTRACT which spells out how changes are to be made, how those changes should be funded etc. Construction contracts are pretty explicit, especially when you get to subcontracts at the value in question.

    There is mention made that this bid should've been considered non responsive but we can't make that determination without knowing more about the contracts in question and what other contractors bid. That said...

    The sub is the responsible party for the work that they committed to performing and can be held financially responsible for the uncompleted portion of their contract. That's what all of this comes down to and I would not be surprised if the GC pursues the sub and their bond, if there is one, for the prorated funds to complete the work. If completion is delayed and there is a liquidated damages clause then it's possible the the sub will be held to those as well and that will really hurt.
    "Where do those stairs go?"
    "They go up!"

  5. #5
    Join Date
    Jan 2006
    Posts
    38,646

    Default Re: Walking Away from Subcontract Agreement After Work Started

    The sub is the responsible party for the work that they committed to performing and can be held financially responsible for the uncompleted portion of their contract.
    thats not correct. If they were not paid for the work not completed, they are not financially liable for the work not completed. In other words, they do not have to (effectively);pay a replacement contractor to complete the unfinished work if they haven’t been compensated for,it. That would be an unjust enrichment for the gc. They are liable for,the difference in costs if the costs increased when using a replacement sub. If the costs are equal or less, there is no additional costs to seek from the defaulting sub (that would be a very unusual situation though)

    if tthe gc demands full actual payment for the contracted work not completed from the defaulting sub, then sub is entitled to full contracted payment for same work.

    Now there could be penalties involved if included in the contract merely for defaulting. Those could be charged to the sub.

    But the gc doesnt get out of paying somebody for the work and that is what your statement describes.

  6. #6
    Join Date
    Nov 2015
    Location
    47.606 N 122.332 W in body, still at 90 S in my mind.
    Posts
    1,384

    Default Re: Walking Away from Subcontract Agreement After Work Started

    Quote Quoting jk
    View Post


    thats not correct. If they were not paid for the work not completed, they are not financially liable for the work not completed. In other words, they do not have to (effectively);pay a replacement contractor to complete the unfinished work if they haven’t been compensated for,it. That would be an unjust enrichment for the gc. They are liable for,the difference in costs if the costs increased when using a replacement sub. If the costs are equal or less, there is no additional costs to seek from the defaulting sub (that would be a very unusual situation though)

    if tthe gc demands full actual payment for the contracted work not completed from the defaulting sub, then sub is entitled to full contracted payment for same work.

    Now there could be penalties involved if included in the contract merely for defaulting. Those could be charged to the sub.

    But the gc doesnt get out of paying somebody for the work and that is what your statement describes.
    First, The contractor walked out on the job, it's not an issue where the contractor didn't pay. You are correct the the GC cannot claim the full value of the work, to include the work that has been performed but they can claim the value of the work that hasn't been performed. in a $100K project, if only 10% of the work has been completed then the Gc can claim the $90K. IF the actual value of the work is $150K the the sub will be on the hook for $140K. It's not the GC's fault that the sub under billed. It's what makes construction, sometimes, a risky business proposition. The hitch is that you are often on the hook if you are the winning bid almost immediately, depending on the terms of the RFQ, especially if you had to submit a bid bond.

    A great deal depends on the terms of the contract. If the sub bails out on the contract then there are several remedies available to the GC. Often there are clauses that will penalize a contractor for bailing out on a contract and it's not unlikely for part of that to be going after the bond, if there is one.

    It's not accurate to say that a GC cannot pursue a sub for work not performed. It happens all the time. That's why there's a contract. It's why there are performance and completion bonds, it's why there are liquidated damages clauses and more options in contracts that, shall we say, enhance, the desire to perform. Dealing with getting paid can be a time-consuming process and even getting paid properly can be a multi-month process, especially dealing with certain large software companies located in the Seattle area.

    By the way, there is a nasty little clause that turned up in some sub contracts: will pay if paid. If the client doesn't pay the GC then the GC is not obligated to pay the sub.

    The sub is responsible for performing the work that is in the agreed upon scope and contract documents. In this case the sub just walked away and is clearly willing to accept the financial repercussions of that and the contract may be weak enough that this isn't an issue but, without seeing the contract, it's impossible to say.
    "Where do those stairs go?"
    "They go up!"

  7. #7
    Join Date
    Oct 2006
    Posts
    15,422

    Default Re: Walking Away from Subcontract Agreement After Work Started

    I agree with jk on this one. If they did not finish the work, and were not paid for any work that they did not perform, then they could perhaps be held liable for the difference between what would have been paid to them, and what the GC had to pay someone else, but not the entire thing.

    Example: Sub bid 100k for the job. Sub did 50% of the work and got paid 50k and then walked off the job. The GC has to pay 60k to someone else to complete the job. The sub is not responsible for 60k. The sub, at most, is responsible for 10k.

    Now, lets not forget that the odds are great that if the sub is sued for the difference, that the sub will file bankruptcy.

  8. #8
    Join Date
    Nov 2015
    Location
    47.606 N 122.332 W in body, still at 90 S in my mind.
    Posts
    1,384

    Default Re: Walking Away from Subcontract Agreement After Work Started

    Quote Quoting llworking
    View Post
    I agree with jk on this one. If they did not finish the work, and were not paid for any work that they did not perform, then they could perhaps be held liable for the difference between what would have been paid to them, and what the GC had to pay someone else, but not the entire thing.

    Example: Sub bid 100k for the job. Sub did 50% of the work and got paid 50k and then walked off the job. The GC has to pay 60k to someone else to complete the job. The sub is not responsible for 60k. The sub, at most, is responsible for 10k.

    Now, lets not forget that the odds are great that if the sub is sued for the difference, that the sub will file bankruptcy.
    Perhaps I wan't clear but the the terms in construction contracts are heavily weighted in favor of GC's and the mechanism for noncompletion are often...stiff. Simple non performance is one of those things that can be punished under many contracts. and performance bonds can often be attached for what is being described above which is super nonperformance. I declined to sign certain contracts, as a contractor, simply due to some of the clauses regarding payment, liquidated damages, nonperformance and how it would be punished, etc.

    Here, many seem look at contracts related to construction as simple and straightforward but they aren't. Also, you'd be surprised at just how enforceable they are given how punitive they can be.

    In the OP you have a clearcut case of nonperformance. The consequences of which MAY be spelled out in the contract and may be severe and may include, the costs of the delays, the cost of finding a replacement, missed deliveries, the cost of pulling new permits (in the name of the new contractor) and the list goes on and on. All of these can and have been attached to contractor who fail to perform. This is why you'll find contractors that will that a loss on a job rather than walk away. The contractor could've advocated for himself and requested the contract be amended, if the higher cost came from a change in scope, after all, the worst that happens is a denial.

    I think this contractor will get spanked.
    "Where do those stairs go?"
    "They go up!"

  9. #9
    Join Date
    Jan 2006
    Posts
    38,646

    Default Re: Walking Away from Subcontract Agreement After Work Started

    Quote Quoting Mark47n
    View Post
    Perhaps I wan't clear but the the terms in construction contracts are heavily weighted in favor of GC's and the mechanism for noncompletion are often...stiff. Simple non performance is one of those things that can be punished under many contracts. and performance bonds can often be attached for what is being described above which is super nonperformance. I declined to sign certain contracts, as a contractor, simply due to some of the clauses regarding payment, liquidated damages, nonperformance and how it would be punished, etc.

    Here, many seem look at contracts related to construction as simple and straightforward but they aren't. Also, you'd be surprised at just how enforceable they are given how punitive they can be.

    In the OP you have a clearcut case of nonperformance. The consequences of which MAY be spelled out in the contract and may be severe and may include, the costs of the delays, the cost of finding a replacement, missed deliveries, the cost of pulling new permits (in the name of the new contractor) and the list goes on and on. All of these can and have been attached to contractor who fail to perform. This is why you'll find contractors that will that a loss on a job rather than walk away. The contractor could've advocated for himself and requested the contract be amended, if the higher cost came from a change in scope, after all, the worst that happens is a denial.

    I think this contractor will get spanked.

    Lets say a bid on a $100,000 job is awarded to joe plumber with a bond of $100,000 required. . He doesn’t even start the job. Using your argument (and typical contracts), the surety agency is now liable for paying the $100,000 to the GC. While it is possible the surety agency couid do this which would relieve them of any further action or responsibility, , I can’t say I’ve seen it happen as typically the payment can be reduced by either the surety agency stepping in the place of the original contractor and fulfilling the contract (which also means they are paid by the gc just as the original contractor would be), or they would guarantee the difference between the original cost of the contract and let the gc source a new contractor to replace the one in default.

    Yes, the penallies you list would also be paid by the surety agency on top of actual costs if they are applicable.

    The gc still has to pay somebody for the work that was under the $100,000 contract. The gc is also still going to bill the customer for that work.

    If if it was as easy as running off a sub which would cause the sub to essentially pay somebody to do the work they had contracted to do I’m afraid we would see many more gc’s Working harder to cause subs to abandon their jobs.

    In the original post, it is much simpler since it was stated the contract allowed for the gc to hire s new sub and the original sub would be liable for any increase in cost of the bid work.

    Thst added increase (as well as any penalties the contract may allow for) is what a performance bond would cover..

    and its its no doubt the contractor in question will get spanked. It’s simply a matter of how hard.

    1. Sponsored Links
       

Similar Threads

  1. Service Providers: Liability for a Subcontractor's Breach of Contract
    By steeldawg in forum Consumer Law
    Replies: 2
    Last Post: 08-08-2017, 09:56 AM
  2. Non-Performance and Breach: Liability of a Subcontractor for Walking Off of a Job
    By Lindgren in forum Construction, Repair and Renovation
    Replies: 1
    Last Post: 10-12-2016, 03:04 PM
  3. Neighbor Walks Dogs Along Right of Way I Own
    By davis751 in forum Real Estate Ownership and Title
    Replies: 1
    Last Post: 07-13-2011, 01:48 PM
  4. Sex Offenses: Registered Sex Offender Walks Around Town
    By madAndNotGonnaTakeITnEmor in forum Criminal Charges
    Replies: 20
    Last Post: 02-12-2011, 07:32 AM
  5. Online Services: eBay Seller Walks Off with Money
    By boatingguy in forum Consumer Law
    Replies: 6
    Last Post: 01-05-2007, 12:45 PM
 
 
Sponsored Links

Legal Help, Information and Resources