Operational challenges subcontractors face
Among the many challenges subcontractors face, there are some issues that are more prevalent than others, particularly with regard to financial and operational obstacles.
Cash flow
Payment rights will reflect the amount of time in which subcontractors should expect to get paid for their services. In the meantime, subbies are putting up significant amounts of money to acquire supplies and materials to complete the project.
If payments aren’t flowing down from the GC per the time outlined in the legal agreement, that delay could affect a subcontractor’s ability to finish phases of the job as well as the end of the project itself. Pair operational issues with the possibility of not meeting payroll obligations, and you have a complex labor issue at hand.
Scheduling
If communications break down between the GCs and subcontractors, jobs may not be completed in a timely manner. Without clearly defined timelines, it won’t be easy to know where and when to allocate labor as necessary.
When delays occur for the client, they result in dissatisfaction at the top, which subs may not be responsible for or able to control. If these snags occur for an established customer, both GCs and subcontractors could face losing work from which they derive a continuous revenue stream.
Labor market
When subcontractors don’t have steady work for employees or are having problems making payroll, they could experience an exodus of skilled labor. Replacing valuable employees on short notice is unlikely. Competitors face the same labor market challenges but, if given the opportunity, will be quick to hire skilled carpenters or plumbers who have left an organization.
What rights do subcontractors have?
Having a solid understanding of the contracting agreement helps ensure everyone’s interests are protected and prevents misunderstandings. Regulations may vary by state, but generally, you’ll want to focus on:
Control of work
Under subcontractor rules and regulations, subbies usually have the right to determine how and when the job will be done. As long as they adhere to the scope of work outlined in the subcontractor agreement, they have flexibility with respect to hours of operation and what resources they’ll commit on a day-to-day basis.
Naturally, general contractors or hiring clients will want to adhere to the milestones set forth in the contract so the job progresses on time, but it’s ultimately up to the subcontractor to decide the optimal approach.
Labor laws
When navigating subcontractor laws, subbies technically have to answer to the GC, but this is not the same as an employer-employee relationship. Thus, subcontractors will only sometimes know about the protections that the Department of Labor (DOL) affords to them or their employees.
For example, a subcontractor may find that cost overruns require them to work long hours and even take a loss. No DOL wage protections or hourly workweek restrictions apply, so the subbie needs to plan properly to make their time worthwhile.
Contract terms
A contract agreement must include payment terms so subcontractors know how much and when they’ll be compensated. If one side or the other breaks the contract, both sides need to know their rights and duties after the breach. The scope of work defines exactly what tasks a subcontractor is responsible for and at what intervals they’re expected to complete them.
Liens
Lien rights allow subcontractors to file a legal claim against a property if they are not paid for their work. This claim, known as a mechanic’s lien, provides security for the subcontractor by creating an encumbrance on the property.
If the subcontractor is not paid, they can enforce the lien by taking legal action, potentially leading to the sale of the property to satisfy the unpaid amount. Lien rights protect subcontractors’ interests and ensure they have the means to recover payment for their services.
Workplace safety
Workplace safety rights ensure that subcontractors are provided with a safe and healthy working environment. These rights include the expectation that the contractor or the party hiring them will implement safety measures, provide proper training and supply necessary safety equipment.
Subcontractors have the right to voice concerns about unsafe conditions and request appropriate corrective actions.
Original contract
Contracts written between the GC and the hiring party affect subcontractors to the extent that the document may contain a flow-through clause. This means that any conditions required in the general contract would apply to subcontractor rights. If possible, it’s a good idea for subs to review the original agreement.
Without close inspection, subcontractors could be unaware of stipulations that prevent them from getting paid for their work, which could violate their payment rights.
Dispute resolution
Subcontractors have the right to seek resolution for any disputes that may arise during their work. This involves using agreed-upon methods such as mediation, arbitration or legal action to address conflicts regarding payment, scope of work or other contract terms.
Termination
Termination rights allow subcontractors to protect themselves from unfair or untenable working conditions and seek alternative opportunities if necessary. Subs have the right to terminate their contract if the contractor or the party hiring them breaches the agreement.
This might include situations such as non-payment, failure to provide necessary materials or information or other significant violations.
Non-discrimination
All workers in the U.S. have the right to be treated fairly and without discrimination based on factors like race, gender, religion, nationality or disability. Subcontractors should have equal opportunities for employment and fair treatment in the workplace.
Business responsibilities
Benefits and contractors insurance won’t trickle down from the GC level or above. Subcontractors will need to be sure they have the proper business insurance in place and be able to show proof of that protection.
Subcontractors can handle their employees’ salaries and benefits however they want, but having general liability and workers’ comp coverages will be mandatory to secure work with the GC. You’ll be asked for certificates reflecting the amount of liability coverage you carry.
