August  25, 2000

Bulletin # 39: The Road to a User-Friendly Contract

Past issues of this Contract Bulletin have analyzed various standard construction contracts and subcontract forms and how those forms have evolved as the industry has changed. One of the most positive aspects of that process has been the development of short form contracts. These forms can greatly streamline contract review and negotiations on most projects. (There are obviously still some projects whose complexity or uniqueness make the longer form contracts a more appropriate choice.)

The recently published “Standard Short Form Agreement Between Contractor and Subcontractor (Where Contractor Assumes Risk of Owner Payment), AGC Document No. 603” is the latest example of this favorable trend in contract drafting. The form was the result of a multi-year collaboration among the Associated General Contractors of America, the Associated Specialty Contractors1 and other construction professionals, although some sub-contractor groups have contested some of the form’s provisions. As described in the introduction to the “2000 Edition,” AGC 603 “is intended as a convenient, short-form subcontract presented in a format in which transaction-specific information is provided or referenced at the beginning of the agreement. Further, the format of the short form agreement is distinctive from the formats of AGC long form agreements to minimize document length.” The year 2000 form replaces an AGC No. 603 form published in 1987 and is designed to be flexible, easy to understand, and easy to use. Through careful editing and the elimination of redundancy and legalese, the complete subcontract form fills less than four pages. The form comes with a simple set of “General Instructions” summarizing the meaning of each provision and explaining what the parties need to do in completing the form.

Materials defining the scope of the work, construction schedule, unit pricing, insurance, bonds, and other project-specific elements are simply attached as exhibits at the back of the form. (By the way, subcontractors should not be lulled into complacency about the need to focus on the details of a job, due to the fact that the form seems so simple. It is still essential that the scope, schedule, and other items be clearly set forth in the contract attachments.) There are a number of innovative aspects to the AGC No. 603. For example, in the traditional contract form, it was common to have blanks appearing throughout the contract text. These blanks had to be filled in before the document was complete. It was equally common that some of such blanks would be overlooked and the applicable items (i.e. time frame for payment of construction draws, substantial completion date, applicable law, etc.) left blank. If an issue arose as to the particular item, the parties would find that the contract reflected no “meeting of the minds” on that term. The result was potentially a serious problem in interpretation and enforcement of the contract. The AGC No. 603 form addresses this issue in several ways. Most of the blanks are clustered on the first page of the form. In addition, the form contains diamonds in the margin indicating provisions where the parties have to fill in a blank to complete the contract. This approach should minimize the recurrence of the “forgotten blank” problem.

Like every construction industry contract form, the AGC No. 603 reflects a compromise among the interests of the owner, the general contractor, and the subcontractor. One of the most unique elements of the form deals with the “pay when paid” dilemma that is routinely encountered by subcontractors.

To summarize the problem, if an owner has not paid the general contractor, many subcontract forms provide that the general contractor has no obligation to pay the subcontractor. This can be true even if the subcontractor’s work is complete and acceptable.

In contrast, Paragraph 10.2 of the new form states, in relevant part: “If payment from Owner for such Subcontract Work is not received by Contractor, through no fault of Subcontractor, Contractor will make payment to Subcontractor within a reasonable time for Subcontract Work satisfactorily performed.”

Only time will tell whether this language will be routinely stricken from the form or modified by general contractors to weaken its impact. However, the form language itself represents a real breakthrough from the standpoint of subcontractors seeking to be paid for their completed work. Given the simplicity and subcontractor-friendly characteristics of the AGC No. 603, it would make sense for subcontractors to familiarize themselves with the form and to consider adopting it for use in their own operations (and encouraging general contractors to do the same). There are also excellent AIA and proprietary subcontract forms in use that represent viable alternatives to the new AGC No. 603. What is most important and impressive is that the AGC has clearly gotten the message that a concise contract written in plain English serves the interest of all parties.

The new form ($4.50 = non-member; $3.00 = member) is available from AGC at: agcmall/showdetl.dbm&PID=157&cid=1 AGC’s Publication Department’s toll free number is 800 242-1767. 

1. The present members of the Associated Specialty Contractors (ASC) include Mechanical Contractors Association of America, National Association of Plumbing-Heating-Cooling Contractors, National Electrical Contractors Association, National Insulation Association, National Roofing Contractors of America, Painting and Decorating Contractors of America and Sheet Metal and Air Conditioning Contractors National Association.


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