Whether you are new to the construction industry or a veteran, chances are a subcontractor will eventually default on their contract. Unfortunately, no matter how careful you are or how conscientious they are, the unanticipated often occurs.
Although you can prequalify your subcontractors by examining their previous work and business practices, you still need to know how to handle a default.
Keep an eye out for red flags
Subcontractors might not know something is going wrong themselves. This is why you should watch for the signs that they might be struggling. A sudden change in their workforce, delays for materials and changes in their attitude are red flags.
If you notice a red flag, don’t hesitate to speak with your subcontractor. Sometimes you can provide the help or suggestions they need to prevent an all-out contract default.
Try to work it out
Once you notice a problem, create a plan for working it out. Talk to your subcontractor and detail ways they can remedy the situation. If the subcontractor isn’t filling their end of your contract, give them a written notice of the default and a time limit. A notice in writing will be helpful if you have to go to court later on.
Make sure you have protection
Make sure that your subcontractor reads and signs your contract. In the contract, you should have provisions for exactly what happens when they default as well as various remedies. You should have provisions for paying suppliers, moving in a new subcontractor and the remedy for your time and money.
As much as you do to prevent it, subcontractor default still can happen. Make sure that when it does, you know what to do.