Protect Your Bottom Line as a Subcontractor

The following is adapted from Quit Getting Screwed.

Have you ever had the unpleasant—and costly—surprise of a general contractor putting additional job requirements into your scope of work?

True, the scope of work and the bid you submitted are rarely the same, but sometimes, general contractors sneak in responsibilities that far exceed the payment of the subcontract, or even your capabilities. For example, they might include electrical work in the scope even if you never do electrical work. But if you’ve signed the subcontract, you’re on the hook for everything it contains. 

Fortunately, there’s a way to protect yourself: by preparing an itemized bid that lists exactly what you agree to do for the reflected price. Itemizing your bid and then thoroughly reviewing the subcontract before signing is the best way to be clear about your expectations and to prevent financial ruin from an unexpected work requirement. 

Writing Your Bid

First, let’s take a look at the bid, the offer you send to the general contractor saying that you will do the work described for a certain price. You have two main options for writing your bid. One, you can generally reference the scope of work for a stated price. Two, you can use the itemized method, which lists exactly what you agree to do for the reflected price. 

As a best practice, I recommend always taking the second approach and itemizing your bid. A bid is a legal offer that can be accepted once it is provided to the general contractor, so if the bid you send isn’t itemized and is missing something, you could wind up on the hook for thousands of dollars of extra work. 

Let’s say you are an HVAC subcontractor, and you receive a request to bid a rehab facility. You submit a bid that isn’t itemized, simply stating that you will do the HVAC work on the rehab facility for $300,000. The general contractor reviews the bids for the HVAC work, and your bid stands out because it is about $100,000 lower than the other subcontractors’ bids. It is clear you missed something. 

The general contractor immediately sends you a subcontract before you realize your mistake. You can withdraw your offer before it is accepted, but once the general contractor sends you that email stating that your offer is accepted, you cannot back out. You are now on the hook for an additional $100,000 worth of work you did not budget for. What would that do to your company?

If you had sent an itemized bid, it would have been clear what you were agreeing to do for your $300,000 offer and that you were not offering to do the whole scope for the $300,000. Now, if the general contractor sends you an email accepting your offer, you are only on the hook to do what was in the bid—thanks to your itemized list. 

Review Each Subcontract as if It were a New Bid

Hand in hand with itemizing your bid, I recommend reviewing each subcontract as though it were a new bid. 

Remember, the subcontract and its scope of work will rarely match your bid exactly, so it’s important to notice the differences before you sign. An itemized bid will create a paper trail of exactly what you agreed to do, but you still want to avoid signing a contradictory subcontract. 

What if the general contractor from the example above sends you a subcontract that includes the whole scope for your $300,000 price? 

If you are in the habit of reviewing the scope attached to every subcontract as if it were a new bid, you will catch that the scope is larger than what your bid included. If this should ever happen to you, do not sign the subcontract, and immediately contact the general contractor. Let them know that the extra work was not included in your bid, and if they need you to do this additional work, it will cost $100,000 more. In short, make sure you’re getting paid appropriately for the work you agree to do. 

Know What You’re Signing

As one of the first steps of any job, preparing your bid the right way will help get your projects off to a smooth start. 

By itemizing your bid, it will be clear to the general contractor what your bid price includes, and it will be easier to spot discrepancies between the bid and the scope of work. Then, by closely reviewing the subcontract before signing it, you’ll know exactly what you’re agreeing to do and won’t be caught off guard by surprises in the scope of work. 

The best thing you can do to protect yourself as a subcontractor is to create a clear paper trail for your work and diligently review every document before you sign. Knowing what you’re signing will keep you from making catastrophically expensive mistakes and help you maintain control over the work you do. 

For more advice on negotiating better subcontracts, you can find Quit Getting Screwed on Amazon.

Amazing wife, outstanding mother to three super talented daughters, small business owner, and committed leader to over twenty employees, Karalynn has been a licensed attorney for over fifteen years. She has spent her entire legal career in construction litigation, advising countless clients on how to stay out of litigation in the construction industry. Karalynn has reviewed thousands of subcontracts, breaking them down so her clients would understand exactly what they were signing, and giving those clients tips and advice on how to negotiate the best subcontract possible. Now she’s offering that same advice to you in Quit Getting Screwed. For materials referenced in the book, visit subcontractorinstitute.com.