The American Subcontractor Association just released a video explaining its Legal Defense Fund, which is a fund established to support the association’s mission of protecting subcontractors’ interest. In a world where subcontractors are saddled with payment abuses, risk shifting provisions, and enormous working capital challenges, the ASA’s Legal Defense Fund is a breath of fresh air, advocating to prevent general contractors, developers, and lenders, from wrongfully (and sometimes, illegally) taking advantage of a subcontractor’s weaknesses.
Hear it from the ASA directly in this video presenting ASA Chief Operating Officer Richard Bright:
How Subcontractors Wind Up With Too Much Risk on A Project & The Laws That Protect Them
Every construction project is a complex effort riddled with risks. It’s an unfortunate reality for subcontractors that they are frequently juggling an outsized amount of that risk.
It’s common that general contractors, owners, and lenders, write restrictive contracts and employ policies that “shifts the risk” of a project down the chain onto subs. Some examples of these provisions and practices are:
- Pay If Paid or Pay When Paid Clauses
- Unfair Lien Waivers
- “No Lien Clauses” in Contracts
- Over-the-top Indemnification Requirements
- No Damages for Delay Clauses
Subcontractors know about these provisions, but they frequently must choose between not doing business at all, or doing business on unfair terms. Subcontractors, in other words, are extremely limited in their bargaining power.
This is unfair, and it’s anti-American.
In fact, two of the nation’s founding fathers (Thomas Jefferson & James Madison) invented one of the most prominent risk protection devices for subcontractors: the mechanics lien. The mechanics lien remedy was created because the United States has a well articulated public policy of insulating contractors against payment risks. In other words, public policy in the United States generally requires financial risks to be borne by those commissioning a construction project, not those pouring their labor into building it.
Public policy in the United States generally requires financial risks to be borne by those commissioning a construction project, not those pouring their labor into building it.
The mechanics lien laws are not the only laws out there designed to protect subcontractors. Legislatures across the United States have prompt payment requirements, prevailing wage laws, lien waiver restrictions, misappropriation of funds crimes, and more; all of these laws are focused on the construction industry, and they are all focused on protecting subcontractors against general contractors, owners, and lenders.
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ASA Legal Defense Fund Helps Subcontractors Battle Against Unfair Contracts and Situations
While the law contains a plethora of laws protecting subcontractors, those at the top of the contracting chain use their advantageous position to craft complex contract documents that try to dance around these public policy interests. When the going gets tough, it’s expensive and practically difficult for subcontractors to battle against the same.
This is where the ASA Legal Defense Fund shines. When faced with an expensive and seemingly hopeless legal situation, the ASA Legal Defense Fund can sometimes lend a hand, which serves the association’s overall mission to protect subcontractor interests.
The ASA website’s describes the Legal Defense Fund as follows:
Each year, courts across the country hand down hundreds of decisions on federal and state laws, as well as court-made or “case” law, that apply to subcontractors’ businesses. Many of the decisions impacting subcontractors interpret the contract provisions of subcontract agreements — provisions like pay-if-paid, hold-harmless, duty-to-defend, and no-damages-for-delay. Some of these decisions are precedent-setting and carry significance for subcontractors across state lines.
The fund was most recently involved in two critical cases for subcontractors. In an Ohio case, the ASA fought against a pay if paid clause, arguing that the clause unfairly shifting the financial risk of a project onto subcontractors. In another case in Minnesota, the ASA fought to keep a bond claim alive despite an inconsequential technical defect. In both of these cases, the ASA’s voice was critical, as it’s important for the courts to hear this point of view in the crowd of other, usually better funded and connected, points of view.