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We invite an attorney to talk about how to protect yourself as a subcontractor. Karalynn Cromeens, writer of “Quit Getting Screwed”, talks how to keep from agreeing to put your company out of business. We ask about liens, bonds, and how to leverage those things to help your employees and keep your company from no longer being a company. Karalynn brings some amazing points about how to read and look for parts of a contract that are there to push the burden to subcontractors and suggest other options to negotiate to receive.
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Well, let's get to today. So miss Karalynn Cromeens s, we had the opportunity to talk to her and she's an attorney, man. She wrote this book called quit, getting screwed. And the book title is really punchy.
It is very punchy. Does it get your attention? What's it about?
It's about subcontracts, signing contracts. Who in the audience loves signing contracts? I could hear people screaming from here. Yeah. And suddenly it all makes sense. Suddenly it all makes sense. So how to stop or quit getting screwed when you're signing contracts, things that bite you in the buttocks later on down the road... to quote Forrest Gump.
Yeah. We we've definitely had exposure to some of the onerous contract language that people like to, well basically cram down your throat.
You either sign it or you don't get it job.
That's what it feels like. And I think that what Karalynn is kind of lobbying for is, um, you don't have to sign it and it might not even be a good idea.
Yeah. Yeah. So she outlines a lot of the different things that will get you in contracts. And I honestly think this is something that, I mean will be helpful for everybody there, from just a law speak standpoint, just not stepping in the bear trap, knowing what's going to be a bear trap.
Yeah, for sure. I think this is good on the sub end. So if your subcontractor out there, this is good. This is a good listen because this is geared to, to you, but on the general contractor or owner end, this is also good to hear because she speaks in events and different things and has to hear from general contractors about the reluctance of subcontractors to sign a contract. Like how it's pulling teeth to get them to do it. And there's kind of now some explanation like, well, maybe this is why they're scared to death. You're creating your own labor shortage in other words, Which who would've thought, but it makes a lot of sense. Well, this is an awesome conversation. I can't wait to get to it. So let's go ahead and get into our convo with Karalynn Cromeens.
Kralynn, thanks for joining us today. Can you tell us a little bit about yourself, who you are and what you do?
Yeah. Thanks guys so much for having me. My name's Carolyn bromines and I'm a licensed attorney in the state of Texas, but what I really, what my passion is is to help subcontractors grow better and stronger businesses. I have a law firm that does that, and I wrote a book on how to quit getting screwed in the subcontract. So that's really my passion.
So what kind of things can you tell us about contract language and what it looks like when we have good contract language, as opposed to, uh, maybe what we get on the everyday,
also side note here, your book name is amazing. I just, I just want to throw that out there. Quick, getting screwed. That's just, it's so great. Anyway, your question....
Honestly, you know, um, I had some, a lot of discussion about the book title and everybody's like, um, what's a little rough, but, and the main thing is I don't mean I want, I want it to get attention. I want to get attention to this, into that things don't have to be this way. You don't have to get screwed. There can be a contract right now, the subcontract you pick up guarantee you 100% of the time, there's something in there that will put you out of business if you don't follow it properly. So to have to take that risk or not even knowingly take that risk to have to go to go to work every day is unrealistic and no other trade is that, is that a thing, you know, crab fishermen risked their lives, but at least they know what they're signing up for.
Subcontractors walk into potentially having to go out of business, but they don't even realize that when they sign the contract, I just want to bring attention to the idea that we can come together and negotiate something that both parties understand. And I think it would be better for both parties. Be less disputes, less litigation, less need for lawyers. If both parties understood what's in the contract. That's what, and if you wanted to get into the specific contract languages, there's some, you know, the book Quit Getting Screwed, got 20 different chapters. And I picked out probably the 20, there's like four chapters that are things you can do, what I to call to CYA while you're on the project, you know, cover your ass while you're on the project, which is daily reports, job site visits before you start the project and other things like that.
But the rest of it is for the most egregious things I see in subcontracts and most subcontracts, within the first two pages, you're that the prime contract is made part of your sub contract. And so you're agreeing to a contract you've never even seen and you don't know that's out there. And so the book has full of ideas of, "Okay, well, at least I'm going to be held liable. I need to get a copy of that. I need to get a copy of that contract to see." And most general contractors are like, "Oh, I don't know if I want you to have that, or at least give you a redacted version." And so we opened up the conversation about why does that need to be in there, right. It doesn't need to be in there. What did, what an attorney did is it's a catchall let's, let's throw in your responsibilities just in case I miss something and it doesn't have to be that way. So that's one of the, one of the dangerous provisions that is in the subcontract that could be changed.
Well, I'm hoping that you'll just continue to give us some advice today, you know, and, and teach us a little bit more.
I will, I will keep going because I have lots to say on this, you know, I wrote a whole book on it. The prime being part of your contract is one. The other thing that, um, subs misunderstand a lot is that you're not hired to do your bid. You're hired to do what's in the scope. And normally that has changed since the time you bid the project. So what I tell my clients, my customers is that once you get a sub contract and the first thing you do is pull the scope out and review it as if you were bidding a new project and to see if the two match, because so many times everything's, Oh, I, I put my bid in, they sent me a sub contract. That's what I was hired to do. And legally, if the bid is nowhere, part of the agreement between the parties, it's only the subcontract and only scope.
So the bid doesn't even come into this discussion of what you were hired to do. And so really take a look at that scope. And in the book I give you there's, you know, if you find that something's different, you send a letter, an email to the general contractor saying," Hey, you know, this was not in the first set of plans. You sent me. If you want me to do this, I need to increase the price X amount." Just, you know, just be flat and honest about it, but don't sign the sub contract until the change is made. Because if you get a, Oh yeah, I'll change that later. Just sign what you got now, what you signed, that is what will be used against you.
And that's another thing I think subcontractors have, um, misunderstanding about is that they think there's some set of rules out there protecting them from a bad subcontract. Like there's some magic set of rules that says, no, you can't do this against somebody. You can't treat somebody unfairly because it doesn't seem right. There are no set of rules and whatever you you're. The first rule of sub-contracts is that there are no rules kind of like fight clubs, same thing. And so you have to realize that going in and you need to make sure that you're going to protect your own interests because nobody else is doing it for you.
It's quite interesting. I was giving a presentation via Zoom the other day. And I had a, one of a large general contractor that was in the audience. And they said, and they asked me a question, you know, suddenly subcontracts to the subs and it takes us forever to get them back. And sometimes we don't even get them back. And I said, "It's because they're afraid of them. " You send somebody a 45 page contract that they have no idea what it says. And they know it's dangerous. They're trying to decide if they're going to sign in or down. And they're hoping they can just go to work and not actually have to sign that thing.
And just by the way, even if you do that, they can still say you're working under the terms of the contract. So not actually physically signing. It has very little effect. If they send you a contract, you start working. The presumption is you're working under that contract. And most product managers and people who send out these subcontracts, don't realize what's in them, you know, and don't and if you gave it to them and told them what was in it, they wouldn't sign it. Yeah. You know, irregular contract attorney would burn a subcontract because they're so far from what a negotiated contract would look like.
So we've been through scope. The other one of the other bigger killer ones is the pay when paid or the pay if paid class. First it's important to understand what that is and what that does. It used to be, you know, the owner bank financing to finance the contracts that they're sitting on the money, right? The general contractor signs, a contract that says, "I don't have to pay you until your work is done. And not only that, I don't have to pay you until the owner pays me." So what basically ends up happening is that the subcontractor ends up financing the project under a pay, one pay costs. They put out the labor, they put out the material and then they wait to get paid.
And here's the other thing. If they don't get paid, not only it, they're not getting paid for the work that they've done, they don't have the right to stop working, right?
So you're not getting paid. You can't quit. Otherwise you'll be in breach of the contract. The pay when paid, puts the financing obligations on a head on its head and puts it where the sub is. Basically, if you have a pay one pay, cause you didn't negotiate. The question is, "Can you afford to finance the full contract amount for the entire project time?" Because that could happen because you put, you do a good job, you submit your pay app, but that's not enough. You got to wait for the owner to pay the general than to pay you. And so the book and subcontractor institute.com has some great ideas where we can split the risk. So the general contractor is putting the risk of non-payment on the sub and there's some, there's gotta be something in the middle, you know? And there's, so I have some ideas in the book on how to do that.
And one of them is, okay, you submitted your pay application to the general contractor. They submitted their, so the owner, it's been 30 days, the owner hasn't paid the general and it's not your fault. It's not your defective work. The reason why you haven't gotten paid, okay. General contractor pay me 50% of my pay up. So at least I can cover my costs, you know, and I'll wait for the other 50% until you get paid. But that way I can cover my costs, I can keep on working. Or another one is the same thing. You wait 30 days. If you're not the reason why you're the general contractor is not getting paid. He'll pay you to file a lien. So maybe, you know, that will shake some funds loose for, for you, for the general contractor and for you or the other.
Another idea is that, okay, it's been 30 days. It's not because of me, I'm going to stop working, you know. And more than anything, once the project starts, the owner wants to get it done. Right. Um, and so if you give them that, right, the general could be like, I can't, you're not going to pay me to pay these guys. They're not going to work and I can't keep your project rolling. So the main thing is to take that, that risk, that's all being crammed down Hill to the lowest here and let's negotiate it. Let's make it fair. So that if something does happen, I'm not going to go out of business. Right. You know, you're on a huge project. It's been 90 days and you've got to keep working. If you extended your credit line, your guys are not showing up for work anymore.
I mean, how is that? And how I suggest is just be honest with the general contractor. Here's my fear. And what I find is that general contractors are always wanting to engage and have a discussion. If you have a problem, they want to know what, right? By the time you get the subcontract, they've already gone through everything else. They like your work. They want to work with you. You don't just have to sign, let's have a discussion about it. You know what I'm saying? And, and most of them will work with you meet in the middle somewhere.
I've heard, it said many times that cashflow is the number, one thing that drives construction companies out of business. And this is the culprit.
100%. And, and, and like you said, when you sign it, if you haven't had trouble with one before you don't realize they're in there, when you sign them. And then all of a sudden, you're now you're calling for payment. There's like, well, there's not much I can do. I haven't been paid. And you don't realize what you signed. They don't have an obligation to pay you until they're paid. And so, like I said, um, if you can't find this, the whole contract for, you know, extended period of time that any sign, one of those with a pay when paid clause, I mean, think seriously about it, because it really could, the cashflow could put you out of business.
Another thing that sort of take for granted is the schedule that's attached to the subcontractor, right? And so you, you bid, you give your estimated time, but then you just assume the schedule is what that is. So you need to pay attention to what schedule is because delay damages is based on that schedule, right? And delay damages say, "Okay, if you don't finish your scope on X day, you're paying me a thousand dollars a day and or whatever, $500 a day" whatever's in the contract. And so we need to make sure that when you get the, if something's changed or even by, you know, when the issue subcontracts, and by the time you start, the schedule is already changed. Get that resigned before you actually start. Because when a lawyer picks up the file, if there's a dispute, they don't know all that backstory. All they see is, "Wow. He finished like 60 days late. He owes you success $60,000." You know what I'm saying? We don't see that. And if it's not in writing it, ain't coming in the courtroom. Even if it is, if it's not signed by both parties, it can't come in either.
So being aware of what that schedule is, what you agreed to do, just because delay damages are based on that. And the thing too, with change orders, if you get a change order, not only do you need to increase the price, you increase the timeframe, because don't assume that they know it's going to take you X amount of days, extra, put it in writing, have it as part of the change were asked for the increase in price and the increase in time. Because at the end of the day, if it's not writing, Oh yeah. He said he would, he said he would won't, it doesn't come in the, what will be judged as the agreement between the parties is a subcontract and all of those documents, no verbal agreements or anything like that. So, you know, the schedule is another important part of what's in the subcontract.
Another one where I see people not knowing what they sign up for is subcontractor bonds. I don't know if you guys have had any dealings with subcontractor bonds or not. Um, but a general contractor actually would work on the project and you need to get a bond. And so you're like, "Okay, I'll go get a bond. It's like 3000 bucks.." depending, you know, contract amount of bond is not insurance, right? As people misunderstand that people think they're gonna file a claim on your bond. The insurance company will pay you and it's over. No. If the bond company has to pay out a penny, they're coming back to you to get it back. They're an indemnitor, but you indemnify them. So, um, the book is filled with ideas on ways you can add to your subcontract of you're required to get a bond, uh, to protect yourself.
But the main thing to know is that it's not insurance. If somebody makes a claim on your bond, you need to respond immediately with your side of the story and why the claim should not be paid. If you don't want the bond company is just going to pay the claim. And most bond companies and the agreements you signed have the discretion, whether you agreed or not to pay the claim. And so, you know, and then once I pay it, it's over, you gotta pay them back. And when you, if you've ever had to get a bond, you know, that you need to sign a personal guarantee. So it's not only your company, it's at risk. It is you personally in your personal bank accounts and everything like that. So subcontractor bonds are another thing to be very leery of. I know they're normally required on public projects. And so in a situation like that, what I say is, okay, if subcontractor, if the general contract is gonna require you to get a bond, make sure you get a copy of their bond, because what can happen if you don't is that you haven't been paid because it would pay one pay clause or whatever. And then the general contractor files on your pond to get payment for that. You haven't been paid, but he's falling on your bond.
So if you have his bond, you can file on his, on his bond for payment that he, that he owes you. So it'll give you more leverage if you end up in a situation like that. But I always say, be leery. Subcontractor bonds are like nowhere legally required. And so if you're getting one, you're, you're doing it at the risk of what could happen, because it's, it's for payment of everybody that works under you and for you to finish the job. If you don't finish the job, then the sub, then the GC can fall on that bond for whatever it costs them to finish. And I've seen situations where the GC knew the sub underbid, it made them get a bond. And when they couldn't finish, filed on it and put them out of business, because they knew the bond company would pay and they knew he would be in default within the contract.
You hit something always on back that I want to come back to because it's something that I've heard said to me, incessantly, really. And that's it wasn't in my scope of work. "I excluded that" And so that that many times comes up and we're trying to negotiate the things that we are responsible for and the things that we are not. And so, um, for the subcontractors, when they are putting their bids in, I want to make this kind of a loud and clear thing just because you excluded it in the scope that you bid does not mean that it is excluded from your responsibilities from a contractual basis. True?
Correct. Because whatever you put in the bid, that's an offer. The subcontract is basically a counter offer, right? It's not like they take your bid and slap it on the contract and say, this is what you're required to do. Now they take whatever scope, whether you excluded it or not. And sometimes it's intentional, but most of the times it's not right. That there's been a change. There's been some change to the plans or an RFI changed something. And so, you know, now your scope is bigger. Maybe a little bit, maybe a lot, but your bid never becomes part of the contract. So the fact that you excluded in your bid means nothing legally, because once you sign that sub contract, that's the agreement. The bid is pre agreement. And unless you make a provision that it becomes part of the agreement is not part of the agreement.
So like, if you get, you get terminated and you go, and we were going to have a fight about scope, I don't get to bring any of those documents in, in the court. Like I bid this, this is what I bid. It doesn't matter. You're held to the four corners of the documents that you signed and every sub contract, it says, I have read, and I understand everything. And that is used all of the time. Watch out for that.
The other thing that people don't realize is in a subcontract is termination for convenience clause, which means the general contractor or whoever hires you can terminate you for any reason or no reason at all. What does that mean? What does that look like? Where I see it most common is okay... you bid the subcontract, you got the, you know, you bid the work, you got the subcontract sign, you get ready to go. You mobilize or get all the stuff ready. And then they find somebody cheaper. And now you're terminated. Where I also see it come in is if they don't give you the right amount of times or cure defect, they can just come in and say, it doesn't matter. I terminated for convenience. Um, that's, uh, another dangerous provision that people don't think that realize what can happen.
It kind of goes back to the question that Eddie asked you. But I feel like a lot of times we get caught on the principle of the thing, you know, like we'll go to court over principle and I just kind of wanted to see, how often does that happen? Is that really true? Do we just go to court over principle?
Here's here's my thing. I will talk my clients out of it, 99% of the time, because here's why principle is never a smart business decision, especially not in the courtroom, because I have a whole chapter on this, because this, this is where I get on my soap box. Don't me wrong. Attorneys will sell you on it. Why? Because they're paid by the hour. They like conflict, but it's not in your best interest. Having been a small business owner, run a con you know, uh, material supply company. It costs you so much to go to trial. The best you could hope for is to break even. And that never happens. Right? And so you come to me, I say, you want to go to trial, "I'm right. I want I'm going to win." And I'm like, okay, wait, you want to start writing me $10,000 a month checks, um, and get depositions taken hours and hours away from your company.
Having attorneys ask you questions and twist the things that are out there to make you look like, you know, you were the worst guy in the, in the whole world because that's what attorneys do. Um, it's just not worth it. Principal is never a smart business decision. If we can negotiate, I can get you what you want. That is a way better deal and go spend the money. You would pay me on developing your business, right? Go spend it on learning how to negotiate, subcontracts, go spend it on, you know, sales, something you don't want to be in a courtroom. You don't want to be in my office with your whole project file. You know, having everybody, you know, knee deep in your business, and then you can get a trust fund claim, and then they'll get into your bank account. Once you open that ball of wax, it's not just you going forward. They can counter claim against you, even if it's not right. Even if they won't, when it does stop them from doing it. And so I always principle is, is as never, it doesn't have a place in the courtroom. It doesn't, I'm not saying back down from a fight, but don't move forward on principle.
I got another thing... I'm sitting here as a small business owner, and I like to work, and I like getting paid for that work. And when I get put in this position, I wonder to myself "Self, how, how do I get through this headwind of contract and work and get paid for work? If I'm basically being held like with an arm bar to do it, and the other option is walk away." So what, what do we do to negotiate and navigate that? Like, what wisdom would you have for us to maybe give us the confidence to negotiate a contract that's fair,
Absolutely know your lien rights, because you have an agreement with the general contractor and he's got to follow that agreement. And so to you, but once you file a lien, that's on the property, that's against the owner. And so now you're getting the general contractors customer involved. And so to the, you know, to the extent first off, know what you're agreeing to, right? Understand the subcontractor requires reports, do those failing to do any one of those things. They can just throw you in default, right? But you get the leverage of having a lien. Then you have leverage, you have more than just the agreement with the general contractor. You know, you got to understand too, I'm jaded. I don't ever see a good project, right? I want to see the ones that are getting messed up. And so I've learned these things from the hard side, and the most leverage you can get is know your lien rights and don't let anybody push you outside of those, always follow them.
Um, because then you will get paid, uh, because the owner's not going to pay the general, unless your lien is taken care of because that's on their property, then they need to get it taken care of at the end of the day. Being clear in the subcontract too, nobody wants to end up in these disputes, right? So if I give you the tools to know what you're looking for and know that the scope could be different, you can avoid, you know what I'm saying? And part of the subcontractor Institute, I have a 12 page in plain English subcontract that you could use on any size project. That if you, you picked it up, you could read it and understand it, it doesn't, they don't have to be these 45 page, small print that I even dread, right, reading, you know, that doesn't have to be that way. And so, but knowing your lien rights too, is great. Leverage
Forty-five pages even seems a little bit small. I'm sure there's some cases where they get up in the hundreds.
Very true, very true. Who, what, what, how many times you got to say the same thing over and over again? That's all it does. It says the same, "No matter what happens, you're responsible" is what it says. Even if I go out on a drunk bender and drive my car into the project site, it's your fault. And you're going to take care of it. I mean, that's how these things are written, right? 45 pages. They keep saying that over and over again, different ways. Yeah.
It's a different topic somewhat, but the, the insurance side of this is the, I mean, it kind of works the same way in the contract languages. Like I'm going to insure me. You're going to insure me. Everybody knows going to insure me. And they're going to insure my customer too. It's a, "I'm going to watch my back and you watch my back." That's, that's how it goes. So we're trying to get a, I'll watch your back and you watch my back type of thing set up in the contract.
I agree. Um, the insurance, you know, I'm not so mad at insurance because it's a great thing to have because it can protect you from litigation and all that stuff. And those terms that say you're responsible forever, everything can't legally be enforced.
And I think another place where that subcontractors to really take is that it's always in your best interest. I know it's expensive, but have worker's comp for your employees. It's, it's, it's I know it's expensive, but at the end of the day, it can save you. So insurance is not a bad thing either way over insurance, not a bad thing, because it will save you all that takes this. You know, I had a client that had, um, the, the plumbing job did a great job. The building sat empty. I don't know, for six months before it was sold and they had a pipe burst and it wasn't his fault. It was, there was a problem with the pipe. It was a, you know, a manufacturer, but his insurance company stepped in and took care of it. And so in a situation like that, that's what insurance is for. Here's an insurance can never cover bad work, right? Like that guy, even though the pipe exploded, wasn't his fault is not going to cover the pipe. It will cover the damage caused by the exposed pipe, but it won't cover the pipe itself. So insurance, you can't get insurance for bad work, but you can get insurance for the results of bad work. And don't be wrong. Insurance companies are not in the business of paying claims, but collecting premiums. So you usually have to fight with them a little to get them to, to do what they're supposed to do. But usually at the end of the day, there's so much state regulation on that that they have to.
This is a great point to kind of lead you in and ask you our megaphone question. Um, so if we gave you a megaphone that the whole industry could hear, and we gave you 60 seconds, what would you say?
Let's be clear on our expectations. Let's clean up the subcontract let's negotiate it. So everybody understands. Let's make it fair and quit watching these mom and pop places go out of business because we built it. You subcontractors build it. They get things done. They don't have, they don't, shouldn't have to go to business to go to work.