Subcontractors generally have little control over a contract as a whole, but it is critical to have good review and negotiation processes.
To further explore the contract review process, a group of various types and sizes of specialty trade contractors answered some questions about their contract review process:
Who Reviews Contracts Within Your Company?
Answer 1: Initial review is done by project managers (PMs) and the project team. Final review is completed by house counsel and the paralegal team.
Answer 2: I (as the Vice President of Finance) primarily review our contracts. If the contract is smaller and from a customer we know well, then I may have the salesperson or PM review it instead. For larger or more complex agreements, I escalate them to our attorney for a more thorough review.
Answer 3: At a minimum, the PM reviews, however, most of the time, I (as the CFO) am also reviewing and giving my opinions. For larger contracts or newer customers whose contracts are new to us, the leadership team will get together to discuss and go through areas of question.
Ultimately, the PM is responsible for what is in the contract; as part of the leadership team, executive level PMs are authorized to sign off on contracts.
Answer 4: We recently created a Contracts and Risk Management Director position that is responsible for reviewing, marking up, and conducting internal reviews with applicable sales team members as well as the delegation of authority.
Answer 5: Our PM, Risk Analyst, and Quality Assurance (QA)/Quality Control (QC) team review our contracts. An attorney will also review if it’s a new contract or client.
Answer 6: Our in-house counsel and PM review our contracts. If terms and conditions are out of the ordinary, our CEO and CFO are brought in.
Answer 7: Typically, it is the PM who sold the job, although occasionally PMs from our door and hardware division will bring them to me (as the CFO) if something is in question, such as payment terms.
Answer 8: Our Estimator, PM, Project Accountant, Risk Manager, and CFO all review their pieces. Then we review together via Microsoft Teams.
What’s Your Process From Receipt to Execution?
Answer 1: The project team creates a contract checklist in our software tool and uploads the contract. The legal team reviews the contract and either notifies the project team that contract can be executed as is or emails edited contract to project team.
If as is, the project team proceeds with execution of contract and emails the executed contract to the legal department. If the contract was modified by the legal team, the project team sends the modified contract to the customer and negotiations take place until both parties are satisfied, all contract edits have been made, and both parties have signed.
The final executed contract is sent to the customer and in-house legal team for retention in our systems.
Answer 2: The salesperson or PM sends the contract to me (as the Vice President of Finance). I review it, flag any conditions or risks they need to be aware of, and identify any required changes or strikeouts. I provide clear guidance back to the team before proceeding.
Answer 3: The PM receives the contract and sends to me (as the CFO) and we begin reviewing. I make any comments necessary and send to the PM. If the entire leadership team needs to be involved, the contract will be outlined for areas of concern by the PM, and the group will review together.
Answer 4: Our sales or estimating team provides the Director of Contracts and Risk Management the contract documents, and they review and mark them up, discuss any key points with the internal team, and submit the markup to the customer. Then, they respond to customer’s response either in writing or at a meeting to discuss/negotiate changes. From there, depending on the contract terms and conditions and dollar amount, they will sign if authorized per our delegation of authority (DOA); if it needs to go up the DOA, they will obtain authorization.
Answer 5: Our salesperson receives and forwards to operations, QA, and risk. If it’s a new contract/client, risk will send to attorney for review. Simultaneously, our operations team checks scopes, QA checks against proposal, and risk reviews for contract language. Once everyone initials in DocuSign, it is routed for signature, which is dependent on dollar value
Answer 6: Legal has their process of logging initial draft and following subsequent revisions through to final.
Answer 7: The selling PM reviews the contract for consistency and reasonableness and is the signor of the contract. Most of our staff is very experienced, and those with less experience will have the more senior management review before they enter into an agreement. The information pertaining to payroll is communicated to the accounting department so we can pay the proper scale, per diem, and make any other adjustments.
Answer 8: When the contract is received, it first goes to the Risk Manager to create a folder and put in all necessary documents. The Risk Manager starts our checklist and notifies the team that the checklist is ready to be completed. The Risk Manager then follows up with a meeting that includes all reviewers to discuss. Once everyone’s questions/understandings are addressed, the CFO signs the contract. The Risk Manager follows the process until the executed copy is received.
Are You Using Software to Help, or Is it All Done Manually?
Answer 1: Our software helps us retain contracts, create contract records and checklists, and manage status of contract review and communications between project teams and legal teams. Contract review is currently done manually, but we are testing AI tools to assist. We store executed copies of agreements within an additional tool as well.
Answer 2: It’s mostly a manual process. I’ve started using AI tools to help spot potential risks, but the bulk of the review is still done manually.
Answer 3: Currently, our process is manual. Although there is software out there, we are currently opting to get into the nitty gritty, as we see this as a training and learning opportunity.
Answer 4: Currently, we do this manually. I am exploring contract management software and will be in a free trial period for a software starting in March.
Answer 5: We use DocuSign to have everyone sign off, and then we put the executed document in our enterprise resource planning software.
Answer 6: No AI — primarily just Word to track all the changes.
Answer 7: Our process is very manual. Due to the size of our operations, we are not on the cutting edge of technology. I have used AI to review a potential contract, redacting names and other specifics. This resulted in a renegotiation of terms and conditions due to their unscrupulous desire for signed waivers before issuing payment to us.
Answer 8: The only software we use is Excel to manage our checklist, sign off, and input notes.
What Is Your Typical Timeline for Review?
Answer 1: Our construction contracts average 10-12 business days, but service contracts are often turned around in less time.
Answer 2: Standard contracts are usually turned around in 1-2 days. Larger or more complicated agreements can take up to a week, especially if legal counsel is involved.
Answer 3: This varies greatly depending on who we are working for, our familiarity with them, and contract size. Some contracts can go back in the same day, whereas others, especially those with government regulations, can take a while.
Answer 4: It varies, depending on the number of pages in the contract documents and how long it takes to complete the review and markup. How long it takes to negotiate the changes and execute the contract also depends on the type of changes to be negotiated, the customer relationship, and their internal process.
Answer 5: It can take anywhere from one day to one week, depending on contract length and knowledge of the client.
Answer 6: Straightforward contracts are quick. Big projects with many terms and conditions can take months, depending on the risk trying to be pushed down.
Answer 7: According to the managers with whom I spoke, it depends on the project size and history with the customer. The more familiarity and previous conversations had, the faster the turnaround; a day or two is typical.
Answer 8: A lot is dependent on the job’s start date. Typically, we try to review within the week.
How Do You Go About Negotiating Changes?
Answer 1: Our in-house legal counsel works with internal project teams to negotiate changes directly with the customer’s contact and legal counsel.
Answer 2: It depends on both the customer and the specific contract terms. Our goal is always to reach an agreement that’s fair and reasonable for both parties. Negotiations are typically handled by me, in collaboration with the salesperson or PM involved.
Answer 3: The PM is responsible for negotiating changes; any PM that will be fulfilling this role is at an executive level within the company.
Answer 4: Initially, changes are presented via the contract document markup (Word with track changes and comments) that is sent to the customer. Then the customer either responds in writing to the markups and/or we have a virtual meeting, where we can share the document and walk through the rationale for the changes.
Depending on the project, we typically would have myself, the sales representative, and the Director of Sales and/or the VP of Sales participating.
Answer 5: The CFO typically handles negotiation along with the client salesperson.
Answer 6: Terms and conditions that are unfair or impact our ability to complete the project in a timely manner are brought up and attempted to be resolved for what’s fair for both parties.
Answer 7: Finding common ground for a “win-win” situation is not all that difficult with diplomacy and reasonableness. It usually only takes a conversation to explain we do not always accept boiler plate agreements and have a lot of experience in customer satisfaction, having been in business for 58 years.
Answer 8: Good or bad, project risk dependent, the estimator typically goes back to their contact to discuss. Most of the time, the subject relates to scope.
Conclusion
Although there are differences specific to each company, often determined by size and culture, the process as a whole is very similar.
As AI technology advances and closed AI becomes more affordable, that will begin to play a bigger role in our industry. The bottom line is that all contracts need to be reviewed in detail and all of the “gotcha’s” need to be called out and hopefully negotiated to a fair term or condition.
An insurance broker can be a great source of help and education for certain contract sections. Also, having legal counsel available, internally or externally, is vitally important.
In the end, contract terms can make or break you when things go bad, and they will go bad at some point. Don’t be afraid to ask your generals for more equitable terms — most of the time, they may appreciate that they are working with a company that pays attention to the details.