Northridge Mechanical Services (Sample)
Plain-English read
This sample reviews a $1.4M mechanical subcontract on a mid-rise commercial project under a Stipulated Price prime contract. The scope is normal for the trade. The contract terms are not.
The most consequential risks are a pay-when-paid clause that ties your payment to the prime's collection from the owner, an indemnity that runs broader than your scope, change-order language that requires written authorization but allows verbal direction to keep the work moving, and a back-charge clause that gives the prime unilateral authority to deduct against your draws. Together these can convert a profitable subcontract into a working-capital trap.
This report flags four items as red flags, lists ten specific questions to put to the prime in writing before signing, and recommends a focused legal review of three sections rather than the full subcontract.
What is going to crack under load
Payment to the subcontractor is conditional on the prime contractor receiving payment from the owner. The clause goes further than a timing condition — it appears to make owner payment a condition precedent to your right to be paid at all. Under the Ontario Construction Act this is likely unenforceable as written, but enforcing your prompt-payment rights still costs time and lien fees. Plain reading: if the owner stalls or fails, the prime keeps you waiting and tells you to take it up with the lien process.
Indemnity covers any claim 'arising out of or in connection with' the subcontract, including the prime's own negligence to the extent permitted by law. The clause is not limited to your acts or omissions, your insurance limits, or your portion of fault. A coverage gap at your insurer becomes a personal exposure.
Section 9.1 says change orders require written approval before work proceeds. Section 9.4 says the prime may verbally direct work in the field; payment for that work requires post-hoc written documentation. In practice, you proceed on verbal direction, the documentation gets contested at the back end, and unfunded work piles up.
The prime may deduct from progress draws for cleanup, delay, deficient work, or any other claim it asserts in good faith — no notice period, no dispute mechanism, no agreed daily rates. The deduction is reflected in the next draw and you carry the cost while you contest it. Combined with the payment clause, this creates a significant cash-flow risk on any disputed item.
Obligation breakdown across the term
Holdback plus bonding plus liquidated-damages exposure is the working-capital cost of taking this contract. Model your cash position assuming a 60-day owner payment delay and one disputed change order before deciding whether the margin justifies it.
Put these in writing before signing
- Q01Will you remove the words 'condition precedent' from §7.3, or replace the payment language with a 30-day prompt-payment trigger from issuance of your invoice?
- Q02Can the indemnity be capped at our insurance limits and limited to claims arising from our negligent acts or omissions?
- Q03Will you confirm in writing that any verbal field direction must be documented within 5 business days, and that quantum will be agreed within 15 business days, or it falls under a defined dispute process?
- Q04What is the exact procedure for a back-charge: notice, opportunity to cure, dispute escalation? Can we attach an agreed schedule of unit rates for common back-charge items?
- Q05What is the project's payment history with the owner? Can we see the last two progress draws as released by the owner to the prime?
- Q06Will you provide your project schedule as a Schedule attachment to this subcontract, with any change to the critical path requiring our agreement?
- Q07Can the liquidated damages be tied to milestones we control, with concurrent-delay relief and weather-adjustment provisions?
- Q08What rights do we have to suspend the work for non-payment? Are these consistent with the Construction Act prompt-payment provisions?
- Q09Will the prime acknowledge our right to register a claim for lien without that registration triggering a default under §16?
- Q10Can the warranty period start on substantial performance of our scope, not substantial performance of the entire project?
What to do next
- 01Bring this report to a qualified Canadian construction lawyer for a focused review of §7, §9, §11, and §14.
- 02Verify the prime's payment history with two recent subcontractors on the same project. Specifically ask about prompt-payment timing and back-charge frequency.
- 03Build your project cash-flow model assuming 60-day owner payment delays, three back-charge events, and at least one disputed change order.
- 04Confirm your bonding capacity is sufficient for this contract plus your other active bonds before signing.
- 05Do not start work without a signed subcontract reflecting any negotiated changes. Engage construction counsel before signing.
General business and document analysis only. Not legal, financial, or investment advice. Always consult qualified counsel before signing.