Subcontractors Beware: General Contract’s Fine Print May Govern Your Contract Too.

Photo of Jeffrey A. Soilson

The Supreme Judicial Court recently exhorted subcontractors to make sure they know the terms of general contracts before agreeing to import them in a wholesale fashion into their own subcontract.

The SJC’s recent decision in Costa v. Brait Builders Corp., 463 Mass. 65 (2012) may be more notable for its holding that claims brought against statutorily required payment bonds are not waive-able by subcontractors on public projects. In Costa, however, the SJC also grappled with a second waiver question, i.e., whether a waiver of consequential damages in a general contract was enforceable against the subcontractor. On this secondary issue, the SJC held for the general contractor and its surety, enforcing the waiver language.

In Costa, the subcontract incorporated the terms of the general contract in their entirety. According to the SJC, such “[s]o called ‘flow down’ clauses, pursuant to which the contractor’s obligations ‘flow down’ to the subcontractor, are an acceptable and common method for general contractors to limit risk.” The SJC also commented that it saw “no special policy reason to fashion an exception for waivers of consequential damages, particularly as there may be good reason for the parties in construction contracts to exclude such damages.”

The “take away” from Costa‘s holding on consequential damages is best described in the SJC’s own words, authored by Justice Francis X. Spina: “Subcontractors, particularly those with substantial industry experience such as the plaintiff, are well advised to examine both their own subcontract and any provisions that might be incorporated from the general contract, before agreeing to them.”

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