All too often, a general contractor or owner becomes frustrated by the slow progress of one of its subcontractors, or by observing what appears to be deficient in the sub’s work. The natural impetus for the general contractor is to jump in and fix it. An outside sub may be brought in to “assist,” and the cost of this is then backcharged to the original subcontractor. This happened to Brenda’s company, Urok Electric, on a high-rise project.

Brenda’s job was running late. The owner was pressuring Fritter Construction, the general contractor, to finish. Part of the electrical work not yet started included the installation of exterior landscape lighting and parking lot lamps. Y-Knot Electric appeared one morning and began installing that work. When Brenda asked Fritter what Y-Knot was doing there, Fritter said, “We need to get this job done.” A few weeks later, Brenda got a backcharge for Y-Knot’s work.

Brenda was caught totally by surprise. She called her mother, retired president of Urok, for advice. Her mother told Brenda she had a binder of articles from ELECTRICAL CONTRACTOR magazine she had collected over the years and would send Brenda the one on defaults.

After reading the article, Brenda reviewed her subcontract’s default clause. The article said that in many—but not all—instances, these clauses will have language that the general can issue a “notice of default” to you for not meeting all contract requirements. Then, there may or may not be a provision that the default will be declared in a set amount of time. 

This combination of notice of default followed by a time lapse before a default is declared is generally called a “cure notice,” even though the word “cure” may not have been used. An important point she learned was that a cure notice is a creature solely created by contract. If your contract does not have it, you do not have it.

Federal government contracts

Federal government contracts are required to have a standard default/cure notice clause. There are so many cases that it is fairly well-defined in how it works with these contracts. The provision is contained in Federal Regulations FAR 52.249-8(a) as follows:

1. The Government may … by written notice of default to the Contractor terminate this contract in whole or in part …
2. The Government’s right to terminate … may be exercised if the Contractor does not cure such failure within 10 days … after receipt of the notice … specifying the failure.

There are four baseline elements in this provision. If the government does not follow all four, then the partial termination, and any backcharges arising from it, are invalid. Those elements are:

•  That there is a right to partially terminate the contract.
•  There must be a written notice of default sent to the contractor.
•  Specific reasons for the default must be stated in the notice.
•  There is a cure period to either remedy the problem or submit a plan for the remedy.

Brenda did not have equivalent language in her subcontract, but she would try to get it in the future.

Nonfederal jobs

The article also noted that there are many variations of default clauses in nonfederal jobs. It quoted a state university’s clause that provided:

“If the Contractor should neglect to prosecute the Work properly or fail to perform any provision of this contract, the University after three (3) days’ written notice to the Contractor may make good such deficiencies and may deduct the cost thereof from the monies then or thereafter due the Contractor.”

A good explanation of the importance placed by courts on the cure period, and the contractor’s rights under a default clause, comes from a recent Maryland court decision. The owner … under the terms of most construction contracts must give the contractor notice of the incomplete or defective work and opportunity to cure before it will be entitled to complete or correct the work itself … Where [a contractor] is denied the “opportunity to make corrections,” [the contractor] is “relieved of its obligation to do so.”

That court went on to state: “The right to cure is a fundamental contractor right.” There is a fundamental right if the contract has a cure provision. There are similar cases across the country that hold that the notice to cure must contain specifics of the alleged breach of contract, whether it be for slow progress or defective work.

Keep in mind that many of the court decisions about the importance of a cure notice concern contract termination, not partial termination or instances where the owner or general contractor did repairs or cleanup of the subcontractor’s work. However, the same logic would apply to these lesser “takeovers.”

Brenda found in Urok’s subcontract’s default clause the requirement of a two-day written default notice (notice to cure), which Fritter had violated. She wrote to Fritter saying that the backcharge was improper and unacceptable, and she attached a copy of the article to her letter. Brenda’s letter was very effective because she gave Fritter support for her position that their decision to replace Urok with Y-Knot for exterior lighting was not handled according to the subcontract.

Header image source: Shutterstock / Hvostik