Kate Strauss, Esq. and Trystan Melancon, Esq., Galvanize Law Group
Successful construction projects coordinate the needs and responsibilities of multiple stakeholders—Owners, General Contractors, Subcontractors, Suppliers, and Vendors. Each role is vital, but the relationships and interactions between the General Contractors and Subcontractors play an especially crucial role in a project’s successful completion. Successful navigation of disputes between General Contractors and Subcontractors is a key part of project success. Payment delays, scope-of-work disagreements, project delays, quality control issues, change orders, safety concerns, and contract disputes frequently cause conflict.
Subcontractors navigating conflicts while upholding ethical standards must balance the demands of the client, the directives of the General Contractor, and their own professional standards and integrity. Financial pressures can overshadow ethical considerations, but maintaining a strong ethical foundation is essential for long-term industry success. This article explores key ethical considerations in conflict resolution, the pressures Subcontractors face, strategies for addressing these challenges, and why it pays off in the long run to operate your business ethically.
Addressing Disputes with General Contractors or Clients While Upholding Ethical Standards
Payment delays are one of the most common tensions between General Contractors and Subcontractors; Subcontractors complete their work only to face lengthy waits for payment, sometimes due to the General Contractor’s own cash flow problems. Similarly, disputes over the scope of work or project delays lead to tension, especially if the General Contractor is pushing for shortcuts or rushed work to meet deadlines.
Clear communication and thorough documentation are critical for Subcontractors seeking resolution. Subcontractors should document all agreements, including verbal directives and any changes to the original scope of work, to avoid misunderstandings. Think strategically about whether your organization can institute a same-day follow-up to document any discussions or directives from a General Contractor which impact price. Open and proactive communication with General Contractors and clients will help prevent small issues from escalating into major conflicts. Upholding industry standards, rather than acquiescing to client or General Contractor demands that compromise quality or safety, is not only a matter of professional integrity but also a protective measure against long-term liability.
Handling Conflicts Related to Pressures from Clients to Cut Corners
One of the most ethically challenging situations Subcontractors face is pressure from clients or General Contractors to cut corners. Whether it is to reduce costs or meet a tight deadline, compromising on safety, quality, or manufacturer standards come with serious repercussions. Long-term legal and financial risks often outweigh the short-term financial savings from cutting corners.
For instance, Owners or General Contractors may ask Subcontractors to use materials that do not meet the required standards or to rush a project without following the necessary safety protocols. These decisions lead to safety hazards, project failures, or even legal liability. Educating clients and General Contractors about the risks associated with cutting corners is an important strategy to resist these pressures. Clear, well-documented contracts that define safety and quality standards give Subcontractors the leverage they need to push back against unethical demands. In addition, documenting the potential outcomes of the decision to both the General Contractor and the project Owner will make it clear that they are knowingly electing a course of action and arguably accepting the risk. Requesting an additional clause for indemnity and defense arising from the decision is also a smart way to help the General Contractor or Owner understand that they are responsible for any consequences of the selection or decision.
Ethics of Change Orders
Change orders commonly cause conflict in construction projects, often leading to ethical dilemmas. Subcontractors may be tempted to overcharge or inflate either labor or materials costs when they encounter change orders, especially if they initially under-priced the original bid or if the contract itself limits the amount of overhead and profit that can be attached to the change order. However, this type of inflation, if identified by the General Contractor or Owner, causes irreparable damage to the trust relationship and can also result in legal consequences.
Potential downstream consequences aside are a strong argument for adhering to ethical practices in change orders. Practice transparency: openly explain the reasons for changes and the associated costs to General Contractors and Owners. Document all change orders and ensure mutual agreement to comply with the terms of the original contract. Subcontractors must ensure fair pricing not only to maintain client trust, but also to foster long-term relationships with General Contractors, other Subcontractors, and to maintain a strong reputation in a competitive market.
Balancing fair pricing with maintaining strong relationships presents challenges, but remains essential for achieving long-term success in the industry. Clients and General Contractors appreciate Subcontractors who communicate upfront and honestly about costs, even if adjusting the project budget is necessary. Unethical practices such as inflating costs or hiding the reasons for change orders often cause disputes, loss of future business, and harm to your professional reputation.
Case Studies: Real-World Ethical Dilemmas
Case Study 1: The Old Building Remodel and Deteriorated Concrete Wall
In one real-world scenario, General Contractor hired a Subcontractor to renovate an old building. During the project, the removal of tiles from the walls revealed a severely deteriorated concrete center wall. The General Contractor and owner wanted to proceed with a method of repair that failed to meet manufacturer tolerances and lacked engineering approval. The Owner and General Contractor pressured the Subcontractor to continue with the unsuitable solution. However, the Subcontractor recognized the potential safety risks and refused to compromise on installation quality. Subcontractor insisted on a change order encapsulating the work that General Contractor and Owner were requesting; provided industry publications suggesting that the application of certain materials would be out of tolerance for manufacturer installation instructions, and requested that General Contractor and Owner indemnify the Subcontractor for the change order work. As a result, the Owner and General Contractor opted to pursue a safer, albeit more expensive option.
By adhering to ethical standards, the Subcontractor avoided significant exposure to long term damages. In the specific scenario, it was likely that Subcontractor would have been called back several times for ongoing warranty work on the change order work (when the materials couldn’t be installed in a manner that “looked” the way Owner was seeking), and when the materials ultimately failed in two to three years Subcontractor could also potentially face damages for the cost to remove and replace with industry suitable materials. The future costs, after interior finishes were complete, would be significantly more than the original cost of installation. In addition, Owner might also then seek consequential types of damages, for loss of use to the building during repairs. Under these circumstances, Subcontractor’s future exposure to damages would be in the hundreds of thousands, if not millions, of dollars.
If you’re faced with an ethical dilemma on how to proceed with a request that will not meet industry standards, considering the potential long term costs and consequences to your company absolutely helps with perspective on the decision you’re facing today.
Case Study 2: Vendor Invoice Manipulation
In another scenario, a Subcontractor faced a contractual limit of 10% markup on overhead and profit on change orders. To recover additional costs, the Subcontractor manipulated vendor invoices in a .pdf editor, to artificially inflate costs. Although this deception provided a short-term financial gain, it caused greater financial loss in the long run. When larger problems arose on the project, Subcontractor’s counsel identified the manipulated invoices and informed Subcontractor that they could not present false evidence to the court under attorney ethics. Subcontractor lost legal representation and the ability to effectively advance a much bigger claim in the case due to poison change orders.
The lesson is clear: violating ethical principles for short-term benefits often leads to long-term consequences, some of which a Subcontractor may not be able to anticipate at the time of the decision. The financial and reputational costs of unethical behavior usually outweigh immediate gains.
Lessons Learned: The Cost of Violating Ethics
These case studies show the importance of maintaining ethical integrity in the construction industry. Subcontractors who adhere to ethical standards protect their reputation in the community, their long-term financial interests, and ensure the safety and quality of their work. Ethical decision-making produces better outcomes, both financially and reputationally.
Subcontractors must balance their obligations to General Contractors and Owners while upholding their professional standards. Ethical conflict resolution demands clear communication, transparency, and a commitment to safety and quality, even when financial pressures arise.
Key Takeaways:
- Ethical conflict resolution involves clear communication, transparency, and prioritizing safety and quality over short-term gains.
- Thinking long-term can help Subcontractors resist pressures to cut corners, even when facing financial or time-related challenges.
- Violating ethical principles for short-term benefits often leads to long-term consequences while maintaining ethical integrity protects both financial and personal interests.
Ethics in the construction industry is not just about following the rules—it’s about safeguarding long-term relationships, safety, and quality, ensuring the continued success of all parties involved.
About the authors:
Galvanize Law Group Founding Partner, Kate Strauss, is an experienced counselor and advocate, with a practice equally dedicated to advising clients on corporate and transaction matters, and litigation on behalf of her clients. Kate’s litigation cases address issues such as construction defect, mechanic’s lien foreclosures, delays and scheduling impact claims, and other contract entitlement questions. Her clients include general contractors, design professionals, subcontractors and specialty trades, and material suppliers.
She is a 2019-2024 Colorado Super Lawyer and was recognized as a Colorado Super Lawyers Rising Star in from 2015-2017. Kate is a professional member of the American Subcontractors Association of Colorado, for which she co-chairs the Women in Construction Committee. She is also active in the Colorado Bar Association and serves on the Colorado Bar Association Ethics Committee.
Trystan Melancon is a recent graduate of Paul M. Hebert Law Center, Louisiana State University. A law clerk with Galvanize Law Group since January 2023, she is already well versed in contracts and mechanic’s lien law and the difficulties facing subcontractors in their everyday work. She is awaiting admission to the Colorado bar and looks forward to representing Galvanize Law Group’s excellent subcontractor clients in all of their business needs.
Find out more about Galvanize Law Group at: https://www.galvanize.law/
