Question

2. During the construction phase, the general contractor experienced hard financial situation

that led him/her to file bankruptcy. The HVAC subcontractor on the project notified the

parties that he/she will remove the loose material and pipes present on site and will dismantle

the radiators previously installed. Is the subcontractor entitled to take such actions? Explain.

Answer 1

Yes the subcontractor intends to continue its business operations while reorganizing its business.

1. Contract Provisions. The best defenses to a subcontractor bankruptcy are established when negotiating the subcontract and beginning the project. A general contractor should consider the following clauses in its subcontracts:
2. Right of setoff for all jobs the subcontractor performs for the general contractor.
3. Right to pay the subcontractor by joint checks at the sole discretion of the general contractor.
4. Establish a form of periodic lien waiver to be used by the subcontractor that provides a detailed accounting of the progress on the project including payments made, retainage held, pending change orders and amount remaining to complete.