POLICY: Providing Proper Notice to a Subcontractor or Vendor
PURPOSE: To provide for methodical and orderly effort in which a subcontractor or vendor is legally notified to address contractual deficiencies and/or to be terminated.
RESPONSIBILITY: Project Manager
PROCEDURE: Subcontractors and vendors are legally bound by the agreements outlined in the executed Subcontracts and Purchase Orders with Carter & Carter. Carter & Carter is also bound to certain responsibilities by virtue of the same agreements. It is therefore critical that the Project Manager in conjunction with that Superintendent ensure that Carter & Carter upholds their end of the agreement. When the Subcontractor or Vendor materially defaults on their agreement or otherwise fails to uphold their part of the agreement, steps must be taken in order to bring the Subcontractor or Vendor into compliance and/or lay the groundwork for the ultimate termination of the agreement between the Subcontractor/Vendor and Carter & Carter.
Step # 1
Determine the exact part of the Subcontract or P.O. that involves the failure or default.
Step # 2
Consult with the Senior Project Manager or Executive in Charge to discuss and confirm the failure or default. This step should not be avoided as it is critical for the appropriate Carter & Carter personnel to understand the actions and risks.
Step # 3
Prepare a “Written Notice” to the Subcontractor or Vendor using the attached sample memo as a guide. Certain situations may require some deviations from the sample; however, the critical components are noting the exact clause in the Subcontract or P.O. for which the Subcontractor/Vendor has failed to comply; the deadline for correction; and the consequences for failure to comply. Make sure the notice accurately represents the occurrences. This written notice should be reviewed by the Senior Project Manager or “Executive in Charge”.
It is important to monitor potential problems closely because the subcontract agreement requires seven (7) days written notice prior to termination. The P.O. can be cancelled at any time however, it is wise to provide seven (7) days notice.
NOTE: If the consequence is to terminate or replace the Subcontractor, the back up plan for having the work done should be outlined and agreed to by Senior Project Manager. Management of this act is critical to avoid potential unforeseen costs and loss of profits and time against the schedule.
Step # 4
Once the “Written Notice” is prepared and approved it should be delivered to the Subcontractor or Vendor via facsimile and via priority overnight courier or certified US mail. The president of the company in default and the person who signed the agreement should receive the written notice. If the Subcontractor or Vendor is bonded, a copy should also be sent to the bonding company. Both the fax and overnight courier/certified mail receipt should be kept and filed with the letter.
Step # 5
During the period of notification, the actions and progress of the Subcontractor / Vendor should be closely monitored and documented. At the end of the notification period a determination should be made in conjunction with the Senior Project Manager as to the response made by the Subcontractor / Vendor. The Subcontractor / Vendor can remain on notice and in default of the Subcontract / P.O. while being allowed to work on the project. This should be documented similar to the attached memo.) any correspondence from the subcontractor / vendor concerning the default must be answered in writing by Carter & Carter promptly.
Step # 6
If at the end of the period of notification it is determined that the Subcontractor / Vendor has not made sufficient efforts to overcome the deficiency and remains a larger risk to the project if allowed to keep working, the Subcontractor / Vendor should be terminated. (see attached sample) This step could ultimately end in legal proceedings such as arbitration and extreme monetary claims for damages by the party being terminated and should not be taken lightly or without consultation with Carter & Carter Senior Management and legal counsel. If at the end of the seven days period a determination is made that the subcontractor / vendor has cured the default and later, because of new circumstances again becomes in default, the above noted steps must be followed again.
Step # 7
Once terminated, no additional payments should be made to the terminated party until the project is complete or until the reason for the notice of termination is resolved. A detailed record of all completion costs, including Carter & Carter Management time and expenses should be kept. Per the Carter & Carter Subcontract and Purchase Order the terminated party is responsible for the completion costs. If the ultimate completion costs are less than the amount remaining against the Subcontract or P.O., then the terminated party is due the remaining difference between the Subcontract and the amount paid to complete the work. If the ultimate completion costs are more than the Subcontract or P.O. had remaining, then the excess costs are due to Carter & Carter from this subcontractor / vendor.
GENERAL NOTES: As previously stated, the Senior Project Manager and Executive in Charge must be kept informed once it is thought a Subcontractor / Vendor must be put on “notice” or terminated. There are many combinations of logistical and legal issues that can occur once these steps are taken and each case must be evaluated independently to ensure the risk to Carter & Carter and the project is minimized and the situation is handled prudently.