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I need help understanding a clause in a contract I am reviewing.

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Background. I am a Texas...
I need help understanding a clause in a contract I am reviewing.

Background. I am a Texas subcontractor working on a project located in Texas, entering into a contract with the prime contractor, which is in a contractual agreement with the owner. I am reviewing a contract to get executed in order to get the a/p cycle started.

********
In Section 13: Default and Terminations: ... 13.4. Assignment: If the Prime Contract provides that, in the event of termination of the Prime Contract between Owner and Contractor, Owner can direct Contractor to assign this Agreement to Owner, Subcontractor hereby consents to such assignment and agrees to accept any such assignment of this Contract to Owner, to consider that assignment to be fully effected by receipt of written notice from Contractor of any such assignments, and thereafter to look solely to Owner for all obligations, commitments, unsettled claims and payments, which are owed by the Owner to Contractor under the Prime Contract which Subcontractor will thereafter become entitled in connection with this Project. If this Subcontractor is terminated by Contractor under the provisions of this Section, Subcontractor agrees that any and all sub-subcontracts or purchase orders which Subcontractor may have covering the Work or any part thereof may, at Contractor's option, be fully assigned by Subcontractor to Contractor upon written notice by Contractor to such sub-subcontractors and vendors, and Subcontractor will include in such sub-subcontracts and purchase orders appropriate language to such effect.

***

In laymen's terms - is that implying a relationship between me, the subcontractor, and the owner would exist in the event of a rift between the owner and the prime contractor? I am being asked to sign a non compete, as this is a project with new technology, which is not the problem. My problem is that if that is the case, then once a rift were to take place I would be caught in the middle, as I would be unable to enter into an agreement with the owner, since the non compete was signed.

Phew! Help! :)
Submitted: 4 years ago.Category: Business Law
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9/26/2013
Business Lawyer: MDLaw, Attorney replied 4 years ago
MDLaw
MDLaw, Attorney
Category: Business Law
Satisfied Customers: 6,135
Experience: Experience in business law, contract law and related matters.
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Good morning and thanks for using the site again!

Here is what the clause states:

If the Prime Contract (which would be between the Owner and the Contractor normally) states that the Owner can tell the Contractor to assign the contract between you and the Contractor upon termination of the Contractor, then you (the sub) agree to accept the assignment. In other words, that contract is between you and the Prime. However, if the Prime Contract allows for it, the Owner can make it so that the contract becomes one between you and the Owner if the Prime Contract is terminated.

The last part of the clause states that, if such assignment happens, you would be looking to the Owner for all obligations, committments, unsettled claims, and payment. It also states that if you are terminated under the provisions of the Agreement, you agree that any and all sub -subcontract or purchase orders be assigned to the Contractor upon written notice.

You have asked if there would be a relationship between you, the subcontractor, and the owner if there was a rift. The clause only addresses what happens if the Prime Contract has a clause allowing the Owner to assign the contract. In other words, if the contract allows for it, instead of you having a direct contract with the Prime, your direct contract would be with the Owner.

You say that you would be unable to enter into an agreement with the Owner. However, the clause says the opposite. It states that, if the Prime Contract allows for it, that you would have a direct relationship with the Owner since the contract would be assigned. You wouldn't need a new contract with the Owner. All contracts would remain the same.

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Customer reply replied 4 years ago
Whoa... now I see why you go to school so long. That's a lot of talk for a simple statement, haha. But what about the non compete? Would that enter into play and give the prime reason to come after me legally if such an event were to happen? I have been on both sides of the table, defendant and plaintiff, and one thing I know is it all starts rosy - every time, but if you don't go into it thinking one day you could be sitting across from your client, separated only by a hired mediator, you could be asking for trouble.

:)
Business Lawyer: MDLaw, Attorney replied 4 years ago
The non-compete is a separate agreement unless there is language in the two contracts incorporating one into the other. Since the Prime has two direct contracts with you where one allows for the assignment to the Owner, you can always ask the Prime about the non-compete as it relates to the Owner if you do not want to consult with an attorney.

Law school is only 3 years and so not it's not too long :) You are definitely smart, Brandi, to be reading all contracts you sign because you are 100 percent correct that you never know what will happen in the future. You have no idea how many people are surprised to hear that a contract that they signed is legally binding and think that it will not be binding just because they didn't read it or understand it.

Please let me know if you need anything else this morning.

MDLaw
MDLaw, Attorney
Category: Business Law
Satisfied Customers: 6,135
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Customer reply replied 4 years ago
Thank you - not smart as much as seasoned. I never thought I would EVER see the day a subcontractor - and friend - I have had for 20 YEARS would take me to court and used words against me that we stated over LUNCH (that I even joked was "off the record" about how I did not agree with the owner's feelings regarding the written communication of change orders)to enforce a change order that I never authorized. By using the Texas Business code, they TORE my contract to shreds, receiving treble damages under the deceptive trade practices act for said contract -- and won it all, walking away with over $100K that was truly not theirs, not to mention ruining my relationship with the owner, a HUGE motorcycle dealer. The BIG guys. Yeah, I used to be the builder of all those new shops sprouting up all over the highways.
*sigh*

Oh well, now working for someone else, I can clock out and not worry about it. I do like to have an attorney at my side via text, a la MDLaw, to help me sound "super smart", on occasion.

Haha

Thanks again - big, well, sorta big, tip coming your way!!!! THANKS THANKS THANKS

And I am telling you, once they allow the F Bomb in court, I am enrolling in Law School. I could not go through one session without telling opposing counsel to bleep themselves.

So refined.
Business Lawyer: MDLaw, Attorney replied 4 years ago
It's sad what happens in litigation. It's one of the reasons I have never done family law or estate law in my practice. Nothing worse than seeing families fight with each other, especially when it involves children or deceased family members.

Contracts are pretty straightforward but yes, each state has their own laws and some states are more business friendly than others. I've been here in TX for about 6 or 7 years now and every day, I'm surprised about what happens in TX courts. Very different from where I practiced in DC and MD.

Thanks again for allowing me to assist you today!

MDLaw
MDLaw, Attorney
Category: Business Law
Satisfied Customers: 6,135
Experience: Experience in business law, contract law and related matters.
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MDLaw and 87 other Business Law Specialists are ready to help you
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MDLaw
MDLaw
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Category: Business Law
Satisfied Customers: 6,135
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