Why It’s Important to Be a Vendor, Not a Subcontractor

Photo courtesy Miguel Trevizo, Cobra Trucking & Rentals

Most portable restroom business owners see themselves as vendors, even if clients use a different term. Indeed, the terms “vendor” and “subcontractor” are often used interchangeably. However, when it comes to contracts for long-term rentals, certain subcontractor clauses hold compensation until your client gets paid, which could delay your payment.

It’s always important to review agreements before signing on the dotted line. But it’s easy to miss the fine print. Here’s what you need to know about vendor and subcontractor clauses, including how to find them in a contract and ask for alterations.

Vendor vs. Subcontractor: Understanding the Differences

A vendor refers to a company that provides similar products, supplies, and services to multiple customers. On the other hand, a subcontractor offers personalized services or goods. As a PRO, you may lease portable restrooms to many construction contractors. Your bid is unique, and the exact number and types of units may differ among clients. But you aren’t acting as a consultant or otherwise providing individualized services. Consequently, you are a vendor, not a subcontractor.

The Contract Clause to Avoid: Pay-When-Paid

Construction subcontracts may include a pay-when-paid or pay-if-paid clause. Pay-when-paid means your portable restroom company won’t receive payment until your client (the construction firm) gets compensated. In comparison, pay-if-paid terms imply you won’t get paid if the property owner or developer doesn’t reimburse your client.

Several U.S. states only allow pay-when-paid clauses when the project owner pays the subcontractor within a reasonable time. Your clients can’t use this clause to put off payment indefinitely. Certain states like New York and California won’t enforce a pay-if-paid clause. Payment can be delayed, but not forever.

How to Address the Issue with Your Client

Although it’s better to present your customer with your own rental operation contract, your client may require third parties to sign a separate agreement. Your business may be listed as a vendor or subcontractor in this case. Often, this is due to accounting software and practices, which may not differentiate between vendors and subcontractors. Other construction firms have policies defining relationships.

Before signing, review the contract and look for payment information. If you notice the pay-when-paid clause, you will need to ask the client to remove it. This may require a bit of negotiation, as you’re requesting them to take additional steps, and they may have to involve legal counsel to alter terms, text, or clauses.

Sometimes a simple letter from your lawyer can persuade your potential customer to go the extra mile to remove the clause. Otherwise, it comes down to whether you’re willing to live with the clause or let go of the prospective customer.

Review Construction Subcontracts Closely

While it’s better to be called a vendor, some clients may use software or have policies requiring them to use the term subcontractor. However, you can avoid payment issues by looking through the agreement and ensuring that the payment terms don’t include the pay-when-paid or pay-if-paid clauses. Above all, always know what you’re signing, whether a traditional or digital contract.

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