10 Provisions That Cost You Money — And How to Fix Them
For 11 years, I was the owner and CEO of a component manufacturer. I reviewed agreements from builders and GCs virtually every week. I learned to pay close attention to the contract terms early on when I lost money I shouldn’t have on two different jobs.
Supplier agreements are not subcontracts, but they’re often written as if they are. GC attorneys often draft templates designed for on-site construction work and apply them to material supply relationships. The result: warranty provisions that hold you responsible for someone else’s installation, indemnification for jobsite activities where you have no presence, design responsibility that extends beyond your components, and pricing commitments that don’t account for commodity volatility.
Here’s what I learned: virtually every supplier agreement contains more than one deal-breaker and at least 10 real problems that cause catastrophic risk to accumulate in the background. The cost of not managing that risk is invisible—until something goes wrong.
Here are some things to keep in mind:
This guide covers the 10 provisions I often see in supplier agreements that are most likely to cause financial damage. For each one, we’ll cover what it means, why it matters, the dollar impact, what to check, and the specific redline language I’d propose.
Your customer will negotiate if you come to the table with reasoned and reasonable alternatives.
“You don’t need the perfect agreement. Just a better one. That’s how you build a company that lasts.” — Kendall Hoyd, Founder, FairBuild AI
If you’ve never tried to negotiate an agreement with one of your customers but would like to start, FairBuild can help you get the process going.
Here’s how to get the ball rolling:
In all cases, I approach the GC in a non-confrontational way. I let them know that I have some concerns with certain aspects of the agreement they’ve sent, and I’d like them to discuss those concerns with me.
In no case do I ever give them the feeling that I don’t appreciate their business or that I’m aggrieved by the contract they sent me. It’s simply that we have learned to make sure we do business under contract language that doesn’t create problems for us later.
If it’s a GC where you’ve signed their agreement with no pushback in the past, you probably need to explain why you’re negotiating for better terms now. Chances are you’ve decided to work on this aspect of your business for a reason.
It might be because you’ve recently had a dispute that could have turned out better, you want to set your business on a path for future growth and this is part of that, or you’ve already grown to the point where you need better risk management.
You can rest assured that they will find you more credible and more professional if you negotiate your agreements than if you don’t.
What I recommend is starting with the areas that create high exposure and where you can succeed without having to get into too much legal jargon. Delivery schedules, pay-if-paid clauses, continued performance requirements, and retainage are good examples.
Bad terms on these points can and often will cost your business margin and cash flow in a real way, and most GCs will understand your concerns.
Send any questions you might have to contracthelp@fairbuild.ai. We’ll be happy to help!
PROVISION 01High Risk
Pay-if-paid clauses shift credit risk to you. If the owner doesn’t pay the GC, the GC has no obligation to pay you. Your materials are installed in the building, and you might still have no contractual right to payment.
You’ve manufactured or procured materials, shipped them to the jobsite, and your costs are fully incurred. The GC or builder receives the materials and puts them into the project.
Your invoice sits in a queue behind conditions you may not even know about, such as the GC waiting for owner approval or a project manager who hasn’t signed off on the delivery receipt. Meanwhile, you’re carrying the full cost of those materials on your balance sheet.
A supplier doing $20 million per year with 55-day average receivables, compared to the 30 days stated in the agreement, has roughly $3 million tied up in delivered materials at any given time.
At a 7% cost of capital, that’s $210,000 per year in carrying costs. That’s margin loss you probably didn’t include in your bid.
“Payment shall be due within 30 days of Supplier’s invoice date. Payment shall not be contingent upon Contractor’s receipt of payment from Owner or any third party. Interest at the rate of 1.5% per month shall accrue on amounts unpaid beyond the due date.”
Fallback: “Payment terms are Net 30 days. If Contractor fails to pay within 45 days of invoice, Subcontractor may suspend work without facing adverse consequences under this agreement until payment is made in full.”
Even if pay-when-paid is not legal in your state, don’t leave it to chance that you will have to spend money on a lawyer to prove it.
PROVISION 02High Risk
Supplier agreements frequently require you to warrant not just the quality of the materials you provided, but their performance after installation—installation performed by someone else’s crew.
You supplied the product. They installed it. But the warranty language may make you responsible for how it performs in the field.
Watch for language such as “fit for their intended purpose.” This can be interpreted to mean the materials must perform properly after installation, not just meet specifications at delivery.
A roofing material supplier delivers shingles that meet every manufacturer specification. The GC’s roofing subcontractor installs them incorrectly: wrong fastener pattern, inadequate underlayment, and improper flashing.
Two years later, the roof leaks. The GC comes back to the supplier under the warranty clause because the agreement says the supplier warrants that the “materials shall be free from defects and fit for their intended purpose.”
A single warranty claim on a commercial roofing project can run from $50,000 to $200,000 in remediation costs.
If the agreement doesn’t clearly separate material defects from installation defects, you’re exposed to the full cost of someone else’s workmanship.
“Supplier warrants that materials furnished shall conform to applicable specifications and be free from defects in material at the time of delivery. This warranty does not extend to defects caused by improper storage, handling, installation, maintenance, or modification by others. Supplier’s warranty obligation shall be limited to replacement or credit for defective materials and shall not include labor, consequential damages, or costs arising from installation by others. Any warranty obligation extending beyond the manufacturer’s warranty period or scope shall be subject to a separate written agreement and additional consideration.”
This is one of the most important distinctions in a supplier agreement. Your warranty should cover what you control—specifically, the quality of the material at the time of delivery—not what happens to it after someone else installs it. Most GCs will accept this distinction if you explain it clearly.
Manufacturer warranties are the foundation of your warranty exposure if you are a distributor. If you’re being asked to warrant materials for longer or more broadly than the manufacturer covers you, you’re taking uninsured risk on the gap.
Either match your warranty to the manufacturer’s warranty, pass the manufacturer’s warranty through directly, or charge for the extension. Don’t absorb the gap silently.
PROVISION 03High Risk
Supplier agreements often include broad-form indemnification language identical to what you’d find in a subcontract. But the risk profile is fundamentally different.
As a supplier, you’re not on the jobsite. You don’t control how materials are handled, stored, or installed. Yet the indemnification clause may require you to cover losses “arising out of or related to” the materials, including losses caused by someone else’s improper installation.
Many agreements also include a “duty to defend,” meaning you pay the GC’s legal fees from day one of a claim, before anyone has determined fault.
A steel supplier delivers structural beams to specification. During erection, the GC’s ironworker crew drops a beam, injuring a worker on-site.
The GC tenders the claim to the steel supplier, citing the indemnification clause. The injury “arose out of” the materials.
The supplier wasn’t on-site, didn’t control the lift plan, and had nothing to do with the accident. But broad-form indemnification doesn’t care about fault. If there’s a duty to defend, you’re funding the GC’s attorneys and your own at the same time.
Legal defense costs alone on a jobsite injury claim can run from $75,000 to $150,000 before resolution.
If the indemnification language is broad enough, the supplier is funding those costs for an event they had no ability to prevent.
“Supplier shall indemnify Contractor only for claims arising directly from defects in materials furnished by Supplier. Supplier shall have no indemnification obligation for claims arising from the handling, storage, installation, or use of materials by Contractor or others. Supplier shall have no duty to defend Contractor.”
Fallback: Limit the duty to defend to claims that are clearly caused by a defect in your product at the time of delivery.
Suppliers have an even stronger argument than subcontractors for limiting indemnification. You weren’t there. You don’t control the jobsite.
Your indemnity should be limited to what you control—the quality of your product at the point of delivery.
PROVISION 04High Risk
Some GC agreements apply retainage to supplier invoices the same way they apply it to subcontractor progress payments, withholding 5–10% of each invoice until project completion.
For a supplier, this makes even less sense than it does for a subcontractor. Retainage was designed to ensure workmanship, but you’re delivering a product, not performing work.
You’ve delivered $500,000 in materials over three months. At 10% retainage, $50,000 is being held.
Your materials are installed and performing. You have no remaining scope on the project. But the retainage is tied to overall project completion, which could be 12–18 months away.
$500,000 in deliveries multiplied by 10% retainage equals $50,000 being held.
If the project runs 15 months past your last delivery, the carrying cost at 7% is $4,375 on money you’ve already earned. Multiply that across 10–15 active projects, and retainage exposure adds up quickly.
“No retainage shall be withheld from payments for materials delivered and accepted by Contractor.”
Fallback: “Retainage shall not exceed 5% and shall be released within 30 days of Contractor’s acceptance of Supplier’s final delivery, regardless of the status of the overall project.”
Push back hard on retainage for material deliveries. The justification for retainage—ensuring quality workmanship—doesn’t apply to a supplier who ships a product and leaves.
If the materials meet specifications at delivery, retainage is simply free financing for the GC.
PROVISION 05Low Risk on Short Jobs · High Risk on Long Jobs
Supplier agreements often lock in pricing for the duration of a project or, worse, for the duration of a multi-project master agreement.
Unlike a subcontractor whose costs are primarily labor, which changes slowly, a supplier’s costs are driven by commodity markets that can move 20–50% in a matter of months.
Lumber, steel, copper, aluminum, and concrete are all subject to volatile swings that a fixed-price commitment doesn’t accommodate.
This is a minor risk on short-duration supply commitments. It’s an extreme risk on long-duration projects and master agreements.
You signed a supply agreement when lumber was $400 per MBF. Six months later, when framing is finally about to start, lumber is $700 per MBF.
Your agreement locked the price based on $400. You’re now delivering at a loss on every load, and the GC has no obligation to renegotiate because the agreement is silent on price duration or explicitly prohibits increases.
In 2021, we saw material costs jump 50% in 90 days. That doesn’t just hurt; it wipes out your entire margin—and potentially your company if the commitment is large enough.
Consider a $1 million material supply agreement with 40% commodity exposure, or $400,000.
A 25% commodity spike equals $100,000 in unrecoverable cost increases. A 25% gross margin just became 15%. That’s probably a significant loss after overhead.
“Quoted prices are valid for 60 days from the date of this agreement. For orders placed after 60 days, or in the event of project delays not attributable to Supplier, pricing shall be adjusted to reflect documented changes in material costs.”
Alternatively, adjustments may be based on changes in a relevant published index, if applicable.
There are other costs to consider, such as storage, rehandling, and logistics, and the redline language for those costs can become more complicated. I have presented the simple version here.
This is where suppliers have more exposure than subcontractors. Your costs are commodity-driven and can move quickly. A fixed-price commitment without an escalation mechanism or a price expiration date is a bet on the commodity market. Don’t make that bet unknowingly.
My rule of thumb: Never commit to pricing without an expiration date and an escalation mechanism for delays.
PROVISION 06High Risk
Many supplier agreements tie the obligation to pay to “acceptance” of the materials, but the agreement may not clearly define what acceptance means, who performs it, or when it’s deemed to have occurred.
The result: Your materials are delivered, unloaded, and installed into the project, but the GC hasn’t formally “accepted” them and uses that ambiguity to delay payment.
Some agreements require written inspection and sign-off before the payment clock starts. Others are silent on acceptance, which creates a different problem.
If there’s a defect claim later, the GC argues that they never accepted the materials in the first place.
You deliver $200,000 in structural steel to the jobsite. The GC’s crew unloads it and begins erection. You submit your invoice.
The GC’s accounts payable department tells you payment is on hold pending “inspection and acceptance.”
No one told you an inspection was required, and no one was available to sign for your delivery driver. Your materials are being installed while your invoice sits unpaid because a project manager hasn’t signed a delivery receipt.
If acceptance is a condition precedent to payment and there’s no timeline or deemed-acceptance mechanism, the GC has an indefinite right to withhold payment.
On a $200,000 delivery, every month of delay costs you roughly $1,200 in carrying costs at 7%.
But the real cost is the cash-flow impact of having $200,000 in delivered materials sitting as unbilled or disputed receivables with no defined resolution timeline.
“Each delivery load of materials shall be deemed accepted upon the earlier of: (a) written acknowledgment of receipt by Contractor; (b) five (5) business days after delivery without written notice of non-conformance; or (c) incorporation of materials into the Work. Payment obligations shall not be contingent upon formal acceptance and shall commence upon Supplier’s invoice date. Any claim of non-conformance must be submitted in writing within five (5) business days of delivery, with specificity as to the nature of the defect. Materials incorporated into the Work shall be conclusively deemed accepted.”
The intersection of acceptance and payment is one of the most common cash-flow traps for suppliers.
GCs use vague acceptance language as a payment-delay mechanism—not because the materials are defective, but because an unsigned form gives accounts payable a reason to hold the check.
The deemed-acceptance clause eliminates this by putting a clock on the GC’s right to inspect and reject. The “incorporation into the Work” provision is also critical. Once your materials are installed in the building, the argument that they haven’t been accepted is over.
PROVISION 07Moderate Risk (Inventory) · High Risk (Manufactured / Long Lead-Time)
Supplier agreements often give the GC the right to accelerate delivery schedules or require expedited shipments without additional compensation.
The agreement may also penalize late delivery with liquidated damages or back charges while providing no corresponding remedy when the GC delays the delivery schedule and you’re left carrying inventory.
This is also where suspension-of-delivery rights matter. If the GC isn’t paying, you need the right to stop shipping.
You planned production and logistics for a June delivery. In April, the GC calls and says they need everything by mid-May.
Expediting costs—including overtime in the shop, premium freight, and rescheduling other customers’ orders—are real and significant.
If the agreement says you must “comply with schedule changes,” you may have no basis to charge for the acceleration.
Conversely, the GC delays the project by three months. Your materials are fabricated and sitting in your yard. You’re paying for storage, insurance, and the cost of capital on inventory that should have shipped.
Premium freight and expediting on a $200,000 material shipment can add $15,000–$30,000.
Overtime in a fabrication shop to accelerate production can add 10–15% to labor costs.
Storage for GC-delayed materials can run $2,000–$5,000 per month, depending on volume.
If the agreement doesn’t provide for recovery of these costs, they come directly out of your margin.
“Delivery schedules shall be established by mutual agreement and documented in writing. Schedule acceleration requested by Contractor shall be accommodated when commercially reasonable, at Contractor’s expense, including premium freight and overtime costs. If Contractor delays the scheduled delivery, Supplier shall be entitled to reimbursement of documented storage costs and shall not be liable for delays caused by Contractor’s schedule changes.”
The one-sided nature of delivery obligations is one of the most common problems in supplier agreements. GCs penalize late delivery but take no responsibility for delaying your schedule and leaving you with materials in storage. Make the obligations mutual and reciprocal.
PROVISION 08Moderate Risk
GCs require lien waivers with each payment application. Unconditional waivers release your lien rights immediately, even before you’ve received payment.
Conditional waivers release your rights only when the check clears.
For suppliers, lien rights are even more critical than they are for subcontractors. You’re not on the jobsite. You may not see the warning signs of a troubled project until your invoice is 90 days past due.
Your lien rights are your insurance.
You’ve delivered $300,000 in materials. The GC requests an unconditional lien waiver with your invoice. You sign it.
The GC runs into cash-flow problems and doesn’t pay. You’ve already waived the lien rights that would have given you a secured claim against the property.
Your only remedy is an unsecured breach-of-contract claim, which may be worth nothing if the GC is insolvent.
Your lien rights are generally worth more than the legal remedies available through litigation.
Waiving them prematurely on a $300,000 delivery means your fallback position goes from a secured claim on the property to an unsecured claim against a potentially insolvent GC.
Those claims often end up being worth nothing.
“Supplier shall provide a conditional lien waiver with each payment application. Unconditional lien waivers shall be provided only upon confirmed receipt of payment for the corresponding billing period.”
If the GC insists on unconditional waivers: “Unconditional lien waivers shall not be required until five (5) business days after Supplier’s confirmed receipt of payment for the corresponding billing period.”
Two rules: never sign an unconditional waiver until payment has cleared your account, and make sure the waiver amount matches the payment amount.
Any GC who pushes back on a conditional waiver tied to actual receipt of payment is telling you something about how they intend to manage the process. These aren’t aggressive negotiating positions. They’re basic financial controls. The credit support for the financing you are providing relies on lien rights. Make sure those rights are not compromised.
PROVISION 09High Risk
Many supplier agreements contain language that shifts design responsibility to the supplier, even when the supplier is building to someone else’s specifications.
This happens through provisions requiring the supplier to “verify” or “confirm the adequacy” of designs, or through performance specifications that make the supplier responsible for the end result rather than conformance to the specifications.
This is especially common for engineered products such as structural steel, trusses, precast concrete, curtain wall systems, and mechanical equipment, where the supplier provides shop drawings or engineering calculations as part of the delivery.
You’re a truss manufacturer. You build trusses to the engineer of record’s building design, confirmed by your in-house technical team for the component design.
Two years later, a floor system is bouncing. The architect blames the truss design.
The GC comes to you under the supply agreement because the contract says you “warrant the adequacy of all designs, shop drawings, and engineering furnished by Supplier to the intended purpose.”
The building’s engineer of record designed the floor system. You engineered the trusses to meet that design.
But the agreement language made you responsible for the overall design adequacy—something that was never yours to control.
A design liability claim on a commercial project can quickly reach catastrophic levels when you include remediation, engineering fees, legal defense, and potential consequential damages.
Your insurance may cover some of this, but as a supplier, you probably don’t have professional liability insurance. This can leave you with significant exposure that may be uninsured.
“Supplier warrants that products furnished shall conform to the specifications identified in this Agreement. Supplier does not assume responsibility for the adequacy of the design, the selection of products for the intended application, or the performance of systems incorporating Supplier’s products. Product selection, system design, and design adequacy are the responsibility of the architect, engineer of record, and/or Contractor.”
The line between “we engineered this component to meet the design” and “we are responsible for the roof design” is a line that supplier agreements routinely blur.
In other products, language such as “warrants adequacy of the specification” is a subtle way of shifting design risk to the supplier that should never be accepted.
Make sure your agreement is crystal clear about where your design responsibility ends.
PROVISION 10Moderate Risk
Flow-down clauses bind you to all terms of the prime contract between the GC and owner—a document you may never have seen.
For suppliers, this is particularly problematic because the prime contract was written for construction work performed on-site, not for materials delivered to a project.
Terms designed for subcontractors get applied to suppliers, creating obligations that make no sense for a material supplier.
The prime contract may include liquidated damages for schedule delays, warranty periods of three to five years tied to project completion rather than delivery, insurance requirements for on-site operations you don’t perform, and indemnification for jobsite activities where you have no presence.
All of these terms may flow down to you through a single boilerplate paragraph.
A three-year warranty in a prime contract flowing down to a supplier means you’re warranting materials for three years after project completion, which could be four to five years after you delivered them.
Most manufacturer warranties don’t extend that far, leaving you exposed to claims the manufacturer won’t cover.
A $10,000-per-day liquidated damages clause in a prime contract you never read, flowing down to your scope on a project that runs 20 days late for various reasons, creates $200,000 in exposure you didn’t know existed when you signed your supply agreement.
“The terms and conditions applicable to Supplier’s obligations shall be limited to those expressly set forth in this Agreement. No other documents, including but not limited to the Prime Contract between Contractor and Owner, shall be incorporated by reference or otherwise binding upon Supplier.”
Fallback: “Only those provisions of the Prime Contract that directly relate to the supply and delivery of materials shall apply to Supplier. Provisions relating to on-site work, construction operations, scheduling, or labor shall not apply. Contractor shall identify in writing all applicable provisions prior to execution of this Agreement.”
Last fallback: Get a copy of the prime contract and ask your LLM to compare the requirements that apply to you in the prime contract with those in your supply agreement.
Suppliers have an even stronger argument against flow-down clauses than subcontractors. Many prime contract provisions are physically impossible for a supplier to comply with. You can’t maintain a jobsite safety program if you’re not on the jobsite. Push back on flow-down language and insist that the agreement is self-contained.
This guide shows you 10 key supplier agreement items to look for, but there are many more.
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