CROSS-DEFAULT PROVISIONS IN CONTRACTS COULD HAVE DRASTIC CONSEQUENCES ON YOUR PROJECTS

In May 2022, a trial court in New York ruled that a subcontractor who breached a subcontract was in breach of all its subcontracts with the general contractor under the subcontract’s “cross-default clause”. Gilbane Bldg. Co. v. Forthill Constr. Corp., 2022 NY Slip Op 31502 (Sup. Ct., N.Y. Cnty. 2022).

In 2016/17, the subcontractor executed four (4) subcontracts with Gilbane, each of which contained a cross-default clause, which provided that “if Forthill materially breaches one of the agreements with Gilbane Residential, it is a breach of all of them.”

Although each subcontract was for a different project, the court nevertheless held the subcontractor in breach on each project by virtue of its breach of one project under the cross-default clause and, in doing so, dismissed all of the subcontractors claims for non-payment on each project.

Comment:

Cross-default clauses are often inserted in subcontracts since the same parties often enter into multiple agreements for different projects. However, since such clauses typically only protect the general contractor in the event of a breach, subcontractors should attempt through negotiation to strike or revise such clauses, so as to completely eliminate the possibility of being held in default on one project based on default of another.

About the author: George Marco is an attorney practicing in the field of construction law. He also holds a Bachelor of Science in Mechanical Engineering and was previously employed as a Project Manager for a public improvement contractor.

If you would like more information regarding this topic or any other related to construction law please contact George Marco at george@gmarcolaw.com or call (516) 464-2320.

Disclaimer: This article is for informational purposes only and not intended to serve as legal counsel.