What to include in a subcontract agreement

A subcontract agreement should answer every question that will come up between a general contractor and a trade partner before the first crew shows up: exactly what work is included and excluded, the price, when and how payment flows, how much is held back, the schedule, how changes get approved and paid, insurance and indemnity, which prime contract terms flow down, safety rules, the compliance paperwork required, warranty, and what happens if someone has to walk away. If a term is not written down, it will be argued about at the worst possible time.

The checklist below works for GCs writing subcontracts and for subs reviewing one. Industry forms from groups like AIA and ConsensusDocs give you a starting structure, but the job-specific exhibits (scope, schedule, rates, insurance) do most of the real work.

Subcontract agreement checklist

How to put a subcontract together, step by step

1. Write a scope exhibit, not a scope sentence

"Furnish and install drywall per plans" is not a scope. List the drawing sheets and spec sections, then the inclusions (framing, blocking, firestopping at your penetrations, cleanup to a dumpster) and exclusions (access panels by others, painting). Use the subcontractor scope of work template and the method in how to write a scope of work for subcontractors.

2. Set the price and the schedule of values

Attach a schedule of values the sub will bill against. Break it down enough to measure progress, and agree on how stored materials are billed.

3. Spell out payment and retainage

Give the billing cutoff date, the documents required with each pay app, and the payment timing. Say whether payment depends on the owner paying first. Read pay-if-paid vs pay-when-paid clauses before choosing language, since states treat those clauses differently. Set the retainage rate and release trigger, and check your state's prompt payment rules for caps.

4. Define changes and claims

Name who can authorize a change (usually only the PM in writing), how changes are priced, the allowed markup, and the notice period for claims. Match those deadlines to the prime contract so a sub's claim reaches the owner in time.

5. Attach insurance requirements and flow-down terms

Put the insurance limits and endorsements in an exhibit so the sub's broker can check them. State which prime contract terms flow down, and give the sub a copy of the relevant sections. On public work, mandatory clauses must be included. The U.S. Department of Labor says that on projects covered by Davis-Bacon, every subcontract at any tier is covered, and a general statement that the act applies does not satisfy the flow-down requirement; the clauses and the wage determination must be incorporated. See flow-down clauses explained.

6. Cover safety, closeout, and termination

Require the sub to follow the site safety plan and attend orientation. List closeout documents. Include a cure period for default, the right to terminate for convenience with payment for work done, and the dispute process.

Worked example: a plumbing subcontract on a small medical office

Say a GC is building a $2.1 million medical office and awards plumbing for $186,000. The draft subcontract says "plumbing per plans and specs," net 30 after owner payment, and 10 percent retainage. Reviewing it against the checklist, the PM finds three gaps.

• Scope. Medical gas is shown on the drawings but nobody said whether plumbing carries it. The PM adds it as an exclusion, priced separately at $22,000 with a certified med gas installer.
• Payment. The owner contract pays the GC in 30 days. Net 30 after owner payment means the sub could wait 60 days or more. The PM changes it to 7 days after the GC receives payment, which is easier to defend and keeps the sub's crew on the job.
• Closeout. The owner contract requires a backflow test report and as-builts before final payment. The draft did not mention them. The PM adds both to the closeout exhibit and ties retainage release to them.

Each fix took minutes on paper. Found during closeout, any one of them could have held up the $18,600 in retainage for months.

The sub benefits from the same review. A plumbing contractor reading the original draft should have asked who carries medical gas, how long payment could really take, and what closeout documents the owner wants. Asking at signing costs nothing. Asking after the work is installed puts the sub in the weaker position, because the GC already has what it needs.

Subcontract mistakes to avoid

• Scope written as one sentence, with no exclusions.
• Change clauses that let anyone on site direct extra work verbally.
• Notice deadlines in the subcontract that are longer than the prime contract allows, so the GC cannot pass claims up in time.
• Insurance requirements that do not match the owner's, leaving the GC exposed.
• No collection of certificates and lien waivers until a payment is already late. See how to manage lien waivers on every payment.
• Copying last job's subcontract without updating the project, owner, or exhibits.

Templates and tools

Pair this checklist with the subcontractor COI tracking template and how to prequalify subcontractors. Subs reviewing a contract should also read contract clauses that hurt subcontractors.

Smart Business Automator keeps each subcontract's value, change orders, retainage, insurance certificates, and compliance documents on one record, and flags missing items before a payment goes out. See subcontractor compliance automation.