Subcontractor agreement template and clause guide

What a contractor and subcontractor agreement does

The agreement sits under the prime contract between the owner and the general. It says what you build, what you are paid and when, and how the two of you settle what goes wrong. It also decides which risks pass down to you from the owner. Many disputes between a general and its subs come back to a sentence in this document that one side signed without reading closely.

It does not replace your statutory rights. Lien rights, bond rights and prompt-payment rights come from state and federal law. A well-drafted subcontract lines up with them; a badly drafted one tries to trade them away, which some states forbid.

Scope of work and the contract documents

Scope is where back-charges often start. Name the work by spec section and drawing number, each with its date, and list the exclusions in writing: permits, layout, hoisting, temporary power, cleanup beyond your own debris, whatever your bid left out. A scope that reads “all work necessary for a complete installation” turns every gap between trades into yours. Attach your bid's exclusions as an exhibit rather than retyping them.

The contract documents article usually incorporates the prime contract. That flow-down binds you to the general's obligations to the owner for your part of the work, including its notice windows and warranty terms, so ask for a copy before you sign. While you have the owner's name and the property description in front of you, note them: a preliminary notice needs both.

Payment terms: pay-when-paid or pay-if-paid

The payment article does three jobs. It sets the monthly cut-off for your application, it lists what each application must carry (the updated schedule of values, a conditional waiver, any payroll reports the job requires), and it fixes the day the money is due. Write the due date as a number of days, not as “when funds are available”. A subcontract that says nothing about timing leaves you arguing about it later.

The sentence to read twice is the one that ties your payment to the owner's. The two common versions look alike and do opposite things.

Some states take the choice away. North Carolina says payment by the owner to a contractor is not a condition precedent for payment to a subcontractor, and an agreement to the contrary is unenforceable (N.C. Gen. Stat. § 22C-2). Elsewhere, clear pay-if-paid wording may be enforced as written, so the state the job sits in decides how hard to push. The pay-when-paid vs pay-if-paid guide lists the wording that signals each one and what to ask for at award.

On a federal job the prime has less room. Under FAR 52.232-27(c) it must put a clause in each subcontract to pay you for satisfactory work within 7 days of receiving payment, an interest penalty clause for late payment, and a requirement that you pass both clauses down to your own subs and suppliers. A federal subcontract without them is missing language the prime contract requires. The Prompt Payment Act guide covers the interest.

Retainage and when it comes back

Retainage is the share of each payment the general holds until the end of the job. On the example subcontract used across this site, 148,000.00 at 5%, that is 7,400.00 waiting on one clause. The clause should state the percentage, any step-down once your work reaches a stated stage, and a release trigger tied to completion of your scope, with a date certain. “After final acceptance of the project” can mean a year after you leave the site.

State law can set the floor for you. On a California private job, a direct contractor that withheld retention must pay each subcontractor its share within 10 days after receiving a retention payment, and in a good faith dispute it may hold back no more than 150% of the estimated disputed amount (Cal. Civ. Code § 8814). Retainage and retention are the same money under two names; retainage vs retention explains where each word is used, and what retainage is lists the terms worth negotiating. The retainage calculator shows the balance building application by application.

Lien waivers and lien rights

A general contractor needs waivers to keep the owner and the lender paying, so the subcontract will ask for them. What matters is which waiver, and when. A fair waiver article follows the exchange below and names the form: your state's statutory form where one exists, otherwise a form attached to the subcontract as an exhibit.

The difference between the two waiver kinds is the whole risk: conditional vs unconditional lien waiver walks through it, and lien waiver vs lien release covers the document that clears a lien already recorded. To draft the forms themselves, the lien waiver generator fills one in.

Strike any sentence that gives up lien or bond rights in advance. In California, a contract term that waives or impairs another claimant's lien rights is void unless and until the claimant signs and delivers a statutory waiver and release (Cal. Civ. Code § 8122). On a federal job, a waiver of the right to sue on the Miller Act payment bond is void unless it is in writing, signed by you, and executed after you have furnished labor or material (40 U.S.C. § 3133(c)), so a subcontract signed before you start cannot take that right away. Many other states have their own rules on advance waivers. Even where the clause would fail, it is better struck at signing than argued later.

Change orders

Payment fights on a job are often change fights. The changes article should say four things: a change needs a written directive from someone named in the subcontract; how the change is priced (lump sum, unit prices or cost plus a stated markup); how many days you have to submit the price; and what happens to work the general orders while the price is in dispute. The usual answer to the last one is that you proceed and the price is settled later, which is fair only if the claim window is long enough to use.

Compare the windows. If the prime contract gives the general a set number of days to claim from the owner, your window should end before that one with time to spare, not after it, or the general cannot pass your claim up. The change order form generator puts a request in writing, and the notice of delay letter generator covers the delay notice the schedule article usually asks for.

Standard subcontractor agreement forms

“Standard subcontractor agreement” often means a published industry form, most commonly one of the two below. Many general contractors send their own in-house form instead, written from the general's side. Whatever arrives, read it against the outline above.

When to call a construction attorney

Have a construction attorney in your state read the subcontract before you sign when the contract sum is more than you could afford to lose, when it has a pay-if-paid clause, an indemnity that reaches the general's own negligence, a waiver of lien or bond rights, or a venue in another state, or when the job is public work with bond rights at stake. An hour of review at award costs less than one of those clauses at closeout. If the money has already stopped, the escalation ladder sets out the steps in order.