Hiring subcontractors? Essential contract terms for general contractors delegating construction work.

Hiring Subcontractors: Contract Terms for General Contractors

Hiring subcontractors is a core part of scaling a construction business. It’s also one of the fastest ways for a general contractor to inherit risk—delays, defective work, payment disputes, safety issues, and compliance violations—if the paperwork doesn’t match the reality of the jobsite.

A well-written subcontractor agreement is more than a formality. It’s the tool that defines expectations, assigns responsibility, and sets the rules for how you’ll manage schedule, payments, change orders, warranty work, and liability. This guide walks through the key contract terms every GC should consider when drafting a general contractor subcontractor contract (also commonly called a subcontracting agreement), with practical tips from the client/buyer perspective.

Note: This post is educational information, not legal advice. Local laws and project requirements vary widely—especially on public works, prevailing wage, and licensing.

Why subcontractor contracts matter (even when you “trust the sub”)

Most subcontractor disputes aren’t caused by bad actors. They happen because the contract doesn’t clearly answer basic questions:

What’s included in the scope—and what’s excluded?
Who supplies materials, equipment, and permits?
What happens if the GC’s schedule changes?
When is payment due—and what documentation is required?
Who pays for rework when a trade’s work fails inspection?
How do you handle change orders and delays?

A strong hire subcontractor contract prevents “scope gap” issues and turns common friction points into predictable processes.

1) Parties, project identification, and contract documents (order of precedence)

Start with precision:

Correct legal names of GC and subcontractor (entity type, address)
License numbers (where applicable) and insurance certificates
Project name, address, owner, and prime contract reference
List of contract documents incorporated by reference (plans, specs, addenda, bid clarifications, schedules)

Include an “order of precedence” clause

Conflicts happen: specs say one thing, drawings show another, your proposal says something else. An order-of-precedence clause sets which document controls.

GC-friendly approach: Prime contract and project specs typically control over the subcontractor’s proposal—unless you explicitly accept a deviation in writing.

2) Scope of work: the most important clause in your subcontractor agreement

If you only tighten one part of your subcontractor agreement, make it scope.

What to include

Trade scope written plainly and tied to drawing/spec references
Inclusions: labor, materials, fasteners, adhesives, equipment, layout, testing support, submittals, shop drawings, cleanup, protection
Exclusions: clearly listed (e.g., trenching, patch/paint, core drilling, firestopping, engineering)
Interfaces: who does what at scope boundaries (e.g., framing vs. drywall, electrical vs. low voltage)

Avoid the “gray zone” traps

Common dispute areas:

Mobilization and remobilization
Temporary protection (floor/wall protection, weather protection)
Daily cleanup and dumpster use
Hoisting/crane time and who schedules it
Scaffolding responsibility
Firestopping, sealants, and penetrations
Testing and inspection fees

Tip: Add a scope exhibit with a checklist format. Checklists reduce arguments because they surface assumptions early.

3) Price and payment terms: create a predictable pay process

Your subcontractor’s cash flow affects your schedule. Your cash flow depends on owner payments. Align them.

Pricing structure

Lump sum, unit price, cost-plus (less common), time-and-material
Unit price should define measurement method and what’s included (labor, materials, overhead, profit)

Payment timing

Key items to define:

Pay application schedule and cut-off dates
Documentation required: lien waivers, payroll reports (if applicable), updated schedule, daily reports, photos, certified payroll (public projects), material invoices
Retainage amount and release conditions
Final payment requirements: as-builts, O&M manuals, warranties, attic stock, punch list completion

Pay-when-paid vs. pay-if-paid (critical distinction)

Some contracts attempt to make owner payment a condition precedent to paying the subcontractor. Enforceability varies by state. Even if allowed, aggressive clauses can backfire by discouraging good subs or driving higher pricing.

Practical GC approach: Use clear, lawful language, and focus on documentation, proper invoicing, and flow-down requirements to reduce payment friction.

4) Change orders: the clause that protects your margin

Change orders are where profits are won or lost.

Define:

What constitutes a change (scope, schedule, means/methods, unforeseen conditions, design clarifications)
Who can authorize changes (name/role—PM, superintendent, etc.)
Required format (written change order, construction change directive, or written T&M ticket)
Pricing rules (rates, markups, equipment rates, burden, material handling)
Deadlines for notice and pricing submission

Avoid “we’ll work it out later”

If your subcontractor performs extra work without authorization, you risk:

Paying for unauthorized work
Fighting the owner for reimbursement
Schedule claims based on loosely documented events

GC-friendly clause: “No extra work without written authorization,” plus a mechanism for urgent situations (e.g., daily signed T&M tickets).

5) Schedule and delays: tie performance to real consequences

A general contractor subcontractor contract should align every trade with the master schedule.

Include:

Exhibit: baseline schedule milestones for the trade (start, substantial completion, inspections)
Coordination duties: attend coordination meetings, weekly look-aheads, BIM/clash coordination if applicable
Float ownership (project float belongs to the project/GC, depending on jurisdiction and contract approach)
Recovery obligations: if behind, the subcontractor must propose a recovery plan
Overtime rules: who can direct overtime and how it’s paid

Liquidated damages (LDs) and backcharges

If the prime contract has LDs, you may want to pass through (flow down) LD exposure when a subcontractor causes delay.

Be careful: LDs must be drafted and applied correctly. Overreaching can be unenforceable or invite disputes. Consider:

A clear method to allocate responsibility for delays
Documentation requirements (daily reports, notices)

6) Quality standards, warranties, and punch list

Quality clauses reduce rework and finger-pointing.

Set the standard

Work must comply with plans/specs, manufacturer instructions, and code
Workmanship standards (industry standard, “first-class,” etc.—define it)

Submittals and samples

Require:

Submittal schedule compliance
Lead times
“No fabrication/installation without approved submittals” (with practical exceptions)

Warranty terms

Define:

Warranty period (often 1 year, but can vary)
Start date (substantial completion, owner acceptance, or GC acceptance)
Warranty response times (e.g., acknowledge within 48 hours; commence corrective work promptly)
Assignment of manufacturer warranties to owner/GC

Punch list process

Who creates it, how many walks, deadlines to complete items
Holdback rights for incomplete punch work
Access obligations after completion

7) Safety and OSHA compliance: assign clear responsibility

Safety is both a human issue and a legal/financial one.

In a subcontractor agreement, specify:

Subcontractor is responsible for safety of its employees and lower-tier subs
Compliance with OSHA, site-specific safety plans, and GC rules
Daily Job Hazard Analysis (JHA) if required
Incident reporting timelines
Right to remove unsafe workers from site
Responsibility for fines caused by the subcontractor’s violations (to the extent allowed)

Tip: Include a safety exhibit (PPE requirements, fall protection, hot work permits, housekeeping standards).

8) Insurance requirements: don’t rely on a certificate alone

Insurance language is where many subcontracting agreements fall short. A COI is evidence—not the policy.

Common requirements (tailor to the job)

General Liability (occurrence) with adequate limits
Auto Liability (owned, hired, non-owned)
Workers’ Compensation and Employers’ Liability
Umbrella/Excess liability
Professional liability (design-assist trades, engineering, specialty systems) when relevant

Additional insured + primary and noncontributory

Require the subcontractor to name the GC (and often the owner) as additional insured on CG policy for ongoing and completed operations, and specify primary/noncontributory where appropriate.

Waiver of subrogation

Often used to reduce cross-claims between insured parties.

Verify endorsements

Ask for copies of endorsements, not just COIs. If there’s a claim, that’s what matters.

9) Indemnity: allocate risk clearly (and legally)

Indemnity clauses vary by state (anti-indemnity statutes are common in construction). Drafting must comply with local law.

Typical GC objectives:

Subcontractor indemnifies GC/owner for claims arising from sub’s work, negligence, or breach
Coverage includes bodily injury, property damage, and sometimes attorneys’ fees
Duty to defend (where allowed)

Important: Overbroad indemnity can be void. Work with counsel to ensure your clause is enforceable in your jurisdiction.

10) Licenses, permits, and compliance: avoid regulatory surprises

Spell out who is responsible for:

Trade-specific permits and inspections
Licensing and credential maintenance
Code compliance and correction of failed inspections
Environmental compliance (silica, asbestos awareness, lead, hazardous materials procedures)
Immigration/work authorization compliance (as applicable)

For public projects, add:

Prevailing wage and certified payroll obligations
E-Verify requirements (where applicable)
Apprenticeship participation or reporting, if required

11) Labor, staffing, and lower-tier subcontractors (sub-subcontracting)

If your subcontractor can subcontract, you still need control.

Key clauses:

No sub-subcontracting without GC written approval
Lower-tier subs must meet the same insurance/safety/licensing requirements
Subcontractor remains fully responsible for lower-tier performance
Background checks or badging requirements (if the site requires it)

12) Materials, storage, and title: reduce supply chain risk

Supply chain disruption has made procurement terms more important.

Address:

Approved manufacturers and substitutions process
Lead-time disclosures and procurement schedule
Material storage responsibility (on-site/off-site), security, and protection from weather
Title transfer for stored materials (if you pay for stored materials)
Handling of defective or nonconforming materials

Tip: If you allow payment for stored materials, require photos, inventory lists, proof of purchase, and evidence of insurance covering stored items.

13) Termination and suspension: maintain leverage without chaos

Every contract needs a clean exit plan.

Termination for cause

Define “cause” (non-performance, safety violations, breach of schedule, noncompliance, insolvency) and:

Notice + cure period (except emergencies)
Right for GC to supplement forces
Costs of completion charged back to the subcontractor

Termination for convenience

Often included to mirror the prime contract. If used:

Define what the subcontractor is entitled to (work performed to date, reasonable demobilization)
Exclude anticipated profits on unperformed work (common GC position)

Suspension

If the owner pauses the job, define:

Sub’s right to demobilize/remobilize
Documentation for standby costs
Schedule adjustments

14) Dispute resolution: keep disputes from stopping the job

Construction disputes are expensive because delays compound.

Options to consider

Step negotiation (PM to executive escalation)
Mediation before litigation/arbitration
Arbitration vs. court (consider cost, speed, appeal rights)
Venue, governing law, and attorney’s fees provisions

“Continue work” clause

A GC-friendly term is requiring the subcontractor to continue performance during disputes, while the parties resolve payment or scope issues through the contract process.

15) Flow-down clauses: align the subcontract with the prime contract

A classic GC mistake is using a subcontract that doesn’t “flow down” prime obligations. If the owner requires specific procedures (notice timelines, safety rules, submittal protocols), your subcontract should pass them through.

Flow-down typically covers:

Schedule compliance
Submittals and quality standards
Changes and claims notice requirements
Insurance and safety requirements
Warranty and closeout obligations

Watch-outs: Don’t flow down owner obligations that don’t make sense for the trade or that conflict with your negotiated terms. Tailor instead of blindly copying.

Practical checklist: what to review before you sign a subcontractor agreement

Use this as a pre-signature checklist for your next hire subcontractor contract:

Scope exhibit is detailed, includes/excludes are clear
Plans/specs and addenda are properly incorporated
Schedule milestones and coordination duties are defined
Change order process requires written authorization + pricing rules
Payment terms include documentation requirements and retainage
Insurance endorsements are required (AI, primary/noncontributory, waiver)
Indemnity complies with state law and matches insurance approach
Safety obligations and removal rights are clear
Warranty/punch process is written, including response timelines
Termination/suspension rights are balanced and usable
Dispute process includes escalation and a continue-work clause
No sub-subcontracting without consent + flow-down to lower tiers

Common mistakes general contractors make when subcontracting

Using a generic template that doesn’t match the project delivery method
Not attaching the scope exhibit or referencing the correct drawing set
Allowing “verbal” changes in the field without daily signed tickets
Relying on a COI instead of requiring endorsements
Forgetting to align subcontract notice requirements with the prime contract
Being vague about cleanup, protection, hoisting, and temporary facilities
Failing to define who owns schedule float or how delays are allocated

Conclusion: better subcontract terms mean fewer jobsite surprises

A strong subcontracting agreement doesn’t just protect you “in case of a dispute.” It actively improves performance by clarifying scope, setting expectations for schedule and change management, and making payment and closeout predictable. If you regularly delegate work, investing time in a well-structured subcontractor agreement is one of the highest-ROI moves you can make as a GC—especially on complex schedules or multi-trade projects.

If you want a faster way to create a tailored general contractor subcontractor contract (with the right clauses for scope, change orders, insurance, and flow-down terms), you can generate one using Contractable, an AI-powered contract generator: https://www.contractable.ai

2025-08-02

Hiring Subcontractors: Contract Terms for General Contractors

Miky Bayankin

Hiring Subcontractors: Contract Terms for General Contractors

Why subcontractor contracts matter (even when you “trust the sub”)

1) Parties, project identification, and contract documents (order of precedence)

Include an “order of precedence” clause

2) Scope of work: the most important clause in your subcontractor agreement

What to include

Avoid the “gray zone” traps

3) Price and payment terms: create a predictable pay process

Pricing structure

Payment timing

Pay-when-paid vs. pay-if-paid (critical distinction)

4) Change orders: the clause that protects your margin

Define:

Avoid “we’ll work it out later”

5) Schedule and delays: tie performance to real consequences

Include:

Liquidated damages (LDs) and backcharges

6) Quality standards, warranties, and punch list

Set the standard

Submittals and samples

Warranty terms

Punch list process

7) Safety and OSHA compliance: assign clear responsibility

In a subcontractor agreement, specify:

8) Insurance requirements: don’t rely on a certificate alone

Common requirements (tailor to the job)

Additional insured + primary and noncontributory

Waiver of subrogation

Verify endorsements

9) Indemnity: allocate risk clearly (and legally)

Typical GC objectives:

10) Licenses, permits, and compliance: avoid regulatory surprises

11) Labor, staffing, and lower-tier subcontractors (sub-subcontracting)

Key clauses:

12) Materials, storage, and title: reduce supply chain risk

Address:

13) Termination and suspension: maintain leverage without chaos

Termination for cause

Termination for convenience

Suspension

14) Dispute resolution: keep disputes from stopping the job

Options to consider

“Continue work” clause

15) Flow-down clauses: align the subcontract with the prime contract

Practical checklist: what to review before you sign a subcontractor agreement

Common mistakes general contractors make when subcontracting

Conclusion: better subcontract terms mean fewer jobsite surprises

Other questions you may ask next