Subcontractor Agreements Explained

A subcontractor agreement is the contract between a general contractor and a subcontractor for a portion of the prime contract scope. On a residential remodel, common subs include framing, electrical, plumbing, HVAC, drywall, tile, paint, and flooring. Each sub typically has its own subcontractor agreement with the GC.

The agreement allocates scope, schedule, payment, indemnity, and insurance between the GC and the sub. It is separate from the prime contract between the GC and the homeowner. The homeowner usually does not sign sub agreements directly, but should know they exist and request copies if a sub-related dispute arises.

Standard residential subcontractor agreement clauses include: scope of work with line-item detail, schedule of values, schedule of work with start and finish dates, payment terms tied to the GC's draw schedule, change order procedure, insurance and indemnity, lien waiver requirements, warranty terms, and termination conditions.

Lighter-weight templates can omit some of these clauses for very small scopes, but the larger the sub's contract value, the more critical each clause becomes. A roofing sub on a $30,000 metal reroof needs every standard clause locked down. A handyman sub on a $400 punch list ticket may use a much shorter form.

• Scope of work tied to plans and specs.
• Schedule of values with line items.
• Payment terms tied to GC's draw schedule.
• Insurance and indemnity language.
• Lien waiver requirements at each draw.
• Termination for cause and convenience.

Pay-when-paid is a contract clause where the GC's obligation to pay the sub is tied to the GC receiving payment from the homeowner. The clause shifts cash flow risk from the GC to the sub. Pay-when-paid clauses are widely used but enforceability varies by state.

California, New York, and several other states limit or invalidate pay-when-paid clauses on residential work. Other states enforce them as long as the language is clear. Subs should read the clause carefully before signing. GCs should know the state law before relying on the clause.

Indemnity language allocates responsibility for third-party claims arising from the sub's work. The standard residential clause requires the sub to indemnify the GC and the homeowner for any claims caused by the sub's negligence, with carve-outs for the GC's or homeowner's own negligence.

Subs should review indemnity language carefully because broad indemnity can transfer risk that the sub's insurance does not cover. GCs should match indemnity language to the sub's insurance limits. ContractShield surfaces indemnity language in the sub agreement template alongside the matching insurance requirement.

Standard residential subcontractor insurance requirements include general liability ($1M occurrence, $2M aggregate is typical), workers' compensation per state law, and commercial auto if the sub uses vehicles on the project. The sub provides certificates of insurance (COIs) that name the GC and the homeowner as additional insureds where appropriate.

GCs should not let a sub start work without certs on file. The cert protects the GC and the homeowner if the sub's worker is injured or causes damage. ContractShield collects sub COIs inside the project workspace, with expiration tracking that alerts the GC when a cert is about to lapse.

On ContractShield, the GC is responsible for sub agreements with their subs. The platform provides a sub agreement template that hooks into the project workspace, but the prime contract between the homeowner and the GC remains the homeowner-facing artifact.

The project workspace surfaces sub-level data (sub name, license number, insurance cert expiration, scope of work) so the homeowner can see who is on site and confirm verification. Lien waivers from each major sub are collected at each draw inside the workspace.

Indemnity, pay-when-paid, and termination for convenience usually drive the most back-and-forth between GC and sub. Indemnity transfers risk. Pay-when-paid shifts cash flow timing. Termination for convenience lets the GC walk without cause, which subs typically push back on.

Other frequently negotiated clauses include change order pricing methodology, retention amount and timing, lien waiver type required at each draw, and warranty term length. Most residential warranty terms run 12 months on workmanship, with longer manufacturer warranties on materials.