Subcontract Agreements

A subcontract is the contract you write, which makes it the one set of terms you fully control. The prime contract is handed to you; the subcontract is your chance to make the obligations you accepted upstream land on the parties actually performing the work. A GC whose subcontracts do not match the prime contract is holding risk in the gap between the two documents.

Why it matters on the job

You are liable to the owner for all of the work, including the 80-plus percent you subcontract. If the prime contract demands something, a schedule, a warranty, a notice period, and your subcontract does not pass it down, you have promised the owner something you have no contractual way to make your subs deliver. Every mismatch is your cost.

Flow-down: one deal, two levels

The core mechanism is the flow-down clause: the sub is bound to the GC by the same terms that bind the GC to the owner, with respect to the sub’s scope. Attach or reference the prime contract so the sub can actually read what flows down. Flow-down handles the general obligations; the specifics you must still write directly:

• Scope: exactly what the sub performs, by exhibit, with inclusions and exclusions listed. Most subcontract disputes are scope-gap disputes: two subs each believing the other carries an item, and the GC owning the orphan.
• Payment terms: how and when the sub bills, retainage percentage, and the payment condition language. Whatever payment risk you accepted upstream, decide deliberately how much of it you pass down, and remember state law limits what pay-if-paid language can do.
• Schedule: the sub commits to the project schedule as updated, with a duty to staff the work to maintain it, not merely to a single date.
• Changes: no changed or extra work without a written, signed change order or a written directive from a named person. Give your subs the same discipline you owe the owner.
• Insurance and indemnity: required coverage types and limits, additional insured status for the GC and owner, and certificates before mobilization, not after.
• Default and cure: what counts as default, the written notice you must give, the cure period, and your right to supplement or terminate and backcharge.

Worked example: the scope gap

Your drywall sub’s quote excludes “patching after other trades.” Your prime contract owes the owner finished walls, without qualification. Six months in, the electrician and plumber have cut 60 access holes; patching runs 90 labor hours at $70 per hour, which is $6,300. The owner owes you nothing extra: finished walls were always your obligation. If the exclusion made it into the signed subcontract unchallenged, the $6,300 is yours. The fix costs nothing at buyout: read every quote’s exclusions against the prime scope, and either strike the exclusion, assign the item to another sub in writing, or carry the cost knowingly in your buyout log.

The subcontract’s job is to make the promises you made upstream land on the trade performing the work

Where it bites

• Starting a sub on a handshake. Once the sub is mobilized, your leverage to get the subcontract signed collapses. Signed subcontract, insurance certificates, then mobilization, in that order, every time.
• Subcontract terms softer than the prime. A prime with a 7-day notice rule and a subcontract silent on notice means the sub can sit on a claim until your window upstream is gone. Mirror or tighten every deadline, never loosen.
• Unwritten scope transfers. “The framer said he’d grab the blocking” is not a scope assignment. If an item moves between subs, it moves by written change order to both subcontracts.
• Backcharging without process. Deducting money from a sub without the written notice and cure opportunity your own subcontract requires converts a good backcharge into a payment dispute you can lose.

Exam relevance

Business and law exams test the GC-subcontractor relationship: what flow-down clauses do, why the GC remains liable to the owner for subcontracted work, lawful payment and retainage handling, and proper default procedure. Expect scenario questions where a prime obligation was never passed down and the exam asks who bears the cost. The answer is almost always the party who controlled the paperwork: the GC.