Subcontractor Agreement Outline
How it works
A subcontractor agreement governs the relationship between a general contractor and a subcontractor performing work on a project. The Subcontractor Agreement Outline generates a framework covering scope, payment, licensing, insurance, and indemnification.
**Key distinctions from employee agreements** Like independent contractor agreements, subcontractor agreements should reinforce the independent contractor relationship: subcontractor controls means of performing work; subcontractor provides own tools and equipment; subcontractor can work for other clients; subcontractor is responsible for own taxes and insurance. Misclassification creates liability for the general contractor.
**Pass-through provisions** Subcontractor agreements typically "flow down" obligations from the prime contract between the general contractor and the project owner. The subcontractor's obligations should parallel the GC's obligations to the owner for the relevant scope. Include: schedule obligations (matching prime contract milestones), quality standards, change order procedures, and dispute resolution consistent with the prime contract.
**Insurance requirements** Subcontractor typically must carry: commercial general liability (CGL) — minimum $1M per occurrence, $2M aggregate; workers' compensation per state statutory limits; professional liability / E&O if providing design or professional services; automobile liability. General contractor and owner are typically listed as additional insureds on the CGL policy.
**Lien waivers** Subcontractors hold mechanic's lien rights in most states — they can lien the property if unpaid. General contractors typically require conditional and unconditional lien waivers from subcontractors at each payment draw.
**Retainage** Standard in construction: 5–10% retainage withheld from each payment, released upon substantial completion and punch list approval. Many states regulate retainage timing and release.
This tool generates an outline. Construction and subcontractor law varies by state — review with a licensed construction attorney.
Frequently Asked Questions
- A subcontractor is an independent business entity hired to perform specific work — they control how they do the work, use their own tools/equipment, may work for multiple clients simultaneously, and handle their own taxes and insurance. An employee works under the employer's direction and control, uses company resources, and receives withholding from pay. The same misclassification risks that apply to independent contractors (IRS, DOL, state labor departments) apply to subcontractors — the label doesn't determine the classification; the actual work relationship does.
- General liability insurance (minimum $1M per occurrence / $2M aggregate) for property damage and bodily injury. Workers' compensation if they have employees. Professional liability/E&O insurance for knowledge work (IT, consulting, design). Commercial auto if driving for the project. Require a Certificate of Insurance (COI) naming you as additional insured before work begins. Verify the certificates are current — they expire annually. Without this, you may be liable for accidents on your project caused by a subcontractor.
- In most general contractor/subcontractor arrangements, the general contractor (prime contractor) is responsible to the client for all work, including work performed by subcontractors. The client didn't hire the subcontractor — they hired you. Your agreement with the client doesn't reduce your liability because you used a sub. This is why subcontractor agreements should include: indemnification (sub indemnifies you for their mistakes), insurance (sub carries coverage that protects you), and pass-through provisions (flow-down of your client contract obligations to the sub).
- A flow-down clause incorporates the terms of the prime contract into the subcontract — the subcontractor is bound by the same obligations you have to the client. Common flow-downs: schedule requirements (sub must meet milestones that align with your client deadline), quality standards, change order procedures, confidentiality, compliance requirements (safety, labor laws), and intellectual property ownership. Flow-downs ensure that the sub doesn't create obligations you can't meet with your client. Review your prime contract and flow down every requirement the sub needs to know about.