Subcontractor Agreement

Subcontractor Agreement

Drafts a subcontractor agreement that defines scope, allocates risk, and ensures compliance with applicable construction and contract law.

Prerequisites

1. Prime contract — owner-contractor agreement including flow-down provisions
2. Scope documents — plans, specifications, drawings, or SOW for the subcontracted work
3. Project details — location (state/county), timeline, milestones, project type
4. Party information — legal names, entity types, states of formation, authorized signatories
5. Insurance requirements — Contractor's minimum coverage expectations
6. Payment structure — lump sum, unit price, T&M, or cost-plus; retainage percentage

Section Outline

Payment Clause Template

Section _: COMPENSATION AND PAYMENT

_.1 Contract Price. Contractor shall pay Subcontractor [LUMP SUM $_____ /
unit prices per Exhibit _ / T&M per rate schedule Exhibit _] for complete
performance of the Work.

_.2 Invoicing. Subcontractor shall submit invoices [monthly by the ___ day /
upon milestone completion] with: (a) itemized work completed; (b) supporting
documentation; (c) conditional lien waivers for current payment;
(d) unconditional lien waivers for prior payment.

_.3 Payment. Contractor shall pay undisputed amounts within [30] days of
receipt of a proper invoice, less retainage of [___]%.

_.4 Retainage Release. Retainage released within [30] days after:
(a) final completion and acceptance; (b) unconditional final lien waiver;
(c) delivery of all close-out documents.

_.5 Disputed Amounts. Contractor may withhold for disputed or defective
work but shall pay undisputed amounts per §_.3.

_.6 Late Payment. Overdue undisputed amounts bear interest at [___]% per
annum [or the maximum rate under [State] law].

Insurance Minimums

All policies: 30-day cancellation notice; waiver of subrogation; certificates due before work begins.

Indemnification Checklist

• [ ] Subcontractor indemnifies for claims arising from its work, negligence, or breach
• [ ] State anti-indemnity statute compliance verified:
  • Type I (e.g., CA, TX, FL): Void if covers indemnitee's sole negligence [VERIFY]
  • Type II (e.g., NY, IL): Void if covers indemnitee's any negligence [VERIFY]
  • No restriction: Broad indemnity permitted [VERIFY]
• [ ] Mutual indemnification for respective negligence considered
• [ ] Duty to defend included (not just indemnify)
• [ ] Indemnity survives termination

Termination Framework

State-Specific Compliance

Check these for the project state before drafting:

• Retainage caps — many states cap at 5% or 10%
• Prompt payment statutes — prescribed payment timelines and interest rates
• Mechanic's lien requirements — preliminary notice deadlines and waiver forms
• Anti-indemnity statutes — see Indemnification Checklist above
• Prevailing wage — if public project or Davis-Bacon applies, include certified payroll requirements

Guidelines

• Flow-down prime contract obligations by reference; ensure no conflicts with prime terms
• Liquidated damages must be a reasonable pre-estimate of harm, not a penalty — document the basis
• Include explicit OSHA safety obligations and right-to-stop-work for violations
• All scope/price/time changes require written change orders — no oral modifications
• Match lien waiver types (conditional/unconditional, progress/final) to state statutory forms
• Explicitly disclaim employment relationship; Subcontractor responsible for its own taxes and workers' comp
• Use initial caps for defined terms consistently; avoid undefined "reasonable" or "promptly"
• Do not include arbitration without confirming client preference
• Do not draft indemnification broader than state law permits