Free subcontractor agreement template

How to fill it in

A subcontract has more moving parts than a basic services contract because it has to line up with the prime contract above it. Fill it in section by section.

• Parties and project: the contractor and subcontractor names and addresses, and the owner and project the work is part of.
• Scope: describe the subcontract work precisely, or attach it as Exhibit A, and tie it to the project plans and specs so there is no gap or overlap with other trades.
• Price and payment: set the subcontract price, the retainage percent, and how many days after the contractor is paid the sub gets paid.
• Flow-down: confirm the sub has seen the prime contract and note which document controls if they conflict.
• Schedule: set start and completion dates and note that time is of the essence.
• Insurance: fill in the coverage amounts, name the contractor as additional insured, and require certificates before work starts.
• Indemnity and warranty: keep the indemnity balanced and set the warranty period.
• Sign: both parties sign and date, and each keeps a copy with any exhibit.

Subcontractor vs. independent contractor

These get mixed up because a subcontractor is a kind of independent contractor, but the difference matters for the contract. An independent contractor is hired directly by the end client to do work for that client. A subcontractor is hired by a contractor to perform part of the work that contractor already owes to a third party, the owner or client. So the defining feature of a subcontract is the chain: owner hires contractor, contractor hires subcontractor. That is why a subcontract has clauses a plain independent contractor agreement does not, like flow-down, retainage, lien waivers, and payment tied to when the owner pays. If you are a client hiring someone to do a job for you, use an independent contractor agreement. If you are a contractor hiring help to deliver a job you owe someone else, use this subcontractor agreement. On taxes the two look alike: both are independent businesses, and both are usually issued a Form 1099-NEC by whoever pays them, currently when the payments reach $600 or more in a year.

Flow-down clauses: how the prime contract passes through

A flow-down clause, also called a pass-through or conduit clause, binds the subcontractor to the same obligations toward the contractor that the contractor owes the owner under the prime contract, to the extent they touch the sub's work. The point is consistency: the contractor cannot promise the owner one thing and let the sub off the hook for it. In practice this means the sub should actually read the prime contract before signing, because its schedule, quality standards, notice deadlines, and sometimes its dispute-resolution and payment terms can pass straight down. Two things to watch. Flow-down clauses can act as a waiver against the sub, so a broad one pulls in more than just the scope of work. And when the prime contract and the subcontract conflict, the agreement should say which one wins, so pick that on purpose rather than leaving it open.

Pay-when-paid vs. pay-if-paid (this one matters)

How payment is tied to the owner is the most litigated part of a subcontract, and the two clauses that sound alike are very different. A pay-when-paid clause is about timing: the contractor has to pay the sub within a reasonable time after being paid by the owner, but if the owner never pays, the contractor still owes the sub. A pay-if-paid clause is stronger and riskier for the sub: it makes the owner's payment a condition that must happen before the sub is owed anything, which shifts the risk of the owner going bankrupt onto the sub. Courts only enforce a pay-if-paid clause when the language is a clear, unambiguous condition precedent, and they read an ambiguous clause as pay-when-paid. More important, several states refuse to enforce pay-if-paid clauses at all as against public policy, because they can strip a sub of its payment protection.

• California voids pay-if-paid clauses (Wm. R. Clarke Corp. v. Safeco, 1997), because they impair the sub's mechanics-lien rights.
• New York voids them too (West-Fair Electric v. Aetna, 1995) as contrary to the public policy behind its Lien Law.
• North Carolina and South Carolina bar them by statute (N.C. Gen. Stat. 22C-2; S.C. Code 29-6-230).
• Virginia banned pay-if-paid in most contracts by statute effective 2023.
• A number of other states restrict or disfavor these clauses, and the rules keep changing, so check your state's law before relying on one. This template uses a pay-when-paid timing clause, which is the safer default.

Liens, insurance, and indemnity

Three protections do most of the risk-shifting in a subcontract, and each has a legal edge worth knowing. Mechanics liens: a subcontractor generally has the right to file a mechanics lien against the owner's property for unpaid work, even without a direct contract with the owner, which is exactly why contractors collect lien waivers with each payment. Many states also require the sub to send a preliminary or pre-lien notice early in the job to preserve that right, and the deadlines vary by state, so a sub should calendar them. Insurance: subs are normally required to carry general liability and workers' compensation, name the contractor as an additional insured, and hand over certificates before starting; larger jobs may also require performance and payment bonds. Indemnity: subcontracts usually make the sub indemnify the contractor for claims the sub causes, but many states have anti-indemnity statutes, common in construction, that void any clause forcing a sub to cover the contractor's own negligence. California (Civil Code 2782) and Texas (Insurance Code chapter 151) are two examples. This template's indemnity is written to stop at the contractor's sole negligence and to apply only as far as state law allows, which is the balanced approach.

Retainage, back-charges, and change orders

A few payment mechanics are specific to subcontracts. Retainage is a percentage the contractor holds back from each progress payment, commonly around 5 to 10 percent, and releases after the work is finished and accepted; several states cap the percentage by statute, so check yours before setting a number. A back-charge is money the contractor deducts from what it owes the sub to cover a cost the sub caused, such as re-doing defective work, cleanup, or damage to another trade's work; the right to back-charge should be in the contract and backed by notice, not sprung as a surprise. Change orders are the rule that no extra work gets done, and no extra money or time is owed, unless the contractor approves it in writing first. Ignore that rule and a sub can do weeks of extra work and struggle to get paid for it, so put every change in a signed change order and give notice of any claim within the deadline the contract sets.

Signing it

A subcontractor agreement does not need to be notarized. Both parties sign and date it, and each keeps a copy with any exhibit and every approved change order. An electronic signature is valid on it under the federal ESIGN Act and the Uniform Electronic Transactions Act, so signing online is a clean way to get the contract in place before the sub mobilizes, which is the point at which you most want it signed. One practical note: keep the signed subcontract, the certificates of insurance, and the lien waivers together, because on a disputed job those three documents are what you will be asked to produce.

Common mistakes to avoid

Most subcontract disputes trace back to a handful of gaps.

• Describing the scope loosely, so the sub's work and the next trade's work overlap or leave a gap no one priced.
• Signing without reading the prime contract that flows down onto the sub.
• Relying on a pay-if-paid clause in a state that will not enforce it, or writing one so ambiguous a court treats it as pay-when-paid.
• Leaving retainage and its release conditions undefined.
• Skipping the insurance certificates and additional-insured requirement before work starts.
• Writing an indemnity clause that a state anti-indemnity statute will strike down.
• Doing extra work on a handshake instead of a signed change order.