What are You Agreeing to When You Sign a Subcontract?

The following is adapted from Quit Getting Screwed.

The first rule about subcontracts is…there are no rules. Whatever you sign in a subcontract will be used against you.

As a subcontractor, that means your first priority when considering a job is to make sure you understand exactly what you’re agreeing to do. If you don’t, you risk a horror story of surprise responsibilities, fines, and other costs that can destroy your bottom line or even put you out of business. 

Generally, in addition to the subcontract document itself, your agreement with the general contractor includes the following documents: prime contract, plans and specifications, and project schedule. 

If you read each of these documents thoroughly and understand the role they play in the overall job, you can uphold your responsibilities while also staying within your budget. 

The Prime Contract

The first document to be aware of is the prime contract. The prime contract is the contract between the owner and the general contractor. In my opinion, making the prime contract part of the subcontract is BS. What job does the general contractor have if you have to be responsible for its obligations to the owner?

Nevertheless, most subcontracts include the prime contract. The best-case scenario is for this provision to be removed, but general contractors are unlikely to remove the incorporation of the prime contract. If they refuse to remove it, you can better protect yourself by requesting a copy of the prime contract and reviewing it, and by having the general contractor assign you its rights to payment for your scope of work.

That second suggestion will give you constitutional lien rights (which have more leverage than your lien rights as a subcontractor) just like the general contractor has. It will also give you the right to sue the owner directly for breach of contract. If you are going to have the same responsibilities as the general contractor, you should have the same rights as well. 

Plans and Specifications

The next document, the plans and specifications, covers the directions on how to build the project. 

Each scope of work will have a particular set of plans and specifications to follow. Make sure the same set of plans that you based your bid on are the ones attached to the subcontract. Make sure they have the same date and that you read any bulletins, addenda, or requests for information (RFI) issued since you bid the project.

It’s important to understand the plans and specifications because if you go outside of their instructions—for example, by installing doors not specifically designated in the documents—you can be considered in default of your subcontract and sued. 

Project Schedule

Lastly, your subcontract will include a project schedule. Normally, the subcontract will have the project schedule as an exhibit or attachment. 

Review this document closely to ensure that they have given you enough time to complete your scope of work. Do not wait to look at this until after you sign the subcontract. Liquidated or delayed damages will be based on this schedule, so do not agree to a schedule you cannot complete. 

If the schedule lays out an unrealistic timeline, have it changed to a time frame you know you can complete before you sign the subcontract. Once you sign the subcontract, you’re locked in to everything it specifies. 

Know What You Sign

The prime contract, plans and specifications, and schedule are the most common documents in a subcontract, but be aware that there could be others. It’s up to you to find these documents and ensure that you understand them before signing the subcontract. 

The subcontract itself will state that you have read and understood the subcontract and all subcontract documents. It will further state that there are no oral agreements outside these written documents; the written documents are the whole agreement between you and the general contractor. 

This means that whatever someone might have told you will not be part of your agreement and that your only agreement is what is in writing. What someone might have told you does not mean anything.

There is no one out there watching your back when it comes to subcontracts, so take the time to read the subcontract and all of its documents. Get a copy of the prime contract, plans and specifications, and schedule before you agree to its terms. Fully understanding what you’re agreeing to will take work and is not easy, but the survival of your company depends on it.

For more advice on negotiating better subcontracts, you can find Quit Getting Screwed on Amazon.

Amazing wife, outstanding mother to three super talented daughters, small business owner, and committed leader to over twenty employees, Karalynn has been a licensed attorney for over fifteen years. She has spent her entire legal career in construction litigation, advising countless clients on how to stay out of litigation in the construction industry. Karalynn has reviewed thousands of subcontracts, breaking them down so her clients would understand exactly what they were signing, and giving those clients tips and advice on how to negotiate the best subcontract possible. Now she’s offering that same advice to you in Quit Getting Screwed. For materials referenced in the book, visit subcontractorinstitute.com.