5 red flags in subcontractor agreements (and how to fix them)

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I've talked to hundreds of trade contractors over the years, and the pattern repeats itself: a sub signs an agreement with a GC without reading it carefully, the job goes sideways, and they discover the contract was designed to transfer every risk onto them. By then it's too late.

Most subcontractor agreements are written by the general contractor's lawyer — meaning they're written to protect the GC, not you. That doesn't make them inherently unfair, but it means you need to read them like the other side's lawyer wrote them. Because they did.

Here are the five clauses that burn subs most often, and what you can negotiate instead.

Red flag #1: Broad indemnification clauses

The clause usually reads something like: "Subcontractor shall indemnify and hold harmless the General Contractor from any and all claims, damages, losses, and expenses arising from or related to the Subcontractor's work."

The problem is the phrase "arising from or related to." That's extremely broad. If a different sub's work causes water damage to your finished drywall, and the homeowner sues the GC, this clause could arguably make you responsible for defending that claim — even though you did nothing wrong.

What to negotiate: Push for "caused by" instead of "arising from or related to." You should indemnify the GC for claims caused by your negligence or faulty workmanship. You should not indemnify them for claims that merely relate to your presence on the job.

Also look for the word "sole" — as in, "caused solely by the Subcontractor's negligence." That's the gold standard, because it means you're only responsible when the fault is entirely yours. Most GCs won't agree to "solely," but "caused by" is a reasonable middle ground.

Red flag #2: Pay-if-paid vs. pay-when-paid

These sound similar. They're not.

Pay-when-paid means the GC will pay you within a reasonable time after they get paid by the owner. If the owner pays in 30 days, you get paid in 35-45 days. Annoying but workable.

Pay-if-paid means the GC only has to pay you if the owner pays them. If the owner goes bankrupt, disputes the invoice, or simply refuses to pay? You eat the loss. You did the work, bought the materials, paid your crew — and you get nothing.

Pay-if-paid clauses are unenforceable in some states (California, New York, and several others have banned or restricted them). But in states where they're legal, courts will enforce them.

What to negotiate: Strike "if" and replace with "when." Add a maximum payment window — "within 45 days of Subcontractor's invoice, regardless of Owner payment status." If the GC won't budge, at least add a clause that lets you stop work after 30 days of non-payment.

Red flag #3: Unlimited scope-of-work language

Watch for phrases like: "Subcontractor shall perform all work necessary to complete the scope as described in the plans and specifications, including any work reasonably inferable therefrom."

That last part — "reasonably inferable" — is a trap. It means anything the GC thinks should have been included in your scope, even if it wasn't in the drawings or your bid, could be assigned to you at no extra cost.

This is how scope creep becomes contractually enforced. You bid on installing 200 linear feet of baseboard. The GC decides you should also have included shoe molding because it's "reasonably inferable" from the finish carpentry scope. Now you're doing extra work for free or fighting about it.

What to negotiate: Define your scope with precision. Reference specific drawing sheets, specification sections, and quantities. Add: "Work not explicitly described in the Subcontractor's scope of work shall be subject to a change order." Then use a proper agreement template that includes clear change order provisions.

Red flag #4: One-sided termination for convenience

Most sub agreements give the GC the right to terminate your contract "for convenience" — meaning for any reason or no reason at all. That's somewhat standard. The red flag is when the termination clause doesn't require them to pay for work already completed, materials already purchased, or reasonable demobilization costs.

A bad version reads: "GC may terminate this agreement at any time. Upon termination, GC shall pay Subcontractor for work completed and accepted as of the termination date."

See the word "accepted"? That gives the GC the ability to reject your completed work at termination and pay you nothing. Materials you bought and can't return? Your problem. Crew you mobilized? Your problem.

What to negotiate: The termination clause should require payment for: (1) all work completed to date, (2) materials purchased or fabricated for the project, (3) reasonable demobilization costs, and (4) a percentage of the remaining contract value as a termination fee (typically 10-15%). If they can fire you for no reason, they should pay for the privilege.

Red flag #5: No dispute resolution process

If the agreement doesn't specify how disputes are resolved, you're headed to court by default. And court favors whoever has deeper pockets and more patience — which usually isn't the subcontractor.

Some agreements specify binding arbitration with a specific arbitration firm chosen by the GC. That's better than court, but it's still tilted. The arbitration firm has an incentive to favor the party that brings them the most business — and that's the GC who puts the clause in every contract.

What to negotiate: Push for mediation as a first step (it's cheaper and less adversarial), followed by arbitration if mediation fails. The arbitrator should be mutually agreed upon, not pre-selected by the GC. And include a clause that the losing party pays the prevailing party's reasonable legal and arbitration fees — this discourages frivolous claims from both sides.

Before you sign anything

Here's a quick pre-signing checklist:

1. Read the entire agreement. Not just the scope and price. The boilerplate is where the landmines live.
2. Red-line what you don't like. Send it back with your changes. Surprisingly often, the GC's office will accept reasonable modifications without pushback — they just used their standard template.
3. Check your state's lien laws. Make sure the contract doesn't waive your lien rights. In most states, lien rights can't be waived in advance, but some agreements try anyway.
4. Verify insurance requirements are reasonable. If the GC requires $5M in umbrella coverage for a $20,000 job, that's a dealbreaker unless they're paying enough to cover the premium.
5. Keep a copy of everything. Signed agreement, all change orders, all emails. Store them digitally and physically.

Every sub agreement is negotiable. The ones who get burned are the ones who assume it's take-it-or-leave-it. If a GC won't negotiate any terms, that tells you everything about what working with them will be like.

Use our service agreement generator to build your own agreements with fair terms built in from the start — and use it as a reference point when reviewing what GCs send you.