Subcontractor Payment Schedule: A Practical Checklist for General Contractors

The subcontractor payment schedule determines when your subs get paid, how much they receive, and what documentation they must provide. Managing it poorly creates disputes, slows down project progress, and exposes you to prompt payment penalties. This checklist and FAQ covers everything a GC needs to manage subcontractor payments correctly.

Subcontractor Payment Schedule Checklist

At Subcontract Execution

• Billing cutoff date specified in the subcontract
• Pay application (formal billing document submitted by a subcontractor to request payment) format defined (AIA G702/G703 or project-specific)
• Retainage (percentage of payment withheld until project completion, typically 5-10%) rate and reduction terms documented
• Prompt payment obligations stated (statutory and contractual)
• Lien waiver (document releasing the right to file a mechanic's lien against the property) requirements specified (conditional and unconditional)
• Schedule of values submission deadline set
• Stored materials billing rights and documentation requirements clarified
• Change order (written authorization to modify the original contract scope, schedule, or price) billing procedures established

Monthly Processing

• All subcontractor pay applications received by the deadline
• Each pay application reviewed against field-verified completion
• Retainage calculated at the correct current rate
• Conditional lien waiver received for current billing period
• Unconditional lien waiver received for prior billing period
• Insurance certificates confirmed current
• Certified payroll (weekly wage report required on federally funded projects under Davis-Bacon) received (if applicable)
• Approved amounts entered into the GC's consolidated pay application

Payment Disbursement

• Owner payment received and deposited
• Subcontractor payment amounts calculated (approved billing minus retainage)
• Payment issued within the statutory prompt payment window
• Payment confirmation sent to each subcontractor
• Payment amounts recorded in the project accounting system

Understanding Payment Timing

The subcontractor payment schedule creates a cascade that starts with the owner and ends with the sub's material suppliers.

Key Payment Terms Every GC Should Understand

Pay-when-paid. The GC's obligation to pay the sub is triggered when the GC receives payment from the owner. The sub must wait until the GC gets paid, but the GC cannot unreasonably delay payment after receipt. Most states enforce pay-when-paid clauses as creating a reasonable timing condition, not a permanent excuse for non-payment. Pay-if-paid. The GC's obligation to pay the sub exists only if the GC receives payment from the owner. If the owner does not pay, the GC has no obligation to pay the sub. Several states (California, New York, North Carolina) have declared pay-if-paid clauses unenforceable as against public policy. Retainage flow-through. The retainage the GC holds from subcontractors should mirror the retainage the owner holds from the GC. When the owner reduces retainage at 50% completion, the GC should reduce sub retainage correspondingly. When the owner releases retainage at close-out, the GC releases sub retainage within the prompt payment window.

Frequently Asked Questions

What is the standard payment frequency for subcontractors on commercial projects?

Monthly billing is standard on commercial construction projects. Subcontractors submit pay applications once per month based on work completed through the billing cutoff date. Some fast-track or large projects allow bi-weekly billing to improve subcontractor cash flow.

Can a GC hold subcontractor payment beyond the prompt payment deadline?

Only for documented disputes. Most state prompt payment acts allow the GC to withhold payment on disputed amounts if the GC provides written notice specifying the reason for the dispute and the amount withheld. The undisputed portion must be paid within the statutory window.

How should a GC handle a subcontractor who consistently submits late pay applications?

Document each late submission in writing. Remind the sub of the contractual submission deadline. If late submissions delay the GC's pay application to the owner, the sub may be liable for the resulting payment delay. Consider adding a late submission penalty to future subcontracts.

What documentation should a GC require with each subcontractor pay application?

Standard documentation includes: the pay application form (G702/G703), conditional lien waiver for the current billing period, unconditional lien waiver for the prior period, stored materials documentation (if applicable), certified payroll (if required), current insurance certificates, and change order backup for any new change order billing.

How does the subcontractor payment schedule change during project close-out?

Close-out payments are conditioned on additional requirements: punch list completion, warranty delivery, O&M manual submission, as-built drawings, training records, and final unconditional lien waivers. The GC should start tracking these requirements at 75% completion so they do not delay final payment.

What are the penalties for late subcontractor payment?

Penalties vary by state. Most state prompt payment acts impose interest on late payments, typically at 1-2% per month. Some states allow the subcontractor to recover attorney's fees in addition to interest. Federal projects under the Miller Act require prompt payment within 7 days of receipt and impose interest at the rate specified in the subcontract or prime contract.

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Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist Identify any gaps in documentation, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure you cannot easily resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.

Next Step: Audit Your Current Process

Review your current subcontractor payment schedule process against the checklist above before your next project kickoff. Identify documentation gaps, verify your subcontractor compliance status, and confirm your tracking system flags expirations at least 30 days in advance. One missed subcontractor payment schedule requirement on an active project can delay payment or create lien exposure that is difficult to resolve after the fact.