Subcontractors perform the specialized trade work that general contractors coordinate on every construction project. Understanding how subcontractors operate, what they owe you contractually, and how to manage them effectively determines whether your projects finish on time and within budget.

This guide breaks down the fundamentals every GC should master about working with subcontractors.

What Subcontractors Actually Do

A subcontractor is a company or individual hired by the general contractor to perform a specific portion of the construction work. They bring specialized skills, licensed tradespeople, and trade-specific equipment that GCs don't maintain in-house.

On a typical commercial project, 80-90% of the physical construction work is performed by subcontractors. The GC's role is to coordinate, schedule, and manage quality across all of these specialty trades.

Types of Subcontractors on Construction Projects

Trade Category	Common Specialties	Typical % of Project Cost
Structural	Concrete, steel erection, masonry	20-30%
Mechanical	HVAC, plumbing, fire protection	25-35%
Electrical	Power, low voltage, fire alarm	12-18%
Exterior	Roofing, glazing, waterproofing	8-12%
Interior	Drywall, flooring, painting, millwork	10-15%
Site Work	Excavation, paving, landscaping	5-10%
Specialty	Elevators, demolition, hazmat abatement	Varies

How the GC-Subcontractor Relationship Works

Legal Structure

The GC holds the prime contract with the project owner. Each subcontractor holds a subcontract with the GC -- not with the owner. This creates a chain of responsibility:

The owner pays the GC
The GC pays the subcontractors
The GC is responsible to the owner for all subcontractor work

This structure means GCs carry liability for subcontractor performance, safety, and compliance even though they don't directly employ the workers.

Contractual Obligations

A properly drafted subcontract should address:

Scope of work (detailed, not vague)
Contract sum and payment terms
Schedule requirements and milestones
Insurance and bonding requirements
Change order procedures
Dispute resolution process
Indemnification provisions
Safety requirements
Cleanup and waste disposal responsibilities

How to Find and Select Subcontractors

Building Your Qualified Bidders List

Don't wait until you need subs to start looking. Build a standing list of prequalified subcontractors by trade:

Industry associations. Contact local chapters of trade associations (AGC, ABC, ASA) for member directories.
Project references. Ask other GCs which subs performed well on similar projects.
Prequalification applications. Require every potential sub to complete your prequalification process before bidding.
Performance tracking. Rate subs after every project and update your list accordingly.

Evaluating Bids

Price alone shouldn't determine your subcontractor selection. Evaluate:

Scope completeness. Does the bid cover everything in the scope documents?
Qualifications. Does the sub have relevant experience at this scale?
Capacity. Can they staff this project given their current backlog?
Financial health. Can they carry the cost until payment?
Safety record. What's their EMR and OSHA history?

Common Mistakes GCs Make with Subcontractors

Hiring based on low price alone. The lowest bid often becomes the most expensive project. Subs who underbid generate change orders, cut corners, or abandon the job.

Using vague scopes of work. Ambiguous scopes create disputes. Every item of work should be clearly assigned to a specific subcontractor with no gaps or overlaps.

Skipping prequalification. Prequalification takes time upfront but prevents catastrophic problems later. A sub who can't get bonded or carry proper insurance shouldn't be on your project.

Failing to verify insurance continuously. Insurance verified at contract signing can lapse the next month. Continuous monitoring catches gaps before they become exposures.

Not documenting everything. Verbal agreements on construction sites lead to disputes. Confirm every direction, change, and agreement in writing.

Subcontractor Compliance Requirements

GCs must verify and maintain documentation for every subcontractor:

Licenses. Active state and local licenses for their trade
Insurance. General liability, workers' comp, auto liability, umbrella
Safety. EMR, OSHA logs, safety program documentation
Tax compliance. W-9, state tax registration
Workforce. E-Verify enrollment, prevailing wage compliance (on public projects)

Tracking these requirements manually across 20-50 active subs creates compliance gaps. Automated tracking systems flag expirations and missing documents before they become problems.

Frequently Asked Questions

What is the difference between a subcontractor and an employee? Subcontractors control how they perform their work, use their own tools and equipment, hire their own employees, and carry their own insurance. Employees work under the GC's direct control, use the GC's tools, and are covered by the GC's insurance and benefits. Misclassifying employees as subcontractors triggers IRS penalties, back taxes, and potential fraud charges.

How many subcontractors does a typical commercial project use? A mid-size commercial project ($5M-$20M) typically uses 15-25 subcontractors. Large projects ($50M+) may involve 40-60 or more. Each sub requires its own contract, insurance verification, safety oversight, and compliance tracking -- making organized management systems essential at any scale.

Can a subcontractor hire their own subcontractors? Yes. These are called sub-subcontractors or second-tier subs. Your subcontract should require written approval before any sub-subcontracting occurs. You need to verify that sub-subs carry appropriate insurance and licenses, because liability still flows up to you as the GC.

What happens when a subcontractor defaults on a project? When a sub defaults, the GC must complete their scope of work using a replacement sub, usually at a higher cost. If the original sub was bonded, the surety covers the completion costs. If not bonded, the GC absorbs the cost difference and pursues the defaulting sub for damages. Default prevention through prequalification is far cheaper than default recovery.

How should GCs handle subcontractor disputes? Start with direct negotiation at the project level. If unresolved, escalate to senior management on both sides. Most subcontracts include a dispute resolution ladder: negotiation, then mediation, then arbitration or litigation. Document the dispute from day one. Photographs, daily reports, and written correspondence become your evidence.

What is retainage and how does it work with subcontractors? Retainage is a percentage (typically 5-10%) withheld from each progress payment until the subcontractor completes all work. It incentivizes punch list completion and protects the GC against defective work. Many states regulate retainage percentages and release timing, so verify your state's requirements before setting retainage terms.

Subcontractors are the workforce behind every GC's projects. Managing them well -- from prequalification through project closeout -- directly impacts your profitability, reputation, and risk exposure.

Ready to bring structure to your subcontractor management? Request a demo of SubcontractorAudit to see how automated compliance tracking keeps your projects protected.

Use our Compliance Scorecard to benchmark your subcontractor management practices.