What is a subcontract? A subcontract is a legally binding agreement between a general contractor and a subcontractor that defines the scope, price, schedule, and terms for a specific portion of construction work. It is the primary document governing the GC-sub relationship on every project.

While the basic structure of a subcontract is consistent across the industry, the legal requirements vary significantly from state to state. Indemnification limits, payment terms, lien rights, and insurance mandates all change depending on where your project sits. This guide covers what every subcontract must include and how requirements differ across major construction markets.

Core Elements of Every Subcontract

Regardless of state, every subcontract should contain these foundational elements.

Scope of work. The most critical section. Define exactly what the sub will perform and what is excluded. Reference drawings, specifications, and addenda by number and date. Gaps between subcontracts create disputes and change orders.

Contract price. Lump sum, unit price, cost-plus, or guaranteed maximum price. Spell out what is included in the price (labor, materials, equipment, overhead, profit) and what triggers a change order.

Schedule. Start date, completion date, and interim milestones. Reference the project master schedule. Define the process for schedule changes and delay claims.

Payment terms. Application submission dates, approval timelines, payment deadlines, and retainage percentages. This is where state law has the most direct impact.

Insurance requirements. Minimum coverage types and limits. Additional insured endorsement requirements. Waiver of subrogation provisions. Certificate submission deadlines.

Indemnification. Hold-harmless and defense obligations. This clause must comply with state anti-indemnity statutes, which vary widely.

Dispute resolution. Mediation, arbitration, or litigation. Venue and governing law provisions.

Termination provisions. Termination for cause and termination for convenience. Cure periods and notice requirements.

State-by-State Subcontract Requirements

Here is how key subcontract provisions vary across major construction states.

State	Prompt Payment Deadline	Max Retainage	Indemnity Type Allowed	Lien Filing Deadline
California	7 days after GC payment	5% (public) / 10% (private)	Comparative fault only	90 days after completion
Texas	7 days after GC payment	5% (public) / 10% (private)	Proportionate only	15th of 4th month after work
Florida	7 days after GC payment	5% (public) / 10% (private)	Limited form	90 days from last work
New York	No specific statute	5% (public)	Comparative fault	8 months from completion
Illinois	15 days after GC payment	10%	Limited form	4 months from completion
Georgia	10 days after GC payment	10%	Intermediate form	90 days from completion
Ohio	10 days after GC payment	10%	Broad form allowed	60-75 days from last work
Pennsylvania	14 days after GC payment	10%	Limited form	6 months from completion
Colorado	7 days after GC payment	5% (public)	Comparative fault only	4 months from completion
Washington	10 days after GC payment	5% (public)	Comparative fault only	90 days from completion

These deadlines and limits change as legislatures update construction statutes. Verify current requirements in your project's jurisdiction before finalizing any subcontract.

Indemnification Clauses: State Restrictions

Indemnification is the most regulated provision in construction subcontracts. Anti-indemnity statutes prevent GCs from shifting certain risks to subcontractors.

Broad form indemnification. The sub indemnifies the GC for all claims, including those caused by the GC's own negligence. Allowed in only a handful of states (Ohio, Vermont, and a few others). Most states have banned or restricted this form.

Intermediate form indemnification. The sub indemnifies the GC for all claims except those caused solely by the GC's negligence. Allowed in roughly 15 states including Georgia and Massachusetts.

Comparative fault (limited form). The sub indemnifies the GC only for claims caused by the sub's own negligence. Required in states like California, Texas, Colorado, and Washington.

Using the wrong indemnification form does not just create an unenforceable clause. In some states, including a prohibited indemnification clause voids the entire indemnification provision, leaving the GC with no contractual protection at all.

Best practice. Draft three versions of your indemnification clause (broad, intermediate, and limited) and apply the correct version based on the project's state. Store templates in your contract management system tagged by jurisdiction.

Payment Provisions and State Law

State prompt payment statutes override your subcontract language. If your subcontract says "Net 45" but state law requires payment within 7 days of GC payment, the state law controls.

Interest on late payments. Most states impose interest penalties on late payments. Rates range from 1% per month (California) to 2% per month (several states). These penalties apply automatically, even if the subcontract does not mention them.

Pay-if-paid vs. pay-when-paid. A "pay-if-paid" clause conditions the GC's obligation to pay the sub on the GC receiving payment from the owner. A "pay-when-paid" clause sets the timing but does not make owner payment a condition. Many states have restricted or invalidated pay-if-paid clauses. Courts in California, New York, North Carolina, and others have ruled these clauses unenforceable.

Retainage release. Several states now require prompt release of retainage after the sub's scope reaches substantial completion. Holding retainage past the statutory deadline triggers penalties. Track retainage obligations in your project accounting system to avoid violations.

Insurance Provisions in the Subcontract

Your subcontract must specify insurance requirements that protect the GC and comply with state mandates.

Workers' compensation. Required in 49 states (Texas is voluntary). Your subcontract should require the sub to maintain workers' comp coverage throughout the project. Include a provision allowing the GC to withhold payment if coverage lapses.

Additional insured endorsement. Require the sub to name the GC as additional insured on their CGL policy. Specify the endorsement form (CG 20 10 and CG 20 37 are the most common). Some states and courts have limited the scope of additional insured coverage, so verify the endorsement language matches your expectations.

Waiver of subrogation. Require the sub's insurers to waive their right to subrogate against the GC. Without this waiver, the sub's insurance company can sue the GC to recover claim payments, even when the GC is named as additional insured.

Certificate of insurance timing. Specify that the sub must provide a current certificate before starting work and updated certificates within 10 days of any policy renewal or change. Use SubcontractorAudit to automate certificate collection and verify compliance with your subcontract's insurance provisions.

Case Study: How Subcontract Requirements Affected a Real Project

A general contractor in Florida hired a mechanical subcontractor using a standard subcontract template from their Texas headquarters. The subcontract included a broad-form indemnification clause and a pay-if-paid provision.

The problem. Florida's anti-indemnity statute (Florida Statute 725.06) voids broad-form indemnification in construction contracts. Florida courts have also restricted pay-if-paid clauses. When a pipe burst caused water damage to an adjacent tenant space, the GC tried to enforce the indemnification clause against the mechanical sub.

The result. The court struck down the indemnification clause as void under Florida law. The GC bore the full cost of the water damage claim ($340,000) because the overbroad clause was unenforceable. A properly drafted intermediate or limited-form clause would have shifted at least a portion of the liability to the sub.

The lesson. Never use a one-size-fits-all subcontract across state lines. Review and adapt every subcontract provision to comply with the project's jurisdiction. The cost of a legal review ($2,000-$5,000 per state) is a fraction of the exposure from an unenforceable clause.

Building a State-Compliant Subcontract Template

Follow this process to create subcontract templates that work across multiple states.

Step 1: Start with a standard form. Use AIA A401, ConsensusDocs 750, or your own template as a base.

Step 2: Identify state-variable provisions. Flag indemnification, payment terms, retainage, lien rights, and insurance requirements as provisions that change by state.

Step 3: Create jurisdiction-specific riders. For each state where you work, draft a rider that modifies the base template to comply with local law. Keep riders organized by state in your document management system.

Step 4: Review annually. Construction law changes frequently. Have your attorney review jurisdiction-specific riders at least once per year to catch statutory changes.

Step 5: Track compliance. Use SubcontractorAudit's Compliance Scorecard to verify that every subcontract on your projects includes the required state-specific provisions.

FAQs

What is a subcontract in construction? A subcontract is a legally binding agreement between a general contractor and a subcontractor that defines the scope of work, price, schedule, insurance requirements, and other terms for a specific portion of a construction project. It establishes the rights and obligations of both parties and allocates risk between them.

Do subcontracts need to be in writing? While oral subcontracts may be technically enforceable in some states, written subcontracts are a best practice and a practical necessity. Many state prompt payment and lien laws reference written contracts. Insurance requirements, indemnification terms, and payment provisions must be documented in writing to be enforceable. Never rely on a verbal agreement.

What is the difference between a subcontract and a purchase order? A subcontract governs the performance of construction work (labor, materials, and equipment). A purchase order governs the supply of materials or equipment only, without labor. The legal obligations differ. Subcontracts include indemnification, insurance requirements, safety provisions, and schedule constraints that purchase orders typically do not.

Can a subcontract override state law? No. State statutes on prompt payment, retainage, indemnification, and lien rights take precedence over conflicting subcontract provisions. A subcontract clause that violates state law is unenforceable and may void the entire related provision. Always draft subcontracts that comply with the project's state requirements.

How often should GCs update their subcontract templates? Review subcontract templates at least annually with construction counsel. Review immediately whenever a state where you work passes new legislation affecting construction contracts. Key areas to monitor include prompt payment deadlines, retainage limits, anti-indemnity statutes, and insurance mandates.

What happens if a subcontract does not include required state provisions? Missing state-required provisions can make certain clauses unenforceable. For example, if your state requires a specific notice provision for lien rights and your subcontract omits it, the sub may retain lien rights you thought were waived. Work with counsel to ensure every subcontract includes all provisions required by the project's jurisdiction.

Standardize Your Subcontracts with Confidence

SubcontractorAudit helps general contractors manage subcontract compliance across every project and jurisdiction. The platform tracks insurance requirements, document deadlines, and compliance status in one place. Request a demo and see how it works for your operations.