What is a subcontract? It's the legally binding agreement between a general contractor and a specialty trade contractor that defines scope, payment, risk allocation, and compliance obligations for a specific portion of construction work. Every state adds its own requirements to this foundational document.

This guide covers what GCs must include in subcontracts to meet state-specific legal requirements across the country.

Core Elements of a Subcontract

Every subcontract, regardless of state, should contain these elements:

Parties. Legal names and addresses of the GC and subcontractor
Scope of work. Detailed description of work to be performed
Contract sum. Total price and breakdown (lump sum or unit pricing)
Payment terms. Progress payment schedule and conditions
Schedule. Start date, milestones, and completion date
Insurance requirements. Coverage types, limits, and additional insured provisions
Indemnification. Mutual or one-way hold harmless provisions
Change order process. Procedures for scope changes and pricing
Dispute resolution. Mediation, arbitration, or litigation procedures
Termination provisions. For cause and for convenience termination rights

State-by-State Subcontract Requirements

Payment and Retainage Laws

States regulate how quickly GCs must pay subcontractors and how much retainage they can withhold.

State	Payment Deadline	Maximum Retainage	Early Release
California	7 days after GC receives payment	5% (public), 10% (private)	At 50% completion (public)
Texas	7 days after GC receives payment	10% (public and private)	No statutory requirement
Florida	25 days after GC receives payment	10% until 50%, then 5%	At 50% completion
New York	7 days after approval of requisition	5% (public)	Upon substantial completion
Illinois	15 days after GC receives payment	10% (private)	Upon substantial completion
Ohio	10 days after GC receives payment	10% (limited conditions)	Upon substantial completion
Georgia	No statutory deadline	No statutory limit	No statutory requirement
Pennsylvania	14 days after GC receives payment	10% (public)	Upon substantial completion

Indemnification Restrictions

Many states prohibit or limit indemnification clauses in construction subcontracts:

Anti-indemnity states (broad form prohibited): California, Colorado, Florida, Illinois, Michigan, New York, Ohio, Texas, and approximately 40 other states.

In these states, you cannot require a subcontractor to indemnify you for your own negligence. Subcontract indemnification clauses must be limited to the sub's proportionate share of fault.

Intermediate form states: Allow indemnification for the indemnitee's partial negligence but not sole negligence.

Broad form states (few remaining): Allow the sub to indemnify the GC even for the GC's own negligence. Rare and legally risky.

Lien Rights and Notice Requirements

Subcontractors have lien rights in every state, but the procedures vary significantly:

Preliminary notice. Most states require subs to serve a preliminary notice within 20-30 days of first furnishing labor or materials. Missing this deadline can extinguish lien rights.
Lien filing deadlines. Range from 60 days to 6 months after last furnishing, depending on the state.
Lien waiver requirements. Some states (California, for example) mandate specific lien waiver forms. Others accept any reasonable form.

Case Study: Multi-State GC Adapts Subcontract Terms

A mid-size GC operating in Texas, Florida, and Illinois discovered their standard subcontract template violated requirements in two of three states:

Problem 1: Their retainage clause withheld 10% through project completion. Florida law requires reduction to 5% at 50% completion.

Problem 2: Their indemnification clause used broad-form language that is void in all three states.

Problem 3: Their payment terms specified 30 days after GC receipt of payment. Texas and Illinois require faster payment (7 and 15 days respectively).

Solution: They created state-specific subcontract supplements that modify their standard terms to comply with local law. Each supplement addresses payment timing, retainage limits, indemnification scope, and lien waiver procedures for that state.

Result: Within six months, dispute-related costs dropped 40%, and subcontractor bid participation increased 25% across all three states.

Building a Compliant Subcontract Template

Step 1: Start with an Industry Standard Form

AIA A401, ConsensusDocs 750, or EJCDC C-520 provide balanced starting points. Customize from there rather than drafting from scratch.

Step 2: Add State-Specific Provisions

For each state where you work, verify:

Payment timing complies with prompt-pay statutes
Retainage limits fall within statutory caps
Indemnification language meets anti-indemnity restrictions
Lien waiver forms match state-mandated formats
Insurance requirements align with state minimums

Step 3: Include Compliance Provisions

Add clauses that support your compliance program:

Insurance maintenance and verification obligations
License maintenance requirements
Safety program compliance
Workers' compensation coverage confirmation
Tax compliance documentation (W-9, state registrations)

Step 4: Have Legal Review

A construction attorney licensed in each state where you work should review your subcontract. Laws change annually. What was compliant last year may not be compliant this year.

Frequently Asked Questions

What is a subcontract versus a purchase order? A subcontract governs labor and materials furnished by a trade contractor on your jobsite. A purchase order governs materials purchased for delivery. The key difference is labor. If the vendor provides installation labor, use a subcontract. If they only supply materials, a purchase order suffices. Some GCs use "subcontract purchase orders" for material-heavy trades -- but these should contain the same compliance provisions as full subcontracts.

Can I use the same subcontract template in every state? Not without modification. Payment timing, retainage limits, indemnification restrictions, lien procedures, and insurance requirements vary by state. Use a master template with state-specific supplements or riders that modify terms to comply with local law.

Does a subcontract need to be signed by both parties to be enforceable? Generally, yes. An unsigned subcontract is difficult to enforce. However, some courts have found that a subcontractor who begins work under the terms of an unsigned subcontract has accepted those terms by performance. Don't rely on this -- get signatures before work begins.

What happens if my subcontract conflicts with the prime contract? Most subcontracts include a "flow-down" clause incorporating prime contract terms. If the subcontract conflicts with the prime contract, the prime contract typically controls. Review both documents for conflicts before execution, and resolve them through specific language in the subcontract.

How long should I retain executed subcontracts? Retain subcontracts for at least the duration of the statute of limitations for contract claims in your state, plus the warranty period. This typically means 6-10 years after project completion. Some GCs retain subcontracts indefinitely in digital archives -- storage costs are minimal and the risk of premature disposal is eliminated.

Should I use electronic signatures on subcontracts? Electronic signatures are legally valid in all 50 states under the federal ESIGN Act and state versions of the UETA. E-signatures speed execution and create automatic audit trails. Verify your e-signature platform meets legal requirements (signer authentication, tamper-evident records, consent to electronic process).

Understanding what a subcontract requires in each state where you operate protects your projects from legal exposure. State-specific compliance isn't optional -- it's the foundation of enforceable subcontractor relationships.

Ready to standardize your subcontract compliance across states? Request a demo of SubcontractorAudit to see how automated compliance tracking ensures your subcontractor documentation meets requirements in every jurisdiction.

Use our Compliance Scorecard to identify compliance gaps in your current subcontract practices.