Key Clauses in Every Subcontractor Agreement You Should Read Before Signing

Flow-down clauses make you responsible for the same obligations to the GC that the GC has to the owner. If the prime contract requires insurance at certain limits, flow-down makes you responsible for those limits. If the prime contract has a specific dispute resolution process, flow-down binds you to that process.

Some GCs include a provision that the entire prime contract flows down to each subcontractor. This means your rights and obligations are governed by a document you may never have seen.

Ask for a copy of the prime contract before you sign a subcontract that flows it down to you. You are accepting obligations you need to understand.

A no-damage-for-delay clause says that even if the owner or GC causes delays to your work, your only remedy is a time extension, not additional money.

This clause can eliminate your right to collect extended general conditions, lost productivity, escalation, and other costs caused by delays that are not your fault.

Some states limit the enforceability of no-damage-for-delay clauses. But even in states that restrict them, the clauses must be analyzed carefully. If yours is in a subcontract governed by a state that enforces them, you have accepted significant delay risk with no financial remedy.

A termination for convenience clause lets the owner or GC terminate your contract at any time for any reason, without owing you damages for lost anticipated profits.

If you are terminated for convenience on a job where you had significant profit expected from remaining work, termination for convenience means you collect your costs to date plus a reasonable overhead and profit on completed work only. You do not collect profit you would have earned on the work that was cancelled.

Know whether this clause is in your subcontract. On long jobs with back-loaded scope, it changes the risk profile significantly.

The scope section defines what you are responsible for. Vague scope leads to disputes. Scope that references drawings and specifications by name and revision date is better than scope that says 'all work shown in the drawings.'

Pay attention to exclusions. If the subcontract does not list what is excluded from your scope, assume the GC believes you are responsible for everything related to your trade that appears in the documents.

If the scope is ambiguous, get it clarified in writing before you sign. A note in the margin of a contract is not a clarification. An executed change order or a written scope clarification letter is.

Where will disputes be resolved? In the project's home state? In the GC's home state? In arbitration or court?

A dispute resolution clause that requires arbitration in the GC's home state means a dispute on a job you did locally may have to be resolved in a different state, using an arbitration panel you did not choose.

Arbitration clauses that waive your right to a jury trial are enforceable in most states. Class action waivers are also common. Know what you are waiving before you sign.