📝 Subcontract Negotiation Guide
How to review, redline, and negotiate subcontract terms that protect your company — before you sign.
The best time to negotiate is before you sign. Once you've signed a bad subcontract, you're stuck with it. Every clause you failed to read is a clause you agreed to. Treat contract review as seriously as you treat your estimate — because a bad contract can wipe out the profit on a good estimate.
Table of Contents
- The Subcontract Review Process
- No-Damage-for-Delay Clauses
- Pay-If-Paid vs Pay-When-Paid
- Flow-Down Clauses
- Scope Gaps and Scope of Work
- Indemnification Redlines
- Change Order and Extra Work Provisions
- Retention Terms
- Dispute Resolution Clauses
- Termination Provisions
- Insurance and Bonding Requirements
- Practical Negotiation Tactics
The Subcontract Review Process
When to Review the Contract
Before you bid. Not after you win. Not the day before the pre-construction meeting. Before you ever put a number on paper.
Why? Because the contract terms affect your price. If the subcontract shifts all the risk to you — delay damages, unlimited indemnification, pay-if-paid — your bid should reflect that risk. If you bid first and read the contract later, you've already locked yourself into a price that doesn't account for what you agreed to.
What to Look For First
Start with the clauses that cost you the most money:
| Priority | Clause | Why It Matters |
|---|---|---|
| 1 | Payment terms | When (and whether) you get paid |
| 2 | Scope of work | What you're actually responsible for |
| 3 | Indemnification | Your liability exposure |
| 4 | Change order process | How you get paid for extra work |
| 5 | Retention | How much is held and when it's released |
| 6 | Delay/liquidated damages | Your exposure if the project runs late |
| 7 | Termination | What happens if the GC pulls the plug |
| 8 | Insurance/bonding | What coverage you need to carry |
Red Flags That Kill Deals
Walk away — or price accordingly — if you see:
- Pay-if-paid in a state that enforces it (not California)
- Unlimited indemnification with no insurance backstop
- No-damage-for-delay with no exceptions
- "All work necessary" scope language with no exclusions
- Unilateral termination for convenience with no payment for work in progress
- Mandatory arbitration in a distant jurisdiction
- Retention held until the entire project is complete — not just your scope
Creating a Contract Review Checklist
Build a standard checklist your team uses on every subcontract. At minimum:
- Payment terms identified (pay-when-paid or pay-if-paid?)
- Scope of work matches your bid documents
- Indemnification clause reviewed and redlined
- Change order notice requirements noted
- Retention percentage and release trigger confirmed
- Insurance requirements compared to your current coverage
- Flow-down clauses reviewed against prime contract
- Dispute resolution forum and method identified
- Termination provisions reviewed
- Liquidated damages exposure calculated
Involving Your Attorney
You don't need a lawyer for every subcontract. But you need one when:
- The contract value exceeds your comfort threshold (set one — $250K, $500K, whatever makes sense for your company)
- The indemnification language is unusual or aggressive
- You're working in a new state with unfamiliar laws
- The GC refuses to negotiate and the contract has serious problems
- You're the first sub to sign this GC's new contract template
The most expensive contract your company ever signs will be the one nobody read. Budget $500–$2,000 for a construction attorney to review significant contracts. That's insurance you can't buy any other way.
No-Damage-for-Delay Clauses
What They Are
A no-damage-for-delay clause says that if the GC delays your work, your only remedy is a time extension — not money. You eat the extended general conditions, the idle labor costs, the rescheduling, and the lost productivity.
Bad clause:
Subcontractor's sole remedy for any delay caused by Contractor, Owner, or any other party shall be an extension of time, and Subcontractor expressly waives any and all claims for damages arising from delay.
Why GCs Include Them
Because delays are expensive and GCs don't want to pay for them. The GC is also managing risk from the owner's side — the prime contract may have a similar clause. But the fact that the GC accepted this risk from the owner doesn't mean you should accept it from the GC.
State-by-State Enforcement
Not all states enforce these clauses the same way:
| Enforcement Level | States |
|---|---|
| Not enforced / heavily restricted | California, Colorado, Ohio, Washington, North Carolina, Virginia, Minnesota |
| Enforced with exceptions | New York, Florida, Texas, Georgia, Illinois |
| Generally enforced | Many others — check your state |
California Civil Code §2782 and case law significantly limit no-damage-for-delay clauses in construction contracts. California courts have held that these clauses are unenforceable when the delay was caused by the GC's active interference, bad faith, or delays not contemplated by the parties at the time of contracting. In practice, these exceptions swallow most of the rule.
How to Strike or Modify Them
Best outcome: Strike the clause entirely.
Better clause (if the GC won't strike it):
Subcontractor's remedy for delays caused by Contractor shall include an extension of time and, where the delay is caused by Contractor's acts or omissions, additional compensation for documented increased costs including but not limited to extended general conditions, idle labor and equipment, and remobilization.
Compromise language (minimum acceptable):
The no-damage-for-delay provision shall not apply to delays caused by Contractor's active interference, bad faith, arbitrary or capricious action, or delays not contemplated by the parties at the time of contracting.
Pay-If-Paid vs Pay-When-Paid
The Critical Difference
These two phrases sound similar but mean completely different things:
| Term | What It Means | Your Risk |
|---|---|---|
| Pay-when-paid | GC pays you within a reasonable time after the GC gets paid. Payment from the owner is a timing mechanism. | Low — you'll get paid eventually. |
| Pay-if-paid | GC only pays you if and when the owner pays the GC. Payment from the owner is a condition precedent to your payment. | High — if the owner goes bankrupt, you eat it. |
Which States Enforce Pay-If-Paid?
| Enforced | Not Enforced / Void |
|---|---|
| Texas, Georgia, Florida (with clear language), Virginia | California, New York, North Carolina, Wisconsin, Nevada, South Carolina |
California Business & Professions Code §7108.5 and Civil Code §8812 make pay-if-paid clauses unenforceable against subcontractors on private projects. California treats these clauses as pay-when-paid regardless of how they're written. On public projects, prompt payment statutes provide additional protection. You still have the right to file a mechanic's lien or stop notice even if the owner hasn't paid the GC.
How to Identify Which You're Signing
Look for these keywords:
Pay-if-paid (dangerous):
Payment to Subcontractor is expressly contingent upon and subject to receipt of payment by Contractor from Owner for the Work. Receipt of payment by Contractor from Owner is a condition precedent to Contractor's obligation to pay Subcontractor.
Pay-when-paid (acceptable):
Contractor shall pay Subcontractor within seven (7) days of Contractor's receipt of payment from Owner for the Work, but in no event later than sixty (60) days after approval of Subcontractor's pay application.
Modification Language
If you find a pay-if-paid clause, propose this replacement:
Contractor shall pay Subcontractor for approved work within thirty (30) days of Subcontractor's properly submitted pay application. Contractor's receipt of payment from Owner shall not be a condition precedent to Contractor's obligation to pay Subcontractor, but rather establishes a reasonable time for payment. If Contractor has not received payment from Owner within sixty (60) days, Contractor shall nonetheless pay Subcontractor and pursue collection from Owner independently.
Getting Paid Regardless
Even with a pay-if-paid clause, you have options:
- Mechanic's lien rights — These exist independent of your contract with the GC
- Payment bond claims — If the project is bonded, the bond pays you regardless of the owner's payment to the GC
- Stop notices (California) — Powerful tool on both public and private projects
- Prompt payment act claims — State prompt payment statutes may override contract terms
- Unjust enrichment — If your work benefited the property, you may have equitable claims
Flow-Down Clauses
What Flows Down from the Prime Contract
A flow-down clause "incorporates by reference" some or all of the prime contract (between owner and GC) into your subcontract. This means you're bound by terms you may have never read.
Common flow-down language (this is a trap):
Subcontractor shall be bound to Contractor to the same extent Contractor is bound to Owner under the Prime Contract, and the terms of the Prime Contract are hereby incorporated by reference into this Subcontract Agreement.
This one sentence can obligate you to thousands of pages of owner requirements, federal flow-downs (on government projects), scheduling provisions, liquidated damages, and more.
The "Incorporated by Reference" Trap
Here's what typically flows down without you realizing it:
- Owner's scheduling and sequencing requirements
- Liquidated damages provisions
- Quality control and testing requirements
- Safety and environmental requirements
- Prevailing wage and labor compliance obligations
- Reporting and documentation requirements
- Insurance minimums from the prime contract
- Dispute resolution procedures from the prime contract
- Federal requirements (Davis-Bacon, Buy American, DBE, etc.)
How to Request and Review the Prime Contract
Always request the prime contract before signing. If the GC says no, that's a red flag. You're being asked to be bound by a document you haven't seen.
At minimum, request:
- General conditions and supplementary conditions
- The scope sections relevant to your trade
- Insurance and indemnification provisions
- The payment and retention terms
- Schedule and liquidated damages provisions
Limiting What Flows Down
Better flow-down clause:
The terms of the Prime Contract are incorporated herein by reference only to the extent they relate to Subcontractor's scope of work and only to the extent they do not conflict with the express terms of this Subcontract Agreement. In the event of a conflict between this Subcontract and the Prime Contract, the terms more favorable to Subcontractor shall govern. Contractor shall provide Subcontractor with all relevant portions of the Prime Contract upon execution of this Subcontract.
Key limitations to add:
- Flow-down applies only to your scope of work
- Your subcontract terms control over conflicting prime contract terms
- You're not responsible for obligations you weren't made aware of
- Liquidated damages flow down only in proportion to your scope
Be especially careful with schedule flow-downs. If the prime contract has $10,000/day liquidated damages and the GC flows that down to all subs, you could be on the hook for the full LD amount even if your trade is only 5% of the project. Negotiate a cap on your LD exposure proportional to your contract value.
Scope Gaps and Scope of Work
Identifying Scope Gaps Before Signing
The scope of work is where most subcontract disputes start. The GC's subcontract will try to make your scope as broad as possible. Your job is to make it as specific as possible.
Read the scope against:
- Your bid documents and takeoff
- The relevant spec sections
- The drawings for your trade
- The division of work matrix (if one exists)
"All Work Necessary" Language
Dangerous scope clause:
Subcontractor shall perform all work necessary to complete the electrical work as shown on the Drawings and as described in the Specifications, including all incidental work not specifically shown but reasonably inferable as necessary for a complete and functioning system.
The phrase "reasonably inferable" is doing a lot of heavy lifting here. It means anything the GC or owner thinks should have been included — even if it wasn't shown on the drawings — is your problem.
Better scope clause:
Subcontractor shall perform the work specifically described in Specification Sections 26 00 00 through 26 50 00 and as shown on Electrical Drawings E1.0 through E8.0. Work not shown on the referenced drawings or described in the referenced specifications is excluded from Subcontractor's scope unless specifically added by written Change Order.
Exclusions You Should Always List
No matter what your trade is, get these exclusions in writing:
| Exclusion | Why |
|---|---|
| Temporary power and lighting (unless specifically bid) | GCs often try to push this to the electrical sub |
| Cutting and patching by others | Your scope shouldn't include fixing other trades' penetrations |
| Permits and fees (unless specifically bid) | Clarify who pulls and pays for permits |
| Engineering and design (unless design-build) | Shop drawings are different from engineering |
| Overtime and acceleration (unless directed in writing) | Protect against schedule compression |
| Site cleanup beyond your own debris | General cleanup is the GC's responsibility |
| Protection of your installed work by others | Other trades damage your work, they pay for it |
Site Conditions
Add language addressing:
Subcontractor's pricing is based on normal working conditions including adequate access, available work areas, and reasonable sequencing. Additional costs resulting from restricted access, out-of-sequence work, stacking of trades, or other abnormal conditions not caused by Subcontractor shall be addressed through the Change Order process.
Temporary Facilities Responsibility
Clarify in writing who provides:
- Temporary power and distribution
- Temporary water
- Temporary toilets
- Dumpsters and waste removal
- Hoisting and material handling
- Temporary heat and enclosures
If it's not in the GC's general conditions as their responsibility, they'll try to push it to you.
Indemnification Redlines
Types of Indemnification
Construction contracts use three types of indemnification:
| Type | What It Means | Who Bears the Risk |
|---|---|---|
| Type I (Broad Form) | Sub indemnifies GC for all liability — even the GC's own negligence | Sub bears 100% risk |
| Type II (Intermediate Form) | Sub indemnifies GC for all liability except the GC's sole negligence | Sub bears risk unless GC is solely at fault |
| Type III (Comparative Fault) | Sub indemnifies GC only for liability caused by the sub's own negligence | Risk is proportional to fault |
California Anti-Indemnity Statute
California prohibits Type I (broad form) indemnification in construction contracts. A subcontractor cannot be required to indemnify the GC for the GC's own active negligence or willful misconduct. Any clause requiring this is void and unenforceable in California.
As of 2013 amendments, in residential construction, indemnification provisions in subcontracts are limited to the subcontractor's proportionate share of fault — making California effectively a Type III state for residential work.
What to Strike
Bad clause (Type I — unenforceable in California):
Subcontractor shall indemnify, defend, and hold harmless Contractor and Owner from and against any and all claims, damages, losses, and expenses, including attorneys' fees, arising out of or resulting from the performance of the Work, regardless of whether caused in whole or in part by the negligence of Contractor or Owner.
Better clause (Type III — proportional):
Subcontractor shall indemnify, defend, and hold harmless Contractor and Owner from and against claims, damages, losses, and expenses, including reasonable attorneys' fees, but only to the extent caused by the negligent acts, errors, or omissions of Subcontractor, its employees, or its lower-tier subcontractors. This indemnification shall not extend to liability caused by the negligence of Contractor, Owner, or their agents.
Mutual vs One-Way Indemnification
Most subcontracts only require the sub to indemnify the GC — never the other way around. Push for mutual indemnification:
Each party shall indemnify and hold harmless the other from claims arising from the indemnifying party's negligent acts, errors, or omissions in connection with the performance of this Subcontract.
The Duty to Defend
Watch for the duty to defend, which is separate from indemnification. The duty to defend requires you to pay the GC's attorney fees from the moment a claim is made — before anyone determines fault. This can be extremely expensive even if you did nothing wrong.
Limit your duty to defend:
Subcontractor's duty to defend shall apply only after a final adjudication or binding arbitration determination that Subcontractor is liable under the indemnification provisions of this Subcontract. Prior to such determination, each party shall bear its own defense costs.
Change Order and Extra Work Provisions
Written Notice Requirements
Almost every subcontract requires written notice before you perform extra work. Miss the notice deadline and you may have waived your right to get paid — even if the GC verbally told you to do the work.
Know your deadlines:
| Contract Type | Typical Notice Period |
|---|---|
| AIA A401 | 7 days for claims |
| ConsensusDocs 750 | 14 days |
| Custom GC contracts | 48 hours to 7 days |
Critical: Put notice requirements on your project board or calendar. Train your PMs and supers to send notice the same day they identify a potential change.
Time Limits for Claims
Bad clause (too short):
Subcontractor shall provide written notice of any claim for additional compensation within forty-eight (48) hours of the occurrence giving rise to the claim. Failure to provide timely notice shall constitute a waiver of the claim.
Better clause:
Subcontractor shall provide written notice of any claim for additional compensation within fourteen (14) calendar days of when Subcontractor knew or should have known of the condition giving rise to the claim. Late notice shall not constitute a waiver if Contractor was not prejudiced by the delay in notice.
"Constructive Changes" Rights
A constructive change happens when the GC directs you to do something outside your scope without issuing a formal change order. Common examples:
- GC directs you to accelerate to meet a schedule the GC caused you to miss
- GC interprets the scope more broadly than the drawings show
- GC rejects work that meets the spec and requires rework
- RFI response changes the scope but no change order is issued
Protect yourself with this clause:
If Subcontractor believes that any direction, instruction, interpretation, or determination by Contractor constitutes a change to the scope, schedule, or cost of the Work, Subcontractor shall provide written notice within seven (7) days and shall proceed with the work under protest while reserving all rights to additional compensation and time.
Pricing Change Orders
Negotiate your markup percentages in the contract before you start:
| Cost Category | Typical Range | What to Negotiate |
|---|---|---|
| Labor burden | Actual cost | Defined rate in contract |
| Material markup | 10–15% | Minimum 10% |
| Equipment | Actual cost + 10% | Defined rental rates |
| Overhead | 10–15% | Minimum 10% |
| Profit | 10–15% | Minimum 10% |
| Sub-sub markup | 5–10% | At least 5% |
Watch for "no markup on markup" clauses — these prevent you from adding overhead and profit on sub-sub work.
Dispute Resolution for Disputed Changes
Add a provision that lets you keep working while the change is disputed:
In the event of a dispute regarding pricing or entitlement to a Change Order, Subcontractor shall proceed with the disputed work upon receipt of a written Construction Change Directive from Contractor. Subcontractor shall track all time and material costs associated with the disputed work on a daily basis. Resolution of the dispute shall not be a condition to Subcontractor's right to timely payment for undisputed work.
Retention Terms
Standard Retention Amounts
| Retention | Common On |
|---|---|
| 10% | Older contracts, some public work |
| 5% | Most commercial subcontracts |
| 0% | Negotiated on some private work |
Retention Reduction Provisions
Push for retention reduction at substantial completion of your scope — not the entire project:
Bad clause:
Retention shall be released within sixty (60) days after final completion and acceptance of the entire Project.
This means your retention is held hostage until the last sub finishes their punchlist — which could be months or years after you're done.
Better clause:
Retention shall be reduced to 1% upon Subcontractor's substantial completion of its scope of work. Remaining retention shall be released within thirty (30) days of Subcontractor's final completion, acceptance by Contractor, and receipt of final lien waiver, regardless of the completion status of other subcontractors or the Project as a whole.
California Prompt Payment Act and Retention
Under California Civil Code §8812 and §8814:
- On private projects, the property owner must release retention within 45 days after the work of improvement is completed. The GC must release sub retention within 10 days of receiving retention from the owner.
- On public projects, the awarding authority must release retention within 60 days of project completion, and the GC must release sub retention within 7 days of receipt.
- 2% per month penalties apply to wrongfully withheld retention.
- A sub can file a stop notice to protect retention on public projects and a mechanic's lien on private projects.
Retention on Stored Materials
If you're storing materials on-site or off-site, negotiate that retention does not apply to stored materials:
Retention shall not be withheld on materials stored on-site or at an approved off-site location, provided Subcontractor furnishes evidence of insurance and transfer of title satisfactory to Contractor.
Early Retention Release
On long-duration projects, negotiate a clause allowing early retention release:
Upon completion of 50% of Subcontractor's scope of work, retention shall be reduced from 5% to 2.5%. Upon Subcontractor's substantial completion, retention shall be reduced to 0% provided Subcontractor submits a conditional final lien waiver and completes all punchlist items within thirty (30) days.
Dispute Resolution Clauses
Mandatory Arbitration vs Litigation
Most GC subcontracts include mandatory arbitration. Whether that's good or bad for you depends on the situation:
| Factor | Arbitration | Litigation |
|---|---|---|
| Cost | Lower filing fees, but arbitrator fees can be high | Higher filing fees, no arbitrator cost |
| Speed | Usually faster | Can take years |
| Discovery | Limited | Full discovery available |
| Appeal | Very limited appeal rights | Full appellate process |
| Jury | No jury | Jury available |
| Privacy | Private | Public record |
For smaller disputes (under $100K), arbitration is usually better — it's faster and cheaper.
For larger disputes, litigation may be better because you get full discovery and appeal rights.
Mediation Requirements
Push for mandatory mediation before arbitration or litigation. Mediation resolves disputes faster and cheaper, and it preserves the business relationship:
Prior to initiating arbitration or litigation, the parties shall submit the dispute to mediation administered by [JAMS/AAA] in [City, State]. Each party shall bear its own mediation costs and share the mediator's fee equally. If the dispute is not resolved within sixty (60) days of the mediation demand, either party may proceed to [arbitration/litigation].
Choice of Forum
Watch for clauses that require disputes to be resolved in a distant forum:
Bad clause:
Any disputes shall be resolved exclusively in the state or federal courts located in New York, New York.
If you're a California sub, litigating in New York triples your costs. Negotiate for your home jurisdiction or the project location:
Disputes shall be resolved in the county where the Project is located or, at Subcontractor's election, in the county where Subcontractor's principal office is located.
Attorneys' Fees Provisions
Best for subs: Prevailing party gets attorneys' fees. This discourages the GC from using litigation as a weapon because they'll pay your fees if they lose:
In any action or proceeding arising out of this Subcontract, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs from the non-prevailing party.
Waiver of Jury Trial
Many GC contracts include a jury trial waiver. Whether to accept this depends on your situation, but understand what you're giving up — juries tend to be more sympathetic to subcontractors than judges.
Termination Provisions
Termination for Convenience vs For Cause
| Type | What It Means | Your Rights |
|---|---|---|
| For convenience | GC can terminate you for any reason or no reason | You're owed payment for work performed plus reasonable demobilization costs |
| For cause | GC terminates you because you breached the contract | GC may charge you for completion costs exceeding your contract price |
What You're Owed If Terminated for Convenience
Bad clause:
In the event of termination for convenience, Subcontractor shall be paid for work satisfactorily completed prior to the termination date.
This clause doesn't cover your demobilization costs, overhead, profit on work already performed, restocking fees, or cancellation charges from suppliers.
Better clause:
In the event of termination for convenience, Contractor shall pay Subcontractor: (a) the contract price for all work completed and accepted prior to termination; (b) the cost of materials ordered or fabricated for the project, whether or not delivered; (c) reasonable demobilization costs; (d) cancellation charges from suppliers and sub-subcontractors; and (e) a proportionate share of overhead and profit on work completed. In no event shall termination for convenience entitle Contractor to recover costs from Subcontractor.
Cure Periods
Before the GC can terminate you for cause, you should have the right to fix the problem:
Minimum acceptable cure clause:
Prior to termination for cause, Contractor shall provide Subcontractor with written notice specifying the default and allowing Subcontractor not less than seven (7) business days to cure the default. If the default cannot reasonably be cured within seven (7) business days, Subcontractor shall not be in default if Subcontractor commences cure within such period and diligently prosecutes the cure to completion.
Protecting Against Wrongful Termination
Add a clause converting wrongful for-cause termination to a convenience termination:
If Contractor terminates this Subcontract for cause and it is subsequently determined that Subcontractor was not in default, the termination shall be deemed a termination for convenience and Subcontractor shall be entitled to the payments described in the termination for convenience provisions of this Subcontract.
If you're being threatened with termination, document every communication. Send daily logs showing your crew on site, your production, and compliance with the schedule. The GC has to prove cause — make sure the record supports you.
Insurance and Bonding Requirements
Additional Insured Requirements
Nearly every GC contract requires you to name the GC (and often the owner, architect, and CM) as additional insureds on your CGL policy. This is standard and expected. However, watch for:
- Requirements to add additional insureds to your workers' comp policy (not appropriate)
- Requirements that your coverage be primary and non-contributory (standard, but increases your risk)
- Requirements for additional insured coverage on completed operations (increasingly common, check with your broker)
Waiver of Subrogation
A waiver of subrogation prevents your insurance company from suing the GC to recover what they paid on a claim — even if the GC caused the loss. Most GC contracts require it. Make sure your policy allows it without extra charge, or negotiate the cost into your bid.
Excessive Insurance Requirements
Red flags in insurance requirements:
| Requirement | Standard | Excessive |
|---|---|---|
| CGL per occurrence | $1M | $5M+ |
| CGL aggregate | $2M | $10M+ |
| Umbrella/excess | $1M–$5M | $10M+ |
| Auto | $1M CSL | $5M+ |
| Professional liability | Varies by trade | Required for trades that don't need it |
If the insurance requirements exceed your current coverage, get a quote from your broker before you bid. The premium increase is a real project cost.
Proposed modification for excessive limits:
Subcontractor shall maintain insurance coverages as set forth in Exhibit [X], provided that required limits in excess of Subcontractor's standard coverage shall be provided only to the extent commercially available at reasonable cost, and any additional premium cost shall be reimbursed by Contractor as a Cost of the Work.
Bond Requirements and Costs
If the GC requires a performance and payment bond from you, remember:
- Bond premiums typically run 1–3% of the contract value
- This is a real cost that should be included in your bid
- Ask whether the GC will accept a Subcontractor Default Insurance (SDI) policy instead — it's often cheaper
- If the GC is bonded on the prime contract, you may be able to file a claim on the GC's bond if the GC doesn't pay you
Practical Negotiation Tactics
When You Have Leverage
You have the most negotiation leverage when:
- Your trade is in high demand — When the GC can't find another qualified sub, you can push for better terms
- You're the low bidder by a significant margin — The GC wants your price, which means they need to accept some of your terms
- You have an existing relationship with the GC — Repeat business creates trust and willingness to negotiate
- The project is already in trouble — If the GC needs you to bail out a project, you can negotiate from strength
- You're on a short list or sole source — Specialized work gives you leverage
When You Don't Have Leverage
Be realistic about your position when:
- Multiple subs bid the same number
- You need the work to keep crews busy
- The GC has a standard contract they use with all subs
- The project is publicly bid with strict contract terms
- You're trying to break into a new GC relationship
Even without leverage, you can still negotiate — just pick your battles. Focus on the two or three clauses that matter most.
Building Relationships with GCs
Long-term relationships are where real negotiation power comes from. GCs who trust you will:
- Use reasonable contract language because they want to keep working with you
- Accept redlines because they know you're not being difficult — you're being smart
- Negotiate fairly because a good sub is hard to find
Build trust by:
- Delivering quality work on time
- Being responsive and communicative
- Handling problems without drama
- Submitting clean pay apps
- Following through on punchlist items
Getting Redlines Accepted
When you submit redlines to a GC's contract:
- Be specific. Don't just cross things out — propose alternative language. The GC's PM doesn't want to draft contract clauses from scratch.
- Explain your reasoning. A brief note — "This clause is unenforceable in California per Civil Code §2782" — goes further than a bare strikethrough.
- Pick your battles. If you redline 30 clauses, the GC will ignore all of them. Redline the 3–5 that matter most and let the rest go.
- Put it in writing. Email your redlined contract with a cover note. Don't rely on verbal agreements about what "won't really be enforced."
- Escalate if needed. If the GC's PM can't accept your redlines, ask to speak with the GC's contracts manager or legal team.
Walking Away When the Contract Is Too Risky
Sometimes the right answer is no. Walk away when:
- The payment terms create unacceptable cash flow risk
- The indemnification exposure exceeds your insurance coverage
- The GC refuses to negotiate deal-breaker clauses
- The contract shifts all project risk to the subs
- The GC has a reputation for not paying or aggressively back-charging
Before you walk away, calculate the real cost of the bad contract terms. A $500K subcontract with unlimited indemnification and no-damage-for-delay might actually be a $500K bet with your entire company as collateral. Compare that to the profit you expect to earn — is a $40K profit worth the risk of a $500K loss?
Summary: Your Negotiation Priorities
Every contract is different, but here are your top priorities in order:
| Priority | What to Negotiate | Why |
|---|---|---|
| 1 | Payment terms | Cash flow keeps your company alive |
| 2 | Indemnification limits | Uncapped liability can end your company |
| 3 | Scope clarity | Scope gaps eat your profit |
| 4 | Change order rights | Extra work without payment is free work |
| 5 | Retention release | Your money shouldn't be held indefinitely |
| 6 | Termination protection | You need to be paid for work you performed |
| 7 | Delay damages limits | Cap your exposure to project delays |
| 8 | Insurance/bonding costs | Don't eat premium costs you didn't bid |
Remember: The contract you sign defines the relationship. Negotiate it right, and the project runs smoothly for everyone. Sign a bad contract, and you're fighting an uphill battle from day one.
Build a library of your preferred contract language for each of the clauses covered in this guide. When a new subcontract comes in, your PM can compare the GC's language against your standards and quickly identify what needs to be redlined. Over time, this turns contract review from a multi-day headache into a two-hour process.