If you hire subcontractors and you don't have a signed subcontractor agreement, you're exposed. Not hypothetically — actually exposed to liability for their work, unpaid wage claims that get charged back to you, and insurance gaps that can wipe out your business if something goes wrong on the job.
A subcontractor agreement is not optional protection. It's the baseline. And it doesn't need to be complicated — the key clauses are straightforward, but they have to be in writing and signed before the sub steps on site.
This guide covers what goes into a real subcontractor agreement, what most contractors miss, and where to get a free template to start with.
Why You Need a Written Subcontractor Agreement (Even for "Good" Subs)
The reason contractors skip the written agreement is usually one of two things: they know the sub well ("we've worked together for years") or they don't want to create friction ("it's just a small job").
Neither is a good reason.
A written subcontractor agreement:
- Creates a shared understanding of scope — what work, what materials, what timeline, what payment. Without this, scope disputes happen mid-job and they're expensive to resolve.
- Assigns liability correctly — the sub's insurance covers their work. Without an agreement, a client's attorney may argue that the sub is your employee, making you liable for their mistakes.
- Protects your payment rights — if the client pays you and you don't pay the sub, a well-structured agreement gives the sub a chain of responsibility. Without it, you can end up being the middleman in a dispute you can't resolve.
- Creates legal protection — if the sub causes property damage, a workplace injury, or files a wage claim, the agreement is the document that determines whether it falls on them or you.
The 6 Clauses Every Subcontractor Agreement Needs
1. Scope of Work
The most important clause. "Do the electrical work" is not scope. Scope looks like:
Subcontractor shall provide all labor, materials, and equipment necessary to complete the rough-in and trim-out of the electrical system for the project located at [address], per plans dated [date] and specifications dated [date]. Scope includes:
- Main panel wiring and circuit installation
- Outlet and switch box installation
- Lighting fixture rough-in and trim
- All permit-required inspections
Scope excludes: drywall repair, painting, final cleaning.
Be specific. Add an "excludes" section so it's clear what's not covered. Scope disputes happen when the contract says "electrical work" and the client says "that included replacing the panel" when the sub never priced a panel replacement.
2. Payment Terms
State the payment schedule, rates, and conditions:
- Contract value: A specific dollar amount or a rate structure (hourly, per square foot, per unit)
- Payment schedule: 50% at mobilization, 50% at completion and sign-off? Or weekly draws? Make it explicit.
- When payment is due: Net-15 from invoice? Net-30? Be specific.
- Conditions for payment: Is payment contingent on the client paying you? You can include "payment to Subcontractor is contingent on receipt of payment from Owner."
Example payment clause:
Subcontractor shall invoice Contractor bi-weekly for work performed. Payment is due within 15 days of Contractor's receipt of invoice, contingent on payment from Owner. If Owner's payment is delayed, Contractor's obligation to pay Subcontractor is extended by the same number of days.
That last sentence is critical — it prevents the sub from suing you when the client hasn't paid you.
3. Insurance Requirements
This is where most contractors are under-protected. Your sub needs:
- General liability insurance: Minimum $1M per occurrence / $2M aggregate is standard for most trades
- Workers' compensation: Required in most states if the sub has employees. If the sub doesn't carry it and a worker gets injured on your job, the claim can come back to you.
- Professional liability / E&O: Some trades need this (electricians, HVAC). Check what's standard in your trade.
Your agreement should require the sub to provide certificates of insurance before starting work, and should include a provision that the sub's insurance is primary.
Standard insurance clause:
Subcontractor shall maintain general liability insurance of not less than $1,000,000 per occurrence and $2,000,000 aggregate, and workers' compensation coverage as required by state law. Subcontractor shall provide Certificates of Insurance to Contractor prior to commencing work. Subcontractor's insurance shall be primary.
4. Indemnification
This is the clause that protects you when something goes wrong. Indemnification means: the sub agrees to cover their own mistakes and hold you harmless if something they did causes a problem.
Standard indemnification clause:
Subcontractor shall indemnify, defend, and hold harmless Contractor and Owner from any claims, damages, losses, or expenses (including reasonable attorney fees) arising from Subcontractor's performance of the work, including but not limited to bodily injury, property damage, or violation of law, except to the extent caused by the negligence of Contractor or Owner.
The exception at the end ("except to the extent caused by the negligence of Contractor") is important — you don't want to agree to indemnify the other party for things they did wrong.
5. Independent Contractor Status and Tax Classification (1099 vs. W-2)
This clause is not optional. The IRS and state agencies look at how you classify workers. If you control how and when they work (tell them what hours to be there, how to do the job, etc.), they're an employee — not an independent contractor. Misclassification can result in back taxes, penalties, and liability.
Write this explicitly:
Subcontractor is an independent contractor and not an employee of Contractor. Subcontractor is responsible for all taxes, including self-employment tax, related to compensation received under this Agreement. Contractor will not withhold taxes from payments to Subcontractor. Subcontractor shall provide a valid taxpayer identification number (SSN or EIN) prior to first payment.
This doesn't make the classification legal — you still need to meet the actual IRS 20-factor test for independent contractor status. But having this clause in the agreement is part of establishing that the intent is for them to be an independent contractor.
Note: This is general information about classification, not legal advice. For significant ongoing relationships, consult a CPA or employment attorney on your specific situation.
6. Termination
What happens when the job goes sideways — or when one party wants out? Termination clauses handle this.
Standard termination language:
Either party may terminate this Agreement with 5 days written notice. Upon termination, Contractor shall pay Subcontractor for all work satisfactorily completed to the date of termination. Subcontractor shall remove all equipment and materials from the job site within 24 hours of termination.
Include a termination for cause clause:
Contractor may terminate this Agreement immediately upon written notice if Subcontractor: (a) fails to maintain required insurance coverage; (b) materially breaches this Agreement and fails to cure within 3 business days of written notice; (c) engages in conduct that creates liability for Contractor.
This protects you when a sub is doing something wrong — you can stop the job without being in breach of contract yourself.
The free template works for one-off jobs. If you're regularly hiring subcontractors, you need the full Contractor Pack — includes subcontractor agreement, change order, invoice, lien waiver, and all the supporting docs you need when you're running a crew.
Start free — get the Change Order Form → Get the Contractor Pack →The Clauses Most Subcontractor Agreements Miss
After scope and payment, here's what contractors consistently leave out:
Change Order Process
What happens when the scope changes? Do subs need your written approval before adding time or cost? Spell it out:
No change to scope shall be performed without Contractor's prior written approval. Subcontractor shall submit a change order request within 48 hours of identifying the need for a change; work performed without approval is at Subcontractor's expense.
Without this, a sub can do extra work and invoice you for it — and you have no ground to refuse payment.
Non-Solicitation
When the job ends, can the sub go directly to your client and offer to do the work themselves? A non-solicitation clause prevents this:
During the term of this Agreement and for 12 months following its termination, Subcontractor shall not directly solicit or perform work for the Owner at the project address without Contractor's prior written consent.
This is reasonable and common. It protects the relationship you've built with the client.
Governing Law and Dispute Resolution
Where does a dispute get resolved, and under what state's law? Specify it:
This Agreement shall be governed by the laws of the State of [X]. Any disputes shall be resolved in the courts of [County], [State].
Without this, both parties may end up in different states' courts arguing about which jurisdiction applies.
Quick Reference: Subcontractor Agreement Checklist
Before a sub starts work on your job:
- Scope of work is written with specific line items and exclusions
- Payment amount and schedule are defined (not just "when completed")
- Payment is contingent on your receipt from the client (protects you if client doesn't pay)
- Insurance requirements specified ($1M/$2M general liability minimum)
- Certificate of Insurance received before work starts
- Subcontractor's insurance designated as primary
- Indemnification clause covers bodily injury, property damage, and legal costs
- Independent contractor / 1099 status clause written in
- Termination for cause clause included
- Change order approval process written in
- Non-solicitation clause included (protects your client relationship)
- Governing law specified
- Both parties have signed before work begins
Related Resources
- How to Write a Change Order — when sub scope changes, you need a CO process
- Contractor Payment Terms Template — payment terms and late fee language for your own contracts
- Electrical Contractor Templates — contracts and agreements for electrical contractors who hire subs
- Plumbing Contractor Templates — plumbing-specific agreements and scope documentation
- Roofing Contractor Templates — subcontractor agreements for roofing contractors