Managing Subcontractors
Learn how to find, vet, hire, manage, and pay subcontractors effectively. Build a reliable network of subs that helps you deliver quality work on time and within budget.
What You'll Learn
- ✓Develop a process for finding and vetting quality subcontractors
- ✓Create clear subcontract agreements that protect both parties
- ✓Manage sub schedules and quality on active projects
- ✓Handle payment, lien waivers, and insurance compliance properly
1. Finding and Vetting Subcontractors
Building a reliable roster of subcontractors is one of the most valuable assets in a contracting business. Start by asking other contractors, suppliers, and inspectors for recommendations. Always verify licenses, insurance, and references before hiring. A bad subcontractor can destroy your reputation, your schedule, and your profit on a single project.
Key Points
- •Verify every sub's license, general liability insurance, and workers comp coverage before they set foot on your job
- •Check at least three references from recent projects of similar scope
- •Start new subs on smaller, less critical projects to evaluate their work quality and reliability
2. Subcontract Agreements
Every subcontractor should work under a written subcontract agreement that defines the scope, price, schedule, insurance requirements, payment terms, and quality standards. The subcontract should flow down the relevant terms from your prime contract so the sub is held to the same standards you are held to by the owner.
Key Points
- •Include a clear scope of work with inclusions and exclusions specific to the sub's trade
- •Require proof of insurance before work begins and name yourself as additional insured
- •Tie sub payments to your payment from the owner but comply with prompt-pay laws in your state
3. Scheduling and Coordination
Coordinating multiple subcontractors is one of the biggest challenges of being a general contractor. You need to sequence the work logically, build float into the schedule for delays, and communicate schedule changes immediately. A good GC makes subs want to work for them by having the site ready and keeping the schedule predictable.
Key Points
- •Provide subs with at least one week advance notice before their scheduled start date
- •Ensure prerequisite work is complete and the area is clean and accessible before a sub arrives
- •Hold brief weekly coordination meetings or calls when multiple trades are on site simultaneously
4. Payment and Lien Waiver Management
Pay your subcontractors on time, every time. Late payments damage relationships and cause good subs to prioritize other contractors' jobs over yours. Collect lien waivers from every sub with each payment to protect yourself and your client. Use conditional waivers until payment clears and unconditional waivers after.
Key Points
- •Establish a consistent payment cycle such as net-30 from invoice receipt and stick to it
- •Collect conditional lien waivers with every pay application and unconditional waivers for prior payments
- •Track sub insurance expiration dates and require updated certificates before they expire
Key Takeaways
- ★General contractors typically subcontract 60-80% of the work on a project and earn their margin by managing scope, schedule, and quality.
- ★A subcontractor's lien rights can attach to your client's property even if you already paid the sub's invoice, making lien waiver collection essential.
- ★The number one complaint subcontractors have about general contractors is slow payment, followed by unclear scope and poor scheduling.
- ★Verifying a sub's insurance before every project is critical because policies lapse and you can be held liable for uninsured workers on your job site.
Knowledge Check
1. Your electrician sub shows up to rough-in a bathroom but the framing is not complete. What went wrong and how do you fix it?
2. A subcontractor's general liability insurance expired last month but they are currently working on your job site. What should you do?
3. You are a GC and your client paid you in full, but you have not yet paid your plumbing sub. The sub files a mechanics lien on your client's property. Could this have been prevented?
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Common questions about this topic
Subcontractors are independent contractors who control how they perform their work, provide their own tools, carry their own insurance, and can work for multiple contractors. Misclassifying employees as subs can result in serious tax penalties, back payments for benefits, and legal liability.
Most general contractors mark up subcontractor costs by 10-20% to cover the cost of managing, coordinating, and being responsible for the sub's work. The markup covers your overhead for scheduling, quality control, payment processing, and warranty liability.
Document the deficiencies with photos and a written punch list. Give the sub a reasonable deadline to correct the work at their expense. If they fail to correct it, you may need to hire another sub to fix it and back-charge the original sub. Your subcontract agreement should include provisions for defective work remediation.