Subcontractor Contracts and Agreements

A proper written contract is your most important protection as an owner-builder. It clarifies expectations, prevents disputes, provides legal recourse when things go wrong, and protects you financially and legally.

Never start work without a signed contract. Never. This guide will show you exactly what every subcontractor contract needs to include, common mistakes to avoid, and how to protect yourself while being fair to contractors.

Why Contracts Are Critical

What contracts prevent:

Real costs without proper contracts:

With a proper contract:

Time to create: 1-2 hours per contract Cost: $0-500 (depending on attorney review) Value: Priceless

Essential Contract Elements

Every subcontractor contract must include these elements:

1. Parties and Property Information

What to include:

This Agreement is made on [DATE] between:

OWNER-BUILDER:
[Your full legal name]
[Your address]
[Phone and email]

CONTRACTOR:
[Business legal name]
[Business address]
[License number: #XXXXX]
[Phone and email]

For work at:
PROPERTY ADDRESS: [Complete address]
LEGAL DESCRIPTION: [From deed if available]
PERMIT NUMBER: [If applicable]

Why it matters:

Red flag: Contractor won't provide full legal business name or address

2. Scope of Work (Most Critical Section)

What to include:

Example - Good scope:

SCOPE OF WORK: Rough Plumbing Installation

Contractor shall furnish all labor and materials to complete rough plumbing
installation including:

1. WATER SUPPLY
   - Install 3/4" main water line from meter to house
   - Install 3/4" copper supply lines throughout house per plan
   - Install all fixture rough-ins per fixture schedule
   - Pressure test all supply lines to 60 PSI for 2 hours
   - Materials: Type L copper, lead-free solder, ProPress fittings

2. DRAIN, WASTE, VENT (DWV)
   - Install all drain lines per plumbing plan (dated 4/15/2024)
   - Install all vent lines per code requirements (IRC P3103)
   - Install all fixture drains per fixture schedule
   - Test all DWV lines per code
   - Materials: Schedule 40 PVC

3. SPECIFIC EXCLUSIONS
   - Fixture installation (by owner)
   - Water heater installation (separate contract)
   - Exterior hose bibs (by owner)
   - Excavation for water line (separate contract)

4. CODE COMPLIANCE
   - All work shall meet 2021 IRC and local amendments
   - Contractor shall schedule and pass rough plumbing inspection
   - Any failed inspection corrections at contractor's expense

5. REFERENCED DOCUMENTS
   - Plumbing plan dated 4/15/2024 (attached as Exhibit A)
   - Fixture schedule (attached as Exhibit B)
   - Specifications (attached as Exhibit C)

Example - Bad scope (too vague):

"Install rough plumbing per plans"

Why detailed scope matters:

Pro tip: Attach plans, specifications, and fixture schedules as exhibits

3. Project Timeline

What to include:

Example:

TIMELINE:

Start Date: June 1, 2024, or within 5 days of written notice to proceed

Substantial Completion: June 15, 2024 (14 calendar days from start)

Final Completion: June 20, 2024 (including any punch-list items)

Milestones:
- Rough-in complete and ready for inspection: June 12, 2024
- Inspection passed: June 15, 2024
- Punch-list complete: June 20, 2024

Weather Delays: Reasonable extensions granted for weather delays beyond
contractor's control, provided contractor gives written notice within 24 hours.

Owner Delays: Timeline extends for delays caused by owner (late material
delivery, site access issues, etc.) provided contractor gives prompt notice.

Liquidated Damages: If contractor fails to achieve substantial completion
by June 15, 2024, contractor shall pay $200 per day in liquidated damages
to compensate owner for extended construction loan interest, delayed
subsequent trades, and other damages difficult to quantify.

Why timeline matters:

Liquidated damages: Pre-agreed amount per day for delays

When to use: Long-lead or critical-path work where delays cascade

4. Payment Terms (Critical for Your Protection)

What to include:

Example - Payment schedule:

CONTRACT PRICE: $18,000

PAYMENT SCHEDULE:

Deposit: $2,700 (15%) - Due upon contract signing, before work begins

Progress Payment 1: $6,300 (35%) - Due within 5 days of rough-in
  completion and passed inspection

Progress Payment 2: $6,300 (35%) - Due within 5 days of fixture
  installation completion

Final Payment: $2,700 (15%) - Due within 5 days of:
  - All work complete per scope
  - Final inspection passed (if applicable)
  - All punch-list items complete
  - Conditional lien release provided
  - Warranty documents provided

PAYMENT METHOD: Check or ACH transfer

PAYMENT TIMING: Payments due within 5 business days of reaching milestone
and contractor providing documentation (photos, inspection card, etc.)

RETENTION: Owner may retain 10% ($1,800) until 30 days after final
  completion to ensure no defects appear and no liens are filed.

Payment schedule best practices:

Deposits:

Progress payments:

Final payment:

Retention:

Never:

5. Materials and Specifications

What to include:

Example:

MATERIALS:

Provided by Contractor:
- All framing lumber: #2 or better SPF, kiln-dried
- Engineered lumber: LP or Boise Cascade I-joists per plan
- Sheathing: 7/16" OSB, Exposure 1 or better
- House wrap: Tyvek HomeWrap or approved equal
- Fasteners: Code-compliant nails and screws
- All adhesives and sealants

Provided by Owner:
- Windows (contractor to install)
- Exterior doors (contractor to install)

Substitutions: Any material substitutions must be approved in writing
by owner before purchase. "Or equal" means equivalent or better quality,
not cheaper alternative.

Storage: Contractor responsible for proper storage and protection of
all materials on site. Any damaged materials replaced at contractor's
expense.

Waste: Contractor responsible for disposal of all waste materials and
debris. Dumpster cost included in contract price.

Why this matters:

6. Code Compliance and Inspections

What to include:

CODE COMPLIANCE:

All work shall comply with:
- 2021 International Residential Code (IRC)
- Local amendments and requirements
- All applicable building, plumbing, electrical, and mechanical codes
- Energy code requirements
- Manufacturer's installation instructions

INSPECTIONS:

Contractor shall:
- Schedule all required inspections
- Be present for inspections (or ensure qualified representative present)
- Pass all inspections on first attempt if work is performed correctly
- Correct any failed inspection items at contractor's sole expense
- Provide owner with copies of passed inspection reports

If inspection fails due to contractor error or code non-compliance:
- Contractor pays all re-inspection fees
- Contractor makes corrections at own expense
- Timeline extends without penalty to owner
- Owner has right to hire third party to correct at contractor's expense
  if contractor unable to pass within 10 days

Owner's Right: Owner or owner's representative may be present for all
inspections but is not required to be present.

Why this matters:

Key provision: "Failed inspections corrected at contractor expense"

7. Insurance and Licensing Requirements

What to include:

INSURANCE:

Contractor warrants they maintain:

1. General Liability Insurance: Minimum $1,000,000 per occurrence,
   $2,000,000 aggregate

2. Workers' Compensation Insurance: As required by state law for all
   employees

3. Automobile Insurance: For all vehicles used on project

Contractor shall:
- Provide certificates of insurance before starting work
- Name owner as additional insured on general liability policy
- Maintain insurance throughout project and warranty period
- Notify owner immediately if insurance lapses or is cancelled
- Provide 30-day notice if insurance will not be renewed

If insurance lapses:
- Owner may stop payment until insurance reinstated
- Owner may purchase insurance and deduct cost from payments
- Contract may be terminated for cause

LICENSING:

Contractor warrants:
- They hold valid [STATE] contractor license #[NUMBER]
- License is current and in good standing
- All workers are properly licensed for their trade
- Will comply with all licensing requirements
- Will post license at job site if required

Contractor shall immediately notify owner if license is suspended,
revoked, or otherwise invalid.

Why this matters:

Deal breaker: Never waive insurance requirements

8. Warranty

What to include:

WARRANTY:

Workmanship Warranty:
Contractor warrants all work shall be:
- Free from defects in workmanship for [1-2] years from completion
- Performed in professional and workmanlike manner
- In compliance with all applicable codes
- Suitable for its intended purpose

Material Warranty:
- Materials carry manufacturer's warranty
- Contractor assigns all manufacturer warranties to owner
- Contractor responsible for warranty service during first year

Warranty Service:
- Owner shall notify contractor in writing of any defects
- Contractor shall repair defects within 10 business days of notice
- If contractor fails to repair, owner may hire others and back-charge
  contractor
- Warranty does not cover damage from owner misuse, modification, or
  normal wear

Exclusions:
- Defects caused by owner or other trades
- Modifications by owner
- Normal wear and tear
- Acts of God (flood, earthquake, etc.)

This warranty is in addition to, not in place of, any other warranties
provided by law.

Standard warranty periods:

Why this matters:

9. Change Orders

What to include:

CHANGE ORDERS:

No changes to scope, price, or timeline are valid unless:
1. Documented in writing
2. Signed by both owner and contractor
3. Price adjustment agreed upon before work begins
4. Timeline impact documented

Change Order Process:
1. Contractor identifies needed change or owner requests change
2. Contractor provides written description and price quote
3. Owner approves or rejects in writing
4. If approved, both parties sign change order
5. Work proceeds only after signed change order

Concealed Conditions:
If contractor encounters concealed conditions materially different from
plans (rock, water, utilities, etc.), contractor shall:
- Stop work in affected area
- Notify owner immediately
- Provide change order for additional work
- Not proceed until owner approves

Emergency Changes:
In emergency situations threatening safety or property, contractor may
proceed without written change order but must:
- Notify owner immediately (phone/text/email)
- Provide written change order within 24 hours
- Owner has right to reject non-emergency portions

Change Order Form: All change orders shall include:
- Description of change
- Reason for change
- Impact on price (+ or -)
- Impact on timeline
- Signatures and date

Why this matters:

Key protection: "Nothing is approved unless signed by both parties"

10. Termination Provisions

What to include:

TERMINATION:

Termination for Cause (by owner):
Owner may terminate immediately if contractor:
- Abandons the work
- Fails to perform work according to schedule without valid reason
- Performs defective work repeatedly and fails to correct
- Fails to comply with code requirements
- Insurance or license lapses
- Violates material terms of contract

Upon termination for cause:
- Owner pays only for work properly completed to date (minus damages)
- Owner may hire others to complete work
- Contractor liable for cost difference between this contract and
  completion cost
- Owner may use retention and unpaid amounts to cover damages

Termination for Convenience (by owner):
Owner may terminate for any reason with 7 days written notice.

Upon termination for convenience:
- Owner pays for all work properly completed to date
- Owner pays for materials ordered/delivered for this project
- Contractor removes all tools and equipment within 5 days
- No additional compensation owed

Suspension:
Owner may suspend work for up to 30 days without penalty. If suspension
exceeds 30 days, contractor may terminate and be paid for work complete.

Why this matters:

Key provision: You can fire them for cause, but they still don't get paid for incomplete/defective work

11. Lien Releases

What to include:

LIEN RELEASES:

Conditional Lien Release:
With each payment request, contractor shall provide a conditional lien
release covering all work through that payment period. Release becomes
effective upon payment clearing.

Final Unconditional Lien Release:
Before final payment, contractor shall provide:
- Unconditional lien release for all work performed
- Lien releases from all subcontractors and suppliers
- Affidavit that all suppliers and subs have been paid

Contractor Warranties:
Contractor warrants:
- No liens have been filed against the property for this work
- All subcontractors and suppliers have been paid
- Contractor indemnifies owner against any liens arising from this work

If Lien is Filed:
If any lien is filed against property for this work:
- Contractor shall remove lien within 10 days
- Owner may withhold all payments until lien removed
- Owner may pay lien claimant directly and deduct from contractor payment
- Contractor liable for all legal fees to remove lien

Why this matters:

Mechanic's lien: Legal claim against your property for unpaid work

12. General Provisions

What to include:

GENERAL PROVISIONS:

Site Access and Utilities:
- Owner provides access to site during business hours (7 AM - 6 PM)
- Owner provides access to electricity and water
- Contractor responsible for all other utilities needed
- Contractor shall secure site at end of each day

Permits and Fees:
- Owner responsible for obtaining building permit
- Contractor responsible for scheduling inspections
- Owner pays permit fees
- Contractor pays any re-inspection fees due to failed inspections

Safety:
- Contractor responsible for all safety measures and OSHA compliance
- Contractor maintains safe work site
- No dangerous conditions left unattended
- Contractor provides all required safety equipment for their workers

Cleanup:
- Contractor maintains reasonably clean site during work
- Daily cleanup of debris and hazards
- Final cleanup to broom-clean condition
- All waste properly disposed

Damage:
- Contractor responsible for protection of all completed work
- Contractor repairs any damage caused by their work
- Contractor liable for damage to neighboring property

Independent Contractor:
- Contractor is independent contractor, not employee
- Contractor responsible for all taxes
- Contractor provides all tools and equipment
- Contractor controls means and methods

Dispute Resolution:
- Good faith negotiation first
- Mediation before litigation
- Arbitration if mediation fails
- Prevailing party recovers attorney fees

Governing Law:
This contract governed by laws of [STATE].

Entire Agreement:
This contract represents entire agreement between parties. No verbal
agreements are valid. Any modifications must be in writing signed by both parties.

Severability:
If any provision found invalid, remaining provisions remain in effect.

13. Signatures and Dates

What to include:

SIGNATURES:

The parties agree to the terms above on the dates indicated:

CONTRACTOR:                        DATE:
_____________________________      __________
[Business Legal Name]
By: [Name, Title]
License #: [Number]

OWNER-BUILDER:                     DATE:
_____________________________      __________
[Your Name]

EXHIBITS ATTACHED:
☐ Exhibit A: Plans and Specifications
☐ Exhibit B: Material Specifications
☐ Exhibit C: [Other documents]
☐ Exhibit D: Payment Schedule
☐ Exhibit E: Change Order Form

Why this matters:

Both parties must sign. Keep original and provide copy to contractor.

Contract Formats and Templates

Option 1: Use AIA Contract (Recommended for Large Projects)

American Institute of Architects standard contracts:

Pros: Professional, comprehensive, legally sound Cons: Complex, expensive, may need attorney to customize

Option 2: Simple Contract (Good for Smaller Projects)

Create your own using elements above:

Pros: Tailored to your project, understandable Cons: May miss legal protections without attorney review

Option 3: Contractor's Standard Contract

Use contractor's contract if they have one:

Pros: Contractor is used to their contract Cons: Often favors contractor, may be missing owner protections

My recommendation: Start with contractor's contract, add missing owner protections, have attorney review

Option 4: State Association Templates

Home builder associations often provide templates:

Cost: $0-50 for members

Common Contract Mistakes

1. No Written Contract

The mistake: Handshake deal or verbal agreement

Why people do it: Trusting relationship, seems easier

The cost: No legal protection, disputes inevitable

Fix: Always use written contract, even with friends/family

2. Vague Scope of Work

The mistake: "Frame house per plans" with no detail

Why people do it: Assuming plans are enough

The cost: Disputes over what's included

Fix: Detailed scope with inclusions AND exclusions

3. Large Upfront Deposits

The mistake: Paying 50%+ before work starts

Why people do it: Contractor asks for it, you want to secure their time

The cost: No leverage, high risk if they disappear

Fix: 10-20% deposit maximum, rest tied to completion

4. No Timeline

The mistake: "Start in June, finish when done"

Why people do it: Seems flexible, don't want to be unreasonable

The cost: Endless delays, can't plan other trades

Fix: Specific start and completion dates with consequences

5. Paying Before Inspections

The mistake: Paying progress payments before inspection passes

Why people do it: Contractor needs money, you want to be fair

The cost: No leverage to fix failed inspections

Fix: Payment only after inspection passes

6. No Lien Release Requirement

The mistake: Not requiring lien releases with payments

Why people do it: Don't know about liens, forget to include

The cost: Liens filed against your property

Fix: Conditional release with each payment, unconditional at end

7. Missing Insurance Requirements

The mistake: Not requiring proof of insurance

Why people do it: Taking contractor's word, seems like extra work

The cost: Liable for injuries and damage

Fix: Require certificates before starting, verify with insurer

8. No Change Order Process

The mistake: Verbal approvals for changes

Why people do it: Seems faster, trusting

The cost: Disputes over what was approved and price

Fix: All changes in writing, signed before starting

When to Have Attorney Review

Always have attorney review if:

Cost: $200-500 for review Value: Can save thousands in prevented problems

What attorney reviews for:

When to skip: Very small projects (under $5,000), using vetted template, simple scope

Retainage Best Practices

Retainage: Money held back from payments until project complete

Purpose:

How much to retain:

When to retain:

When to release:

Example:

Contract Checklist

Before signing:

Don't sign until all boxes checked

After Signing

What to do:

  1. Keep original in safe place
  2. Provide copy to contractor
  3. Keep copy on site for reference
  4. Review before each payment
  5. Follow contract terms exactly
  6. Document any changes with change orders
  7. Use contract to resolve disputes

Don't:

Red Flags in Contractor's Contract

Watch for these in contractor-provided contracts:

1. Pay-When-Paid Clauses

Language: "Owner pays contractor when owner receives funding"

Problem: Puts financing risk on contractor, creates disputes

Fix: Remove or clarify exact payment dates

2. Binding Arbitration (Possibly)

Language: "All disputes must be arbitrated"

Problem: May limit your legal options

Fix: Consider changing to mediation first, then court option

3. Limitation of Liability

Language: "Contractor liability limited to contract price"

Problem: May not cover all damages caused

Fix: Remove or adjust to reasonable amount

4. Vague Warranty

Language: "Standard industry warranty"

Problem: What's standard? Unenforceable

Fix: Specific warranty period and terms

5. Auto-Renewal

Language: "Contract automatically renews unless..."

Problem: Never applicable for construction

Fix: Remove completely

6. Contractor-Favorable Payment Terms

Language: "50% deposit, 40% at midpoint, 10% at completion"

Problem: Leaves you with no leverage at end

Fix: Revise to 15/35/35/15 with final after lien release

7. No Termination Rights

Language: Contract doesn't mention termination

Problem: Stuck with bad contractor

Fix: Add termination provisions

8. Waiver of Lien Rights

Language: "Owner waives all rights to lien releases"

Problem: Leaves you exposed to liens

Fix: Remove, add lien release requirements

Sample Simple Contract Template

Here's a basic template incorporating all essential elements:

[Available for download - would be a separate PDF/template file]

Key sections:

  1. Parties and property (1 page)
  2. Scope of work (2-3 pages + exhibits)
  3. Timeline (1 page)
  4. Payment schedule (1 page)
  5. Insurance and licensing (1 page)
  6. Code compliance (1 page)
  7. Warranty (1 page)
  8. Change orders (1 page)
  9. General provisions (2 pages)
  10. Signatures (1 page)

Total: 11-13 pages + exhibits

This length is normal. Anything shorter probably missing protections.

Next Steps

Once you have signed contracts:

  1. Manage the Work → - Day-to-day management during construction

  2. Payment Best Practices → - When and how to pay according to contract

  3. Handle Problems → - What to do when contract terms are violated

**Remember