10 subcontract clauses that cost subcontractors the most

Ask a construction lawyer which subcontract terms really matter and you won't get a list of forty. You'll get about ten. A few of them are worth pushing on in almost every deal; the rest depend on the job, the GC and your margin.

Here's our list for California specialty subcontractors, roughly in order of how much they tend to cost when they go wrong.

1. Indemnity that reaches the GC's own fault

The indemnity clause decides who pays when someone is hurt or property is damaged and a claim follows. Broad forms ask you to defend and indemnify the GC and owner for any claim "arising out of" your work, whether or not you caused it.

California limits this. For most non-residential subcontracts, private or public, entered into on or after January 1, 2013, an indemnity clause is void to the extent it makes you cover the GC's active negligence or willful misconduct, design defects furnished by the GC or those working for it, or claims that don't arise out of your scope of work (Civil Code section 2782.05). Section 2782 sets related rules for residential work, public agency contracts and contracts with private owners. But many forms are written for other states, and everything short of those lines is still negotiable.

Ask for: indemnity limited to claims caused by your negligence or breach, and only to the extent you caused them.

2. Additional-insured requirements your policy can't meet

The insurance exhibit usually requires you to name the GC, the owner and others as additional insureds, for ongoing and completed operations, on a primary and non-contributory basis, with a waiver of subrogation. Some lists add the architect or engineer, which many policies limit or exclude. If your policy doesn't match the exhibit, you may be in breach from day one, and on the hook for what the insurance should have paid.

Ask for: your broker's sign-off on the exhibit before you sign, and deletion of anything your policy can't provide. The insurance page, explained.

3. Wrap-up insurance terms nobody reads

On a wrap-up program (an OCIP or CCIP), the owner or GC buys one liability policy for everyone on site. The questions that cost money are in the details: the bid credit you're required to give for insurance you no longer need, who pays the deductible when a claim touches your work, what the wrap leaves out (often off-site work and suppliers), and how long completed-operations coverage lasts. Some wraps are placed with surplus-lines insurers, which aren't covered by California's insurance guarantee fund if the insurer fails.

Ask for: a deductible share tied to your actual fault and capped, and a clear statement of what your own policy still needs to cover.

4. Giving up your defense election in advance

When a claim comes in on a commercial job outside a wrap, California law lets you choose how to handle the GC's written tender: defend with counsel you choose and control the defense (you must say so within 30 days of the tender), or pay a reasonable allocated share of the GC's defense costs as they're invoiced (Civil Code section 2782.05(e)). Some forms try to make that choice for you up front, or fix the allocation in advance. The statute's core limits can't be waived by contract, but it does let a sub and GC agree in advance on the timing of the defense and how defense costs are reimbursed, so a pre-set arrangement may stick. Read it closely before you sign.

Ask for: deletion of any pre-made election, and tenders sent to you and your insurer in writing.

5. Protect-the-work until the end of the project

Early trades such as underground, framing, drywall and rough-in often finish months before turnover. A clause that makes you protect and repair your work "until final acceptance of the Project" can leave you paying for damage other trades cause long after you've left.

Ask for: your responsibility to end when your work is complete and accepted, or when the area is turned over to the next trade, with damage by others charged to them.

6. Pay-if-paid and slow pay-when-paid

A pay-if-paid clause makes the owner's payment a condition of yours. California courts won't enforce it (Wm. R. Clarke Corp. v. Safeco Insurance Co., 1997), but it still shows up in multi-state forms. Pay-when-paid timing clauses are more common, and can stretch payment for months. California's prompt payment law requires a GC to pay its subs within seven days of receiving a progress payment, unless the parties agree otherwise in writing, which is why the payment clause matters (Business and Professions Code section 7108.5).

Ask for: payment within seven days of the GC's receipt, and an outside date if the owner hasn't paid. California's prompt payment laws.

7. Retention above the legal cap, held until the whole job ends

Retention is the share of each payment held back until completion. For California private works contracts entered into on or after January 1, 2026, retention is generally capped at 5% (Civil Code section 8811), with exceptions, including residential projects of four stories or fewer that aren't mixed-use, and subs who fail to provide a performance and payment bond they were told would be required. Public works retention is generally capped at 5% too (Public Contract Code section 7201). Also watch when retention comes back: release tied to completion of the whole project, rather than your scope, can hold your money for a year or more.

Ask for: retention at or below the cap, released when your work is complete and accepted.

8. Change-order and notice rules with short fuses

Many subcontracts require written notice of a change or claim within a few days, in a set format, to a named person, and say that late notice waives the claim. Combine that with a field culture where subs are reluctant to raise changes, and extra work goes unpaid.

Ask for: a realistic notice period counted from when you knew of the change, email to the project manager accepted as notice, and no waiver unless the GC was actually harmed by the delay. Extra work, no change order.

9. Liquidated damages without limits, and no consequential-damages waiver

Liquidated damages passed down at the owner's daily rate, with no cap and no apportionment, can wipe out a job's margin in a few weeks. Without a waiver of consequential damages, you may also face the owner's lost revenue.

Ask for: LDs only for delay you caused, apportioned and capped, and a mutual waiver of consequential damages that matches the prime contract. Liquidated vs. consequential damages.

10. A prime contract you've never seen

Most subcontracts incorporate the prime contract and bind you to the GC's obligations to the owner as they relate to your work. If you haven't seen it, you've agreed to terms you can't read: notice periods, warranty terms, security rules, and on federally funded work, domestic-content requirements.

Ask for: a copy of the prime contract before you sign (pricing can be redacted), and a rule that the subcontract controls if the two conflict.

You won't win all ten

Sort them into the few you won't sign without, the ones you'll trade, and the ones you'll live with on this job. A long-standing GC relationship may change which bucket a clause lands in. Which redlines to fight for.