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Reading Your Subcontract — The Clauses That Affect Your Payment

Most subcontractors sign contracts without reading them. These are the clauses that directly affect when and whether you get paid.

6 min read

Your subcontract is a legally binding document. The payment terms buried in it can mean the difference between getting paid on time and waiting months — or not getting paid at all. You don't need a law degree to understand the key clauses. You just need to know what to look for.

Pay-when-paid vs. pay-if-paid

Pay-when-paid means the GC will pay you within a reasonable time after they receive payment from the owner. Pay-if-paid means the GC only has to pay you if they receive payment from the owner — if the owner doesn't pay the GC, you may not get paid at all. California courts have largely limited the enforceability of pure pay-if-paid clauses, but the language matters. Know which one is in your contract.

Retainage

Look for the retainage percentage (typically 5–10%) and the conditions for retainage release. Some contracts release retainage at substantial completion, others at final completion, and some require the owner to release it first. The retainage section should also specify a timeframe for payment after the release conditions are met.

Billing cutoff dates

Your contract should specify when pay applications are due each month. Missing this date by even one day can push your payment back 30 days. Mark it in your calendar on day one.

Change order procedures

The contract will specify how change orders must be submitted and approved. Doing extra work without an approved change order is one of the most common ways subcontractors lose money. Know what your contract requires — written authorization, specific forms, timing — and follow it every time.

Dispute resolution

Most contracts include a dispute resolution clause — mediation, arbitration, or litigation. Know what yours requires before a dispute arises. Some contracts require mediation before arbitration and arbitration before litigation, with specific timelines for each step.

Lien waiver requirements

Your contract will likely require you to submit lien waivers with each pay application. Understand what type is required (conditional vs. unconditional), the format, and whether notarization is required.

This is general educational information, not legal advice. Have an attorney review your subcontract before signing, especially on large projects.

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