The contract you sign determines everything: when you get paid, how disputes are resolved, and what happens when things go wrong. Yet many subcontractors sign contracts without reading them carefully — and pay the price later.
Here are 12 red flags that should make you pause before signing any construction contract.
Red Flag 1: Pay-If-Paid Clauses
A "pay-if-paid" clause means you only get paid if the GC gets paid by the owner. If the owner goes bankrupt or refuses to pay, you're out of luck — even though you completed your work perfectly.
This is different from "pay-when-paid," which just affects timing. Pay-if-paid shifts the risk of owner non-payment entirely onto you.
Some states have limited the enforceability of pay-if-paid clauses, but they still appear in contracts. If you see one, negotiate to remove it or fully understand the risk you're accepting.
Red Flag 2: Waiver of Lien Rights
Some contracts include language requiring you to waive your mechanics lien rights upfront or to sign unconditional lien waivers before receiving payment.
Your lien rights are your most powerful protection. Signing them away removes your leverage. Never sign an unconditional waiver until you have the money in hand.
Red Flag 3: Vague or Missing Payment Terms
If the contract doesn't specify exactly when payment is due (Net 15? Net 30? Net 60?), you have no ground to stand on when payment is late.
Look for specific language: "Payment due within 30 days of invoice receipt" is clear. "Payment made in accordance with project schedule" is vague and problematic.
Red Flag 4: Excessive Retainage
Retainage above 10% is excessive. Some contracts try for 15% or even 20%. High retainage severely impacts your cash flow and ties up too much of your money.
Push back for 5-10% maximum, with reduction to 5% after 50% completion.
Red Flag 5: Broad Indemnification Clauses
Indemnification clauses require you to defend and pay for claims against the GC. Reasonable indemnification covers claims arising from your own negligence. Unreasonable indemnification makes you responsible for the GC's mistakes too.
Watch for language like "subcontractor shall indemnify GC for any and all claims." This could make you liable for things completely outside your control.
Red Flag 6: No Dispute Resolution Process
What happens when there's a disagreement? A good contract specifies a process: negotiation, then mediation, then arbitration or litigation.
Contracts without dispute resolution procedures leave you at the mercy of whoever has more lawyers.
Red Flag 7: Unrealistic Schedule Requirements
If the contract requires you to complete work in an impossibly short timeframe or makes you responsible for delays caused by other trades, you're being set up to fail.
Review the schedule carefully. If it's not achievable, negotiate changes before signing.
Red Flag 8: One-Sided Change Order Terms
Change orders are modifications to the original scope. Watch for contracts that allow the GC to order changes without agreeing to additional compensation, require you to proceed with changes before pricing is approved, or give the GC sole discretion over change order pricing.
Fair change order terms require written authorization before work begins and agreement on pricing.
Red Flag 9: Flow-Down Clauses Without Review
"Flow-down" clauses incorporate terms from the prime contract (between GC and owner) into your subcontract. This can include requirements you've never seen.
Always request a copy of the prime contract before signing. You need to know what obligations are flowing down to you.
Red Flag 10: Liquidated Damages Without Cap
Liquidated damages are predetermined penalties for late completion. While common on commercial projects, they should be reasonable and capped.
Unlimited liquidated damages could exceed your entire contract value. Make sure damages are proportional to your scope and have a reasonable maximum.
Red Flag 11: No Right to Stop Work
Some contracts prohibit you from stopping work, even if you're not being paid. This traps you in a situation where you keep working while the GC continues not paying.
You should retain the right to suspend work after proper notice if payment obligations aren't met.
Red Flag 12: Remote Venue or Jurisdiction
If the contract requires disputes to be resolved in a distant state or under unfamiliar laws, you're at a significant disadvantage. Traveling for legal proceedings is expensive, and you may face laws less favorable to subcontractors.
Push for venue in your local jurisdiction.
What to Do When You See Red Flags
Don't Just Sign
Never sign a problematic contract hoping issues won't arise. They will.
Negotiate Changes
Most contracts are negotiable. Mark up the provisions you can't accept and propose alternatives. Many GCs will accommodate reasonable requests, especially from subs they want to work with.
Understand Your Walk-Away Point
Some red flags are deal-breakers. Know in advance which provisions you absolutely won't accept, and be prepared to walk away from jobs with unacceptable terms.
Get Legal Review
For large projects or unfamiliar contract terms, have a construction attorney review the contract. The cost of review is tiny compared to the cost of a contract dispute.
Document Your Concerns
If you do sign a contract with problematic provisions, document your concerns in writing. This creates a record if disputes arise later.
Frequently Asked Questions
Is it normal for GCs to use one-sided contracts?
Unfortunately, yes. Many GCs use form contracts written to protect themselves. But "normal" doesn't mean acceptable. Negotiate for fair terms.
What if the GC won't negotiate?
Consider whether the job is worth the risk. A job with bad contract terms from a GC who won't negotiate is often not worth taking.
Should I have a lawyer review every contract?
For small jobs, that's not practical. But develop a checklist of red flags you review yourself, and get legal help for large contracts or unusual provisions.