By Christian Fernandez, Snell & Wilmer L.L.P.

Winning the job is only half the battle. For many subcontractors, the real risk—and the real potential for lost profit—starts with the contract. Today’s subcontracts are often written to push as much risk as possible downstream. If you’re not reading carefully or pushing back where it matters, you may be taking on obligations that far exceed the value of the work.

The good news is that most high-risk provisions are predictable. Below are ten of the most common contract red flags subcontractors should consider identifying—and addressing—before signing.

1. Pay-if-Paid Clauses

Pay-if-paid clauses make your payment contingent on the general contractor being paid by the owner. In effect, you are taking on the owner’s credit risk.

Why it matters: You can perform your work perfectly and still not get paid if the owner fails to pay upstream. Whether a pay-if-paid clause is enforceable typically depends on the state where the project is located. Some states have found these clauses to be against public policy and unenforceable.

What to do: Where possible, negotiate for a pay-when-paid clause instead, which typically requires payment within a reasonable time regardless of owner payment. At a minimum, try to include a time limit for payment or investigate the owner’s financial stability before proceeding.

2. Broad Flow-Down Clauses

Flow-down clauses incorporate terms from the prime contract into your subcontract—often without attaching the actual prime contract.

Why it matters: You may be agreeing to obligations you’ve never seen, including scheduling requirements, indemnity terms, or insurance obligations.

What to do: Request a copy of the prime contract and review it. If that’s not feasible, negotiate to limit flow-down provisions to those directly related to your scope of work.

3. Undefined or Overly Broad Scope of Work

Vague scope language is one of the most common sources of disputes. Phrases like “all work necessary for a complete system” can expand your responsibilities far beyond what you intended to price.

Why it matters: You may be required to perform additional work without additional compensation.

What to do: Clearly define what is included—and just as importantly, what is excluded. Reference specific drawings and specifications, including dates or versions, and document any assumptions made in your bid.

4. No Clear Change Order Process

Many subcontracts include strict procedures for approving changes, often requiring written authorization before any extra work is performed.

Why it matters: If you proceed based on verbal directives or informal instructions, you risk a dispute arising and possibly not getting paid for that extra work.

What to do: Make sure the contract allows for practical realities. At a minimum, ensure that written directives via email or field authorization are sufficient to proceed. Train your project team to follow the process consistently.

5. “No Damage for Delay” Clauses

These clauses limit your remedy for delays to additional time—not additional compensation.

Why it matters: Delays can significantly increase labor costs, extend equipment rentals, and disrupt scheduling, all without reimbursement.

What to do: Attempt to negotiate exceptions, particularly for delays caused by the general contractor or circumstances beyond your control. Even if the clause remains, understanding it allows you to price the risk more accurately.

6. Overly Broad Indemnity Obligations

Indemnity provisions often require subcontractors to defend and indemnify the general contractor and others for claims arising out of the project.

Why it matters: Some clauses go beyond your own negligence and require you to cover the fault of others.

What to do: Limit indemnity obligations to damages caused by your own work or negligence. Also confirm that your insurance coverage aligns with the indemnity language—otherwise, you may be assuming uninsured risk.

7. Unreasonable Liquidated Damages

Liquidated damages (LDs) are pre-set amounts owed for delays. These are often passed down from the prime contract.

Why it matters: Daily LDs can quickly exceed your profit, especially if they are not tied specifically to delays you caused.

What to do: Negotiate a cap on LDs and ensure they apply only to delays directly attributable to your scope of work. If possible, request documentation of the upstream LD terms.

8. Termination for Convenience Without Protection

Termination for convenience allows the general contractor to end your contract without cause.

Why it matters: Without proper protections, you may not recover your full costs—or any anticipated profit.

What to do: Ensure the contract provides for payment for work performed, materials purchased, and reasonable demobilization costs. Ideally, include compensation for a portion of lost profit on unperformed work.

9. Strict Notice Provisions

Many contracts require subcontractors to provide written notice of claims, delays, or changes within very short timeframes—sometimes just a few days.

Why it matters: Missing a notice deadline could result in losing your right to claim additional time or compensation—regardless of the merit of your claim.

What to do: Negotiate reasonable notice periods and allow for practical methods of communication, such as email. Internally, establish systems to track and comply with notice requirements.

10. One-Sided Attorney’s Fees and Dispute Terms

Some subcontracts allow only one party—typically the general contractor—to recover attorney’s fees in a dispute.

Why it matters: This creates an uneven playing field and may discourage you from pursuing valid claims. Some states have found one-sided attorney’s fees provisions to be against public policy and unenforceable.

What to do: Push for mutual attorney’s fees provisions. Also review dispute resolution terms carefully, including venue and arbitration requirements, to ensure they are practical and fair.

A Practical Pre-Signing Checklist

Before signing any subcontract, take a step back and run through a simple checklist:

• Is payment tied to owner payment?
• Are you bound to terms you haven’t reviewed?
• Is your scope clearly defined?
• Can you realistically comply with change order and notice requirements?
• Are you taking on risk that isn’t covered by your insurance?

Even a brief review can identify issues worth addressing before the job begins.

The Value of Having a Construction Attorney in Your Corner

Spotting red flags is an important first step, but knowing what to do about them is just as critical. One of the smartest investments a subcontractor can make is building an established relationship with a construction attorney—not just for emergencies or when disputes arise, but as a regular part of doing business.

Before work begins, an experienced attorney can review and help negotiate the contract terms discussed in this article. Subcontractors are experts at building—not at parsing legal language designed to shift risk. A brief contract review before you sign can identify problematic clauses, clarify your obligations, and give you leverage to negotiate better terms. In many cases, the cost of a contract review is a fraction of the cost of the dispute it may prevent.

Just as important is involving your attorney early when a dispute may be developing—before it spirals into costly litigation. When a payment dispute, scope disagreement, or delay claim starts to surface, an attorney who already knows your business and your contracts can step in quickly, even behind the scenes, to help you document your position, respond strategically, and preserve your rights. Early legal involvement often resolves issues at the negotiation stage, saving subcontractors significant time and money that would otherwise be spent in arbitration or court. Think of it this way: an attorney who reviews your contracts before you sign and advises you when problems first arise is not an expense—it is a risk management tool, no different from insurance or bonding.

Conclusion: Don’t Just Win the Job—Protect the Job

In today’s construction environment, contracts are one of the primary tools for shifting risk. Subcontractors who take the time to understand and negotiate key provisions—and who have the right professional support in place—are better positioned to protect their margins and avoid costly disputes.

The goal isn’t to eliminate all risk—that’s rarely possible. But by spotting these common red flags

early, you can make informed decisions about which risks to accept, which to price, and which to push back on.

Because in the end, the most successful projects aren’t just the ones you win—they’re the ones you finish profitably.

About the author:

Christian Fernandez is a member of the firm’s commercial litigation practice group. In addition to handling general commercial disputes, Christian’s practice focuses on construction, real estate, and investigations, government enforcement and white collar protection. Christian has experience representing clients throughout the litigation process, including trial. In his construction practice, Christian regularly represents owners, developers, contractors, subcontractors, and suppliers in all aspects of construction disputes, including delay, defect, wrongful termination, change order, mechanic’s liens, and breach of contract disputes. More information on Snell & Wilmer can be found at https://www.swlaw.com/people/christian_fernandez/.