A Texas subcontractor agreement is the written contract between a general contractor and a trade specialist that fixes the scope of work, the price, the payment schedule, the insurance each side carries, and how risk is divided. Getting the terms right matters because several Texas statutes will override contract language that tries to go around them: Chapter 151 of the Insurance Code voids overreaching indemnity clauses, Chapter 28 of the Property Code forces payment within seven days of the general contractor being paid, and Chapter 53 sets short, unforgiving deadlines for preserving lien rights. Draft to those rules from the start rather than discovering them in a dispute.
What the Contract Must Spell Out
Use the full legal names of both companies as registered with the Texas Secretary of State, along with physical business addresses. Trade names and abbreviations cause enforcement problems later, particularly if a lien has to be filed against a specific entity.
Scope of work is where most disputes start. “Plumbing rough-in” tells nobody anything. Reference the specific drawings, specifications, and plan sheets the subcontractor is responsible for, and if the subcontractor is furnishing materials as well as labor, list those separately from the labor scope.
Money terms need the same precision. Write down the total contract price, whether it is paid in progress installments or a lump sum at completion, and the exact events that trigger each payment. Include the project start date and the deadline for the subcontractor’s portion. If there are liquidated damages for late completion, state them as a dollar figure per day, not as a reference to unspecified “damages.”
Insurance belongs in every commercial subcontract. Require general liability coverage and workers’ compensation, with $1,000,000 per occurrence a common baseline for Texas commercial work and higher limits on larger jobs. Demand the certificates of insurance before the subcontractor sets foot on the site. Chasing them afterward is how projects end up uninsured.
Change Orders and Delays
No project finishes as originally drawn. A workable change-order clause requires every modification to be in writing, signed by both parties, and to state both the adjusted price and any extension to the completion date. Verbal change orders produce expensive fights because each side remembers the conversation differently. If the contract says changes must be written and signed, an unsigned verbal request carries no weight.
Delays need their own treatment. Separate delays the subcontractor caused, which may trigger liquidated damages, from delays outside anyone’s control. A force majeure clause covering severe weather, government shutdowns, and material shortages should require the affected party to give written notice within a set number of days after the triggering event and to take reasonable steps to limit the impact. Force majeure typically buys time, not more money.
Indemnity Limits Under Texas Law
Texas caps how far a general contractor can push risk downhill. Under Chapter 151 of the Texas Insurance Code, an indemnity provision is void if it requires a subcontractor to cover losses caused by the general contractor’s own negligence or fault.1State of Texas. Texas Code Insurance Code 151.102 – Agreement Void and Unenforceable Indemnity can only reach as far as the subcontractor’s own share of fault.
There is one carve-out. The statute does not protect against indemnity claims involving bodily injury or death of the subcontractor’s own employees.2State of Texas. Texas Code Insurance Code 151.103 – Exception for Employee Claim A general contractor can still require the subcontractor to indemnify for injuries to the subcontractor’s own workers, which is another reason adequate workers’ compensation coverage is not optional.
If an indemnity clause goes past what the statute allows, a court will not rewrite it to save the good parts. The whole offending provision is unenforceable. Read every indemnity paragraph against this rule before signing.
Payment Timing and Interest
Texas Property Code Chapter 28 controls how quickly money moves down the chain. Once the general contractor receives payment from the owner, it has seven days to pay each subcontractor the portion attributable to that subcontractor’s work.3State of Texas. Texas Code Property Code PROP 28.002 – Prompt Pay Required The same seven days apply one step further down: a subcontractor who receives payment has seven days to pay its own sub-tier contractors.
Late payment accrues interest at 1.5% per month, or 18% annually.4State of Texas. Texas Code Property Code 28.004 – Interest on Overdue Payment Interest starts the day after payment becomes due and runs until the money arrives. The rate is deliberately steep, meant to keep general contractors from treating subcontractor money as working capital.
Some subcontracts try to lengthen the payment window. The statutory seven-day period overrides that contract language. Reference the statute directly in the agreement so expectations are clear from day one.
Retainage
The property owner must hold back 10% of the contract price as retainage during the job and for 30 days after the original contract is completed. That reserve protects unpaid subcontractors and suppliers.5State of Texas. Texas Code Property Code 53.101 – Funds Required to Be Reserved
General contractors typically withhold retainage from subcontractor payments in the same proportion. Write the percentage and the release conditions into the subcontract. Vague retainage terms produce months of arguments after the work is done. Specify whether release happens when the subcontractor’s own scope is complete or when the whole project reaches substantial completion, because those dates can sit months apart.
Protecting Lien Rights
A mechanic’s lien attaches to the property itself, which makes it the strongest collection tool an unpaid subcontractor has. Texas grants lien rights to anyone providing labor or materials for construction or repair under a contract with the owner, contractor, or subcontractor.6State of Texas. Texas Code Property Code 53.021 – Persons Entitled to Lien The right is not automatic. Miss a notice or a deadline and it disappears.
Notice to the Owner
Because a subcontractor has no direct contract with the owner, written notice to the owner and the general contractor is required to preserve lien rights. On residential projects, the notice must go out by the 15th day of the second month after the month the labor or materials were provided. On commercial and other nonresidential projects, the deadline is the 15th day of the third month.7State of Texas. Texas Code Property Code 53.056 – Derivative Claimant Notice to Owner and Original Contractor A deadline that lands on a weekend or legal holiday moves to the next business day.8State of Texas. Texas Code Property Code 53.003 – Notices
Send by certified mail or another method that proves receipt. Postage costs almost nothing compared to losing lien rights on a job where you are owed real money.
Filing the Lien Affidavit
If payment still has not arrived, file a lien affidavit with the county clerk where the property sits. On residential projects, the deadline is the 15th day of the third month after the month labor or materials were last provided. On nonresidential projects, it is the 15th day of the fourth month.9State of Texas. Texas Code Property Code 53.052 – Filing of Lien Affidavit For unpaid retainage, the affidavit must be filed by the 15th day of the third month after the original contract was completed or terminated. A day late is worthless.
The subcontract should include a provision confirming that the subcontractor retains lien rights, because some general contractors insert waiver language that surrenders those rights before any dispute exists. Many subcontractors send the preliminary notice on every project as a matter of routine, whether or not they anticipate a payment fight.
Worker Classification and 1099 Duties
Calling someone a subcontractor in the contract does not make them one for legal purposes. The federal Department of Labor uses an economic reality test to decide whether a worker is truly independent or is an employee covered by the Fair Labor Standards Act’s minimum wage and overtime protections.10U.S. Department of Labor. Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act The two heaviest factors are how much control the hiring party has over the work and whether the worker has a real chance at profit or loss based on their own decisions.
To hold up as independent, the subcontract should match reality. The subcontractor controls methods and means, provides their own tools and equipment, carries their own insurance, and is free to take on other clients. A contract that dictates hours, demands exclusivity, and supplies all the equipment reads like employment, and the IRS or DOL can reclassify the relationship regardless of the label, bringing back taxes, penalties, and unpaid overtime claims.
On taxes, a general contractor who pays a subcontractor $600 or more in a year must file Form 1099-NEC with the IRS by January 31 of the following year.11Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Collect a W-9 before the first payment goes out. Chasing W-9s in January is a predictable annual mess that one intake checkbox prevents.
Site Safety Responsibility
Federal OSHA rules apply to every construction site, and the subcontract should say who owns compliance. Under OSHA’s multi-employer citation policy, more than one employer can be cited for the same hazard on a shared site.12Occupational Safety and Health Administration. Multi-Employer Citation Policy A general contractor with control over the site can be cited even for hazards a subcontractor created if the general contractor did not exercise reasonable care in spotting and correcting them.
Require the subcontractor to comply with all applicable OSHA standards, keep required training records, and immediately report workplace injuries. Say who provides personal protective equipment and who runs site-specific safety orientations. When OSHA arrives after an accident, those clauses decide who pays.
Signing, E-Signatures, Lien Waivers, and Records
Whoever signs must have authority to bind the company. For a corporation, that is an officer or director. For an LLC, it is typically a manager or authorized member. A sole proprietor signs personally. A signature by someone without actual authority may not bind the company at all.
Electronic Signatures
Texas recognizes electronic signatures as legally equivalent to handwritten ones under the Uniform Electronic Transactions Act, codified in Chapter 322 of the Texas Business and Commerce Code. A contract cannot be denied legal effect solely because it was formed electronically, and an electronic signature satisfies any legal signature requirement.13State of Texas. Texas Business and Commerce Code Chapter 322 – Uniform Electronic Transactions Act Both parties have to consent to signing electronically, and the platform used should keep an audit trail tying each signature to its signer.
Lien Waivers
General contractors routinely require lien waivers as a condition of releasing payment. For contracts signed after January 1, 2021, these waivers no longer need to be notarized in Texas. Older contracts signed before that date still do. Watch whether the waiver is conditional or unconditional. A conditional waiver only takes effect once the subcontractor actually receives payment, which is the safer form. An unconditional waiver gives up lien rights immediately, even if the check bounces.
Record Retention
Both parties should keep a fully executed copy of the agreement along with change orders, lien waivers, insurance certificates, and payment records. Texas imposes a four-year statute of limitations on breach of contract claims, so keep everything at least that long.14State of Texas. Texas Civil Practice and Remedies Code 16.004 – Four-Year Limitations Period Longer is better. Lien disputes, defective construction claims, and tax audits can surface well after four years, and the original paperwork is the difference between proving the case and hoping someone remembers.