On most residential general contracting, 55% to 75% of the contract value is performed by people who do not work for you. You sold the job, you carry the warranty, you signed the guarantee — and the production is in the hands of companies you do not control. That is where the margin is won or lost.
In this article
- Your margin lives in somebody else's crew
- Choosing subs on something other than price
- The subcontract that prevents the argument
- What your markup on sub work is buying
- Sequencing, and what a missed date really costs
- A job in numbers
- Paying subs, waivers and backcharges
- Quality is a specification problem
- Five mistakes
- The five numbers
- Frequently asked questions
Your margin lives in somebody else's crew
On most residential general contracting work, 55% to 75% of the contract value is performed by people who do not work for you. The framer, the plumber, the electrician, the drywall crew, the tile setter. You sold the job, you carry the warranty, you signed the personal guarantee — and the actual production is in the hands of companies you do not control.
That is not a flaw in the model. It is the model, and it means that subcontractor management is not an administrative function. It is where the margin is won or lost, and it is the difference between a builder who scales and one who stalls at three jobs.
The failure mode is consistent: a builder who selects on price, sequences by phone call, pays on invoice, and finds out about problems when a homeowner calls. Every one of those is fixable with paperwork and a schedule.
A drywall bid $2,800 below the next one is not a $2,800 saving if it arrives four days late, holds up paint and trim, and leaves finish work that generates a punch list. Four days of schedule on a job carrying $340 a day of general conditions is $1,360, and the rework and the client's confidence cost more than the rest.
Choosing subs on something other than price
Bid price is the easiest thing to compare and the least predictive of what the job will cost you.
Five things to establish before anyone is on your list:
License and insurance, verified and current. A certificate of insurance on file with an expiry date you track. An uninsured subcontractor can become your workers' compensation claim and your audit bill, and in most states you will be charged for them retroactively.
Capacity, honestly assessed. How many crews, how many jobs currently running, who actually shows up. A three-person outfit with eight commitments will be late on yours and it will not be personal.
Two references from builders, not homeowners. Ask specifically: did they hit the dates, did they clean up, did they price changes fairly, did they come back for warranty work.
How they handle a problem. Everyone performs well when the job goes smoothly. Ask about the last job that went wrong and listen to whether the story has any accountability in it.
Whether they will sign your paperwork. A sub who refuses a written subcontract, lien waivers or a schedule commitment has told you how the relationship will go.
Build a bench of two or three per trade. One is a dependency; four is a relationship nobody values.
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The subcontract that prevents the argument
A price on a text message is not a contract, and it is where most subcontractor disputes begin.
What belongs in writing, every time:
Scope, in detail, including what is excluded. Most disputes are scope disputes wearing a payment costume. "Rough and finish plumbing" means different things to different companies.
Price and what triggers a change. Changes priced and approved in writing before the work, at a stated method.
Schedule commitment. Start date, duration, and the notice you will give before mobilization. A date nobody wrote down is a preference.
Payment terms tied to work in place, not to the calendar, with retainage if you use it.
Lien waivers required with every payment, from them and from their suppliers on larger work.
Insurance requirements and additional insured status, with the certificate attached.
Cleanup, protection of finished work, and backcharge terms — what happens if you have to clean up after them or repair what they damaged.
Warranty period and response time. One year is standard on labor for most trades; what matters more is how fast they come back.
Two pages, signed once per job. It takes fifteen minutes and it eliminates the majority of the conversations you would otherwise have at the worst possible time.
What your markup on sub work is buying
Builders are sometimes uncomfortable marking up subcontractor invoices, as though it were a fee for forwarding paperwork. It is not, and pricing it at zero is a common route to a busy, unprofitable year.
The markup pays for finding and vetting the sub, coordinating them with five other trades, supervising the work, warranting it to the client for a year, financing it between paying them and being paid, and carrying the risk if they fail, disappear or damage something.
That is a real bundle of services with real cost. Standard markup on subcontracted work commonly runs 15% to 25% depending on how much coordination the trade requires, and it should be applied through the same margin arithmetic as everything else: to keep 20% out of the price, divide by 0.80 rather than adding 20% — the difference is 3.3 points on the largest cost line in the job.
Where builders genuinely lose money is allowances and change work performed by subs. A change order that adds $4,200 of electrical consumes the same supervision as any other work and should carry the same markup. Passing it through at cost because it feels like a small favor is the single most common margin leak in residential construction.
Sequencing, and what a missed date really costs
A construction schedule is a chain, and a subcontractor who slips does not cost you their days — they cost you everyone downstream.
Framing runs three days long. The roofer is now booked elsewhere for a week. The mechanical trades cannot start until the roof is dry-in, so their crews are reassigned. Drywall moves, which moves paint, which moves trim and flooring. A three-day slip becomes eleven days on the completion date, and none of it is visible in the framer's invoice.
What prevents most of it:
Confirm mobilization twice. One week out and again the day before. The confirmation call is not nagging; it is how you find out on Thursday instead of Monday.
Give real notice, then hold the date. A builder who calls subs at the last minute gets treated as a last-minute customer, and subs schedule the people who schedule them.
Sequence with buffer at the dependency points, not spread evenly. The days that matter are the ones before an inspection, a delivery or a trade handoff.
Make the site ready. A crew that arrives to find the previous trade unfinished, no power, or materials undelivered will leave — and they will be right to, and you will be at the back of their queue.
Have a second name for every trade. Not to punish anyone; to keep a slip from becoming a stoppage.
A job in numbers
A $286,000 addition, budgeted at 25% gross margin — $214,500 of cost, of which $139,000 is subcontracted.
What actually happened:
• Drywall sub taken at $2,800 below the next bid, arrived 4 days late
• General conditions at $340/day for those 4 days: $1,360
• Finish quality generated 11 punch items; repair labor and paint: $2,240
• Painter demobilized and returned the following week, charging a remobilization fee: $650
• Trim and flooring pushed 6 days; completion slipped 9 days total
• Owner's supervision on the resulting coordination: 14 hours at $65: $910
• Electrical change work passed through at cost, no markup: margin forgone $1,050
The $2,800 "saving" produced $6,210 of identifiable cost, and it does not include the client's diminished confidence in the schedule, which shows up later as scrutiny on every subsequent change order.
Gross margin landed at 22.8% against 25% sold, and the entire gap sits in the subcontractor column.
Paying subs, waivers and backcharges
Pay fast, and be known for it. This is the cheapest competitive advantage available to a small builder. Subs give their best crews and their best dates to the general contractor who pays in ten days, and they price accordingly.
Pay against work in place, never ahead of it. The same rule that governs your own draws: never let the work performed run more than one milestone behind the money you have released.
Collect a lien waiver with every payment. Conditional on progress payments, unconditional on final. A subcontractor or supplier who is not paid can file against your client's property regardless of whether you paid the general amount, and that becomes your problem instantly.
Handle backcharges before the final payment, in writing. Damage to finished work, cleanup you had to do, a trade you had to bring back. Deducting silently at the end produces a fight; a written notice at the time produces an adjustment.
Track sub payments against the schedule of values, so that what you have paid, what you have committed and what remains are visible per trade rather than as one number.
Quality is a specification problem
Most sub quality complaints are actually specification failures. Nobody said what "done" meant, so it was delivered to the standard the crew uses everywhere else.
Three habits close most of the gap. Write the standard into the scope — level of drywall finish, caulk lines, tile layout starting point, paint coats, cleanup expectation. It takes a paragraph and removes the entire argument. Walk the work at the halfway point, not at completion, because correcting a tile layout on day two costs nothing and correcting it on day five costs the job. And photograph before it is covered — rough-ins, blocking, waterproofing, flashing. When something fails eighteen months later, the photograph decides who pays.
Where a sub genuinely underperforms, say it once, specifically, in writing, and give them the chance to fix it. Where it repeats, use the other name on your bench. Quiet resentment followed by a surprise backcharge is how builders lose good trades and gain bad reputations.
Five mistakes
1. Selecting on bid price alone. The cheap bid is frequently the expensive job, and the difference lands in schedule and rework rather than in the invoice.
2. No written subcontract. A price on a text message is a scope dispute waiting for a reason.
3. Passing change work through at cost. It consumes the same supervision and carries the same risk as everything else.
4. Skipping lien waivers. An unpaid sub or supplier can file against your client's property and make it your emergency.
5. Depending on one company per trade. One sub is not a relationship; it is a single point of failure with your completion date attached to it.
The five numbers
Subcontracted cost as a percentage of contract value, per job. It tells you how much of your outcome you do not directly control.
Estimate-to-actual variance by trade. Which trades consistently exceed their budget, which is a bidding problem rather than a crew problem.
Schedule slip by trade, in days. The number that predicts your completion dates far better than optimism.
Backcharges and rework cost per job, attributed to the trade that caused it.
Days to pay subcontractors. The cheapest lever you have on the quality of crews you are assigned.
Better trades come to builders with a full schedule
Subs give their best crews to the general contractor who pays fast and books ahead. Send us your project mix and pipeline and we will show you what steady demand would take.
Frequently asked questions
How much should a contractor mark up subcontractor work?
Commonly 15% to 25%, depending on how much coordination the trade requires, and applied through the same margin arithmetic as everything else — to keep 20% out of the price you divide by 0.80 rather than adding 20%, which on the largest cost line in the job is worth 3.3 points. The markup is not a fee for forwarding paperwork: it pays for finding and vetting the sub, coordinating them with five other trades, supervising the work, warranting it to the client for a year, financing it between paying them and being paid, and carrying the risk if they fail or damage something. The most common leak is change work performed by subs passed through at cost, which consumes the same supervision as everything else.
What belongs in a subcontract agreement?
Scope in detail including exclusions, since most disputes are scope disputes wearing a payment costume and "rough and finish plumbing" means different things to different companies. Price and the method for pricing changes, approved in writing before the work. A schedule commitment with start date, duration and the notice you will give before mobilization. Payment terms tied to work in place rather than the calendar. Lien waivers required with every payment. Insurance requirements with the certificate attached and additional insured status. Cleanup, protection of finished work and backcharge terms. And the warranty period with a response time. Two pages, signed once per job, fifteen minutes — and it eliminates most of the conversations you would otherwise have at the worst moment.
Why does a three-day subcontractor delay cost more than three days?
Because a construction schedule is a chain and the slip cascades. Framing runs three days long, so the roofer is now booked elsewhere for a week; the mechanical trades cannot start until dry-in, so their crews get reassigned; drywall moves, which moves paint, which moves trim and flooring. A three-day slip commonly becomes eleven days on the completion date, and none of it appears in the framer's invoice. Prevention is mostly confirmation and readiness: confirm mobilization a week out and again the day before, give real notice and then hold the date, put buffer at the dependency points rather than spreading it evenly, make sure the site is genuinely ready when a crew arrives, and keep a second name for every trade.