What is different on the subcontractor side
| Topic | General contractor | Specialty subcontractor |
|---|---|---|
| Progress billing | Certifies subs’ applications; bills the owner | Submits an application to the GC against the subcontract’s schedule of values |
| Retainage | Holds retainage payable from subs; retainage receivable from the owner | Retainage receivable from the GC, often 10% held until the owner releases the GC |
| Lien waivers | Collects conditional and unconditional waivers before paying | Signs waivers with each application; must track what has been waived through what date |
| Compliance | Checks subs’ insurance, W-9, licenses | Keeps certificates current on every GC’s portal; a lapse stops payment |
| Payment timing | Pays subs after the owner pays, where the subcontract allows | Waits on pay-when-paid; cash is tied to the GC’s collection, not your billing |
| Job cost | Mostly subcontract cost; labor is a smaller share | Mostly self-performed labor and material; productivity is the margin |
| Change orders | Negotiates with the owner; passes down to subs | Prices and submits to the GC; often performs the work before approval |
Billing the GC
Your pay application is a claim against the subcontract’s schedule of values, cumulative, less retainage, less what has been certified before. The GC will check it against the field, against prior applications and against your compliance file, and will certify what they accept. Two numbers matter on your side: what you claimed and what was certified. If they differ, the difference is either a timing issue (the GC counts progress a month behind you) or a dispute, and your system should hold both so the gap is visible rather than overwritten.
- Build the subcontract SOV with the GC’s SOV lines in mind so your application maps cleanly to theirs
- Bill on the GC’s cycle, not yours; a missed cutoff is a month of float
- Bill stored materials where the subcontract allows; document them the way the owner requires
- Submit approved change orders as new SOV lines the month they are approved
- Track certified-to-date per line, because that is what retainage and the final release will be computed on
Retainage, waivers and cash
Retainage receivable is the subcontractor’s largest balance sheet surprise. Ten percent of every billing, held for the life of the job and often months past it while the owner closes out the GC, adds up to a significant share of annual revenue sitting uncollected. Track it by job, with the expected release date and the conditions (final waivers, closeout documents, the owner’s release to the GC) so it is a plan rather than a hope.
- Keep retainage receivable separate from ordinary AR so aging reports mean something and lenders can see it
- Record each lien waiver you sign: type, through date, amount, project; a waiver signed on the wrong form or for the wrong amount is a lost right
- Never sign an unconditional waiver for money you have not received
- Track lower-tier waivers from your own suppliers; the GC will ask for them at closeout
- Model cash on the GC’s payment history, not the subcontract’s terms
Job cost for self-performed work
A specialty contractor’s margin is made or lost on labor productivity, so job cost has to be by phase and cost code with hours, not just dollars. Rough-in, trim, fixtures or whatever the trade’s stages are become the cost codes; labor hours post from the time system against them; and the weekly question is units installed per hour against the estimate, not dollars spent against budget. Material is the second lever: truck stock and warehouse stock need to be relieved to jobs as they are used, or job cost is understated and inventory is a fiction.
- Cost codes by stage of the trade’s work, consistent across every job
- Hours and dollars on labor codes, with burden applied at the rate for the crew class
- Material issued from truck and warehouse stock to the job, not expensed on purchase
- Committed cost for the few subcontracts and major POs, so buyout is visible
- A cost-to-complete by code monthly, from the foreman’s view of remaining units
How Forge ERP fits a specialty subcontractor
Forge’s construction setup includes a Specialty Trades specialization for electrical, mechanical, plumbing and HVAC contractors that lays a trade-specific chart of accounts over the base (truck stock and warehouse inventory, consigned material at job, deferred service contract revenue, service call, maintenance contract and project work revenue, technician wages, small tools, vehicle costs), adds service, phase, location, customer and warehouse dimensions, and enables procurement, projects, project ledger, inventory, cost catalog, revenue and time. AIA-style pay applications bill the GC against your schedule of values with retainage tracked per line; retainage receivable is held in its own account and appears as an open item; waivers you collect from your own suppliers and sub-tier subcontractors are tracked by type, through date and amount and gate their payment (waivers you sign for the GC are not tracked as their own record today); and job cost posts by cost code and cost type with labor hours from time entry.
Forge ERP covers projects, purchasing, accounts payable, billing and receivables, job cost and WIP, reporting and close. Payroll runs in your payroll provider and lands in Forge as job-costed labor with burden. Forge is in beta with a 14-day free trial.
Frequently asked
- Do subcontractors need a WIP schedule?
- Yes, if you report under percentage of completion, which most subcontractors with bonding do. The surety wants to see over/under billing by job, and the forecast behind it, the same as for a GC.
- How should I account for retainage the GC holds?
- As retainage receivable, separate from accounts receivable, by job. It is earned revenue under percentage of completion; it is just not yet collectible. Include it in billed-to-date on the WIP schedule.
- Is pay-when-paid enforceable?
- It depends on the state and the wording. Pay-when-paid usually delays payment for a reasonable time; pay-if-paid can shift the owner’s credit risk to you where it is enforceable. Read the subcontract and ask a construction attorney; the accounting treatment does not change, only the cash timing.