Can ChatGPT Draft a Subcontractor Agreement? Clauses to Check

ChatGPT can draft a subcontractor agreement for a small contractor, and the first version is often decent. It cannot know your local payment rules, your insurance requirements or the job's real risks, so a solicitor should check payment terms, retention, insurance, variations, defects and termination before you sign anything.

Think of the draft as raw material. It saves you the blank page and gives your solicitor something specific to mark up, which usually makes the review quicker and cheaper. What it must never become is the final word on money or liability. This is general information, not legal advice.

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What goes into a subcontract, in plain terms

A subcontract is the agreement between you, the main contractor, and a trade or supplier who does part of the work for you. If you tell a plasterer "do the first-floor walls for $4,200 and finish by the 14th", you have the start of one. A written version records the rest: what exactly is included, when money moves, what happens when something goes wrong and how either side can walk away.

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A usable small-contractor subcontract has roughly ten parts:

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1. Parties, site and the main contract it sits under
2. Scope of the subcontract works and what is excluded
3. Programme: start, key dates, completion, delay rules
4. Price and how it is paid
5. Retention
6. Variations (changes to the work)
7. Insurance and safety duties
8. Defects and warranty
9. Termination and what happens to unpaid work
10. Disputes and signatures

ChatGPT handles items 1, 2, 3 and 10 well because they are mostly structure. It is weakest on 4 to 9, which is where the money and the law sit. Those six are where a solicitor earns the fee.

A drafting prompt that carries your real facts

The quality of the draft follows the quality of the facts you provide. A one-line request returns a generic template. A prompt with the job's real shape returns something your solicitor can work with:

You are helping a small building contractor draft a subcontract for one trade package. A solicitor will review it, so write clearly and flag assumptions.

Facts:
- Main contractor: [our company], subcontractor: [sub's company]
- Job: first-floor plastering on a domestic extension, about 180 square metres of wall and ceiling
- Price: fixed $4,200, labour and materials included
- Start: [date]; finish within 10 working days of start
- Payment: 30% on mobilisation, 60% on completion of boarding and first coat, 10% retention held for 6 months
- Subcontractor supplies own tools; we supply scaffolding and power
- Insurance: sub must hold public liability of at least $[amount]
- Variations must be agreed in writing before the work is done

Write numbered clauses for: scope and exclusions, programme and delay, price and payment, retention, variations, insurance, defects, termination, and disputes. Use plain English. Do not copy any standard form by name. At the end, list every assumption you made and every clause where local law may change the wording.

The last instruction is the one that earns its keep. A model that lists its assumptions hands you the exact questions to ask the solicitor, instead of leaving you to guess where it improvised.

The six clauses a solicitor must check

1. Payment terms

This is the clause most likely to be wrong in a way that costs money. Rules on how quickly you must pay a subcontractor, whether you can make payment conditional on being paid yourself, whether you must give notice before withholding money, and whether a late-payment charge applies differ by place, and some places regulate them by statute. A model usually writes a plausible schedule and says nothing about those rules.

What to check in the draft:

• Every amount and date matches your prompt, with no new percentages.
• The trigger for each payment is something you can verify, such as "boarding completed and photographed", not "when substantially done".
• Whether the clause says you pay only when your client pays you. Many places restrict or ban that wording. In at least one major market, construction payment law makes such a condition ineffective unless the party further up the chain is insolvent, so a draft that leans on it can leave you owing the sub regardless. Ask the solicitor how it is treated where you work.
• Whether withholding is allowed, and what notice you must give.

2. Retention

Retention is money held back until defects are fixed, a safety net for you and a cash-flow cost for the sub. A typical draft states a percentage and a release date, but the details decide disputes: held from each payment or only from the final one, released in two halves or all at once, held for how long, and whether the sub can ask for security instead.

Illustrative sum. On the $4,200 plastering package, 10% retention is $420. The draft says release after six months. A better version says: "Half of the retention ($210) is released on practical completion of the subcontract works, and the balance ($210) six months after, less any sum needed to correct notified defects." That wording gives the sub a reason to finish and you a reason to hold the second half only if there is a problem. Your solicitor should confirm that holding and releasing retention this way is permitted where you work, and whether it must be held separately.

3. Insurance

AI will write "the subcontractor shall maintain adequate insurance". Adequate is useless. Your own insurer or your client's contract may require specific cover: public liability to a minimum figure, cover for the sub's own staff where they have any, and professional indemnity for design work. The clause should say which types, what minimum sums, what evidence (a certificate before work starts) and what happens if cover lapses mid-job.

Check the draft against your own policy and the main contract. Ask the solicitor whether your insurer needs you to pass particular conditions down to subs. The insurance expiry tutorial shows how to track certificates once they arrive.

4. Variations

Variations cause more arguments than almost anything else. The customer asks the plasterer to skim an extra stairwell; nobody writes it down; the invoice arrives with a number you did not expect. A good clause forbids paid extra work without a written instruction, states how the price is set (agreed lump sum, day rate or measured rate) and says how fast you must respond to a request.

A common AI error is a clause that lets either side demand a variation without a price. Check for the phrase "reasonable additional payment" with no mechanism. Ask the model to rewrite with "the Subcontractor must give a written price and time effect before starting any variation, and no variation is payable without a written instruction signed by [role]." Then check the signing role is a real person at your company.

5. Defects

The defects clause states who fixes faults, how soon, and at whose cost. Check that it has a notification route (email to a named address), a response window (for example 7 days to attend), the right for you to bring in someone else if they do not turn up, and the cost of doing so charged back. Ask the solicitor how that interacts with retention and with any statutory warranty period.

Models often confuse a defects period with a warranty. Keep the two apart in the prompt: a defects period is the time after completion when the sub returns to fix problems; a warranty may last longer and cover materials or workmanship in a specific way.

6. Termination

Termination wording must cover both a clean break and a bad one. Check that the draft separates termination for convenience (if allowed at all), termination for the sub's default, and termination because of insolvency, and that each has a notice period and a statement of what is paid for work done. A common AI flaw is a clause that lets the main contractor end the agreement at any time without paying for completed work. That is the sort of term a court or adjudicator may refuse to enforce, and it damages relationships with the trade.

Ask the solicitor specifically whether you need a written notice procedure and whether the right to terminate must follow any steps set by law.

A worked comparison: first draft against a better one

Here is an illustrative before and after for the payment and retention wording on that same $4,200 job. The first column is what the model gave on a vague prompt; the second is the version after you tighten it and a solicitor has confirmed the rules.

You can see that every improvement is a decision you made, not something ChatGPT discovered. That is why the drafting prompt should contain the numbers.

Using ChatGPT as a second pair of eyes

Drafting is one use. Reviewing is another, and it is safer because you start with a human-written or solicitor-checked document. Strip the names and paste a subcontractor's own agreement with this prompt:

Compare the subcontract below with my standard terms (pasted after it). Make a table with columns: clause, what theirs says, what mine says, difference, and a question to ask my solicitor. Focus on payment, retention, insurance, variations, defects, termination and liability caps. Do not tell me which is legally better.

Illustrative output: "Clause 7 (their draft): payment within 60 days of the end of the month in which the invoice is issued; yours: 14 days from a valid invoice. Question for solicitor: is a 60-day term allowed for this kind of contract, and can we reject it?" The model is good at spotting the difference. It is not the right judge of what the difference means in law. For a wider look at how AI reads contracts and what it misses, see the small-firm contract review tutorial.

Where ChatGPT drafts fail for small contractors

• Borrowed forms. It may echo the structure of a big industry form, with clauses written for projects ten times the size. Ask for a short form suited to jobs under a stated value.
• Invented legal references. If a draft cites an act or section, remove it unless the solicitor confirms it exists and applies.
• Mismatch with the main contract. The subcontract should not promise the sub rights you do not have from your client, such as an earlier payment date than your client pays you. Paste the key terms of the main contract and ask the model to flag clashes.
• Safety and site rules. A draft may mention safety only in general. Add your site induction, permit and equipment rules as a schedule, written by someone who knows them.
• Silent scope. If the scope says "plastering" without listing prep, scaffold use or making good after other trades, expect an argument about extras. List inclusions and exclusions line by line.

The subcontractor paperwork checklist covers what to collect from the sub before the first day, and the chasing tutorial covers how to follow up when documents or progress updates are late.

Getting the most from a solicitor's hour

A solicitor's time is the expensive part, so arrive prepared. Send the draft, your assumptions list and a one-page summary of the job. Mark the six clauses above and ask four direct questions:

1. Is any clause unenforceable or unlawful where I work?
2. What is missing that a subcontract of this size should have?
3. Can this become my standard short form for jobs of this type, and what must I change each time?
4. Does my insurer need anything added?

Once the solicitor approves a version, save it as your template and note the date. Use ChatGPT only to fill in job details, never to rewrite the approved clauses. A small change to a retention clause can alter what is enforceable, so changes should go back to the solicitor. If you are weighing which admin tasks around subs are worth automating, my AI implementation consultation is built for that kind of question.

A variation dispute and the clause that would have stopped it

Illustration with invented figures. A four-person building firm subcontracts the first-floor plastering at a fixed $4,200. Midway through, the homeowner asks the plasterer, in passing, to skim the stairwell as well. The plasterer agrees on the spot, assuming the firm will pay. At the end he invoices $4,200 plus $650 for the stairwell. The firm had not agreed anything and the homeowner believed it was included. Three people now have three different versions of what was said.

With a variations clause in place the sequence runs differently. The plasterer messages the site manager: "Homeowner asked for the stairwell skim. Price is $650 and one extra day. OK to go ahead?" The manager replies "Yes, approved at $650, one day added" and forwards it to the homeowner, who either agrees or does not. Nothing is done until the reply exists. That small written loop is all a good variations clause asks for, and it is easy to ask ChatGPT to turn into a one-page variation form with fields for description, price, time effect, who instructed it and who approved it.

Prompt for the form: "Create a one-page variation request form for a small building firm with fields for job, trade, description of change, price type (lump sum, day rate, measured), added time, instructed by, approved by and date. Add a line stating that work done without a signed form is not payable." The line in the last sentence is the point; check that your solicitor approves it, since some places limit how far you can refuse payment for work a client has in fact accepted.

A final read-through list before you send it

When the solicitor has signed off the template and you fill in a new job, spend ten minutes on this list before the sub sees it. Each item is a place where a copy-paste slip tends to hide:

1. Company names, site address and dates match the quote exactly.
2. The price, stage amounts and retention percentage add up. Do the sum: 30% plus 60% plus 10% must equal 100%.
3. Insurance minimums match the figures your policy and main contract require for this job.
4. Scope inclusions and exclusions are the ones for this trade, not left over from the last package.
5. Programme dates fit the main programme and allow for deliveries.
6. Named people for approvals and notices still work for you.
7. The version date is on the document so you can prove which terms applied.

Then keep the signed copy, the insurance certificate, and every written variation together in one job folder. If a dispute arrives a year later, you will be glad the evidence sits in one place. For scheduling the sub's work around deliveries once the agreement is signed, the small-builder scheduling tutorial picks up from here.

What not to paste into ChatGPT

Subcontracts hold commercial information: your prices, margins and sometimes your client's details. Use placeholders while you draft, and add real names, figures and addresses to your own document afterwards. Do not paste a client's confidential main contract unless your plan and your client contract permit it. If in doubt, summarise the relevant terms in your own words instead of pasting the document. Choose a business plan where content is not used for training by default, and switch off any setting that retains chats for training on a personal plan. These are habits that cost nothing and remove most of the data risk, whatever the model writes.

A short filled-in schedule for a different trade

The same method works for any package. For an electrician on a small renovation, the schedule at the back of the agreement might read: first fix before plastering, second fix after decoration; the sub supplies cable and fittings from a listed specification; final test certificates are handed over before the last payment; the sub attends a snag walk within 7 days of notification; and work outside the listed circuits is a variation needing written approval. Paste the trade's own list into your prompt and the model will format it into clauses, but the list itself must come from someone who knows the work.

Check one more thing with any schedule: that the dates and quantities match the quote. A model that "tidies" a schedule may change 14 sockets to 15 or move a date. After each redraft, ask it to produce a table of every number in the clause and tick them against your source document. That takes two minutes and prevents the kind of slip that surfaces as a disagreement months later.

Questions small contractors ask about AI-drafted subcontracts

Can I use the ChatGPT draft without a solicitor?

For a first working document you can circulate internally, yes. For a signed agreement on real work, no. Payment timing, retention, insurance and termination rules vary by place and can override what the draft says, so a solicitor should check the final version once and approve it as a reusable template.

Which plan should I use for contract drafting?

Any plan produces text, but prefer a business plan where your content is not used for training by default, and keep client names out of prompts. Use placeholders for names, addresses and prices, then complete the details in your own document after drafting.

What if the subcontractor sends their own agreement?

Paste it into a chat with names removed and ask for a clause-by-clause comparison against your terms, flagging differences in payment, retention, insurance and termination. Treat the result as a list of questions for your solicitor, not as a ruling on which wording is acceptable.

Does a verbal agreement count?

It can, but it is hard to prove, and arguments over scope and payment are the main reason jobs go wrong. Even a short written subcontract with scope, price, payment dates and insurance beats a handshake. Ask your solicitor how a short form would work for small jobs.

Further reads

• Construction Final Account: Variations, Deductions and Sign-Off With AI — Variations, deductions and retention at the final account.
• AI Receptionist for Construction Companies: Real Costs and Call Routing — Route calls from subs and clients when you are on site.
• AI Construction Contract Review Software: What Builders Should Test — What dedicated contract review tools catch, and how to test them.
• Pay Applications for Subcontractors: Schedule of Values With AI — Schedule of values for subcontractor pay applications.
• ChatGPT for General Contractors: 10 Prompts for Bids, Subs and Updates — Ten more prompts for bids, subs and updates.
• Employment Contracts With AI: Drafting Steps and Legal Checks — Another drafting job where legal checks decide the outcome.
• AI Tools for Contracting Businesses: Subcontracts and Change Orders — A small contractor's routine for AI on subcontracts and change orders: a clause comparison, a date tracker, a priced draft and what a lawyer still reviews.
• Construction Payment Notice Template: Draft With AI, Check the Deadlines — Payment and pay less notice templates, an AI prompt that drafts them from your facts, and a date check a quantity surveyor can run in a spreadsheet.
• Lien Waivers for Small Contractors: Track Conditional and Final Releases — A three-tab sheet that matches each conditional and final lien waiver to the payment it covers, with red-flag formulas and a worked HVAC example.
• Practical Completion Certificate: What Each Clause Means, Then an AI Draft — Each clause of a practical completion certificate in plain English, a filled-in kitchen extension example, and an AI draft you check against the contract.
• Subcontractor Prequalification Questionnaire: Build and Score It With AI — A question set for insurance, safety, references, capacity and finances, a weighted scoring sheet, and tests that make AI scoring fairer before you act on it.
• Workers' Comp Audit: Get Payroll and Subcontractor Records Ready With AI — A records checklist by trade for a workers' comp audit, with a worked payroll and subcontractor example and prompts that sort the files.
• Pay When Paid Clause: A Subcontractor's Check Before Signing — A subcontractor's pre-signing checklist for pay-when-paid clauses, with a cash-flow example and a sample clause review.
• AI Tools and AI Development: The Complete 2026 Guide — the AI hub, including every tutorial in the AI-for-business series.

Sources: general contract-drafting practice for small construction businesses; OpenAI's business-plan data terms (no training on business data by default); construction payment legislation on conditional-payment clauses. General information only; solicitor review required.