5 Red Flags That a Subcontractor Might Default

As Project Managers (PMs), we’re problem-solvers by nature. We’re used to stepping in, cutting through the noise, and pushing a project forward. But one of the biggest headaches we can face is a subcontractor (sub) default. It doesn’t just slow things down; it can derail your entire job. The trick is recognizing the signs before it’s too late. Sub default doesn’t just affect your project—it impacts your credibility, your client relationships, and potentially your ability to lead future work.

Prequalification is your first and best defense against sub default. It looks at capacity, financial health, safety history, legal exposure, and operational strength. Fifteen or twenty years ago, only the biggest GCs were doing formal prequals. It was rare. Today, it’s standard — or at least it should be. But a lot of PMs still treat it like an unnecessary hurdle. It’s not about making life harder—it’s about making sure the sub you’re about to trust with a six- or seven-figure scope can actually deliver.

But Prequalification is not-fool-proof. Let’s talk about five real-world warning signs that a sub is on the ropes. To some, these may seem obvious. The trick is tuning your antennae to sense problems and act BEFORE there is actually a problem.

Subs Start Pushing for Aggressive Billing or Re-Negotiation Right After Contract Award

A major red flag shows up when a sub, fresh off signing their contract, starts looking for ways to pull more cash early in the job. They might not come right out and ask to front-load the schedule of values (SOV)—but you’ll see it in the numbers. Suddenly, they’re billing heavy on mobilization, pre-purchase materials, or vague early activities. Or they ask to revisit terms now that they’ve “had a chance to look deeper” at the drawings or jobsite conditions.

Maybe they just want to ‘get ahead’ on billing for cash flow. Maybe they missed scope. Or this could be a sign that the sub is realizing—too late—that they underbid the job. Either way, they’re trying to recoup margin fast by pulling forward as much money as possible. And if you’re not paying close attention, your job becomes the one keeping them afloat. If you approve bloated early billing, you risk burning through their contract value before meaningful work even starts. And if they fold mid-project, you’ll have nothing left to pull from for completion.

What you can do:

• Scrub their initial pay application carefully. If the SOV is skewed to front-end activities, push back. Ensure it is aligned with the schedule.
• Clarify the billing process during kickoff. Incorporate a pencil pay application review and job walk. Involve your Superintendent.
• If a sub tries to re-negotiate terms post-award. Hold firm. If you did a professional buy out, you and the sub had ample opportunity to get the scope right.
• Consider requiring additional lien waivers, or joint checks for early money requests if there’s even a hint of risk.

The PM’s job isn’t just to move the work—it’s to protect the job. When a sub starts pushing the financial envelope before breaking ground, it’s rarely a good sign. And if you let that slide early, it’s much harder to regain control later.

2. Their Crew Size or Field Presence Drops Without Explanation

When a sub that started strong begins pulling labor off the job without warning, it usually means one of two things: they can’t afford to keep payroll going, or they’re in panic mode trying to cover another job that’s on fire. You’ll often hear, “We’ll be back in full force next week,” or “We’re waiting on material.

Even high-performing trades can hit capacity walls or run into cash problems. But when they disappear from the site without clear cause, it’s a sign of deeper instability—and it always lands on your critical path.

What you can do:

• During buyout, get manpower commitments for the various phases of the subs work.
• Track daily manpower and make it a part of your regular reporting. It’s worth repeating here, they’re called ‘Daily Reports’ for a reason.
• Sit down with their PM or ownership and ask directly: Do you have the resources to finish this job? Don't settle for vague answers.
• If they can’t get labor on-site consistently, follow the notice provisions of your subcontract and put them on written notice and document performance issues.
• Have backup resources in mind—whether it’s supplementing their labor or initiating a cure/default clause.
• Communicate upstream with the client early if you sense a production gap is coming. Transparency buys time.

3. They Ghost You on Paperwork—Especially Insurance and Lien waivers

Good subcontractors are responsive and clean with their paperwork.

If paperwork that once flowed smoothly now starts to lag, you're chasing down updated insurance certificates, submittals are late, and the PM is unresponsive, it's more than just an administrative hiccup—it’s often the canary in the coal mine. Subs in financial distress often let compliance slide because they’re scrambling just to stay above water. And when suppliers call asking if you’ve paid them yet—that’s when you know the dam is about to break.

Many PMs make the mistake of continuing to pay as long as work is progressing, but if you’re issuing checks without proper documentation, you’re opening the company up to huge risk.

Its worth adding here that in some construction businesses, compliance documents are not the responsibility of the PM. The accounting or administrative team tracks those. But here’s the thing. As the PM, YOU are responsible for the profit loss of the project. When there is a default and you’re finding a replacement while the schedule is slipping, it should be of no consolation that it was someone else’s responsibility to track the paperwork.

What you can do:

• Make it company policy: no pay app gets processed without current insurance, bonding (if required), and signed lien waivers.
• Coordinate with your accounting and legal teams to make sure compliance tracking is up to date and visible. Work with your administrative team to document and stay ahead of potential compliance gaps.
• If documents are consistently late, elevate the issue to the leadership at your sub and follow your follow the notice provisions in your subcontract.

4. Material Deliveries Are Missed, Delayed, or Sourced from Alternate Vendors

Materials are a major cash outlay. When materials stop showing up on time—or start arriving from suppliers you've never heard of— it could be because your subcontractor’s normal vendors have frozen their accounts. They’re out of credit and scrambling. They might be trying to keep your job moving, but sourcing from unfamiliar or unapproved vendors can be a material breach of contract, compromise quality, delay installation, and complicate warranty issues later on.

As mentioned above, you might also start getting calls from suppliers asking about payment status. This is a ‘Big Red Flag!’

What you can do:

• Ask for a procurement log during kickoff and review it at periodic sub meetings.
• Confirm delivery schedules on long-lead items, and request invoices or order confirmations for big-ticket materials.
• Walk deliveries with foremen—check packaging and documentation.
• If vendors reach out directly, escalate immediately. This is a major red flag!
• In extreme cases, you might consider taking over procurement for critical items and back-charge the sub.

5. They Keep Winning Bids That Seem Way Too Low

When a subcontractor keeps coming in well below the competition, it’s rarely about efficiency—it’s often a signal they’re in survival mode. Sure, it feels like a win at first. They help you hit the GMP or land a budget-conscious client. But then you look closer: no one else is even in the same ballpark. That’s not a sharp number—it’s a warning sign. Contractors under financial strain often undercut the market to land work, then figure they’ll make it back through aggressive change orders, shortcuts, or volume. It’s a high-risk strategy that rarely ends well—and when they burn out, it’s your schedule and reputation that take the hit.

What you can do:

• Always do a scope review—even when the number looks attractive. Make sure the sub isn’t missing key scope items.
• Preconstruction and estimating should be running cost comparisons. If one bid is 20% below the others, there’s usually a reason. Investigate.
• If possible, have a financial contingency set aside to handle any potential problems.
• If you proceed with a low bid, make sure your contract is ironclad. You are not just buying dollars. You are buying scope, schedule, manpower, supervision safety and quality.

Red flags are only helpful if you act on them. And in this business, your best defense isn’t just sharp instincts—it’s aligning with your finance, preconstruction, and legal teams to ensure you’re working with qualified, stable, and well-managed trade partners.

You can’t stop every failure. But you can stop ignoring the signs.

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