# S18a. 10 red‑flag clauses in construction contracts (read these before you sign)
You don't need to read every word of a contract. You do need to spot the 10 lines that can wreck your profit or your cash‑flow.
1. THE SHORT VERSION
The worst clauses usually hide in payment, delay, variations and liability.
If you see anything that looks like "we'll pay you when/if we get paid", unlimited liability, or you fix everyone else's mistakes, slow down.
This page is a spotter's guide, not legal advice – if a big contract has more than two or three of these, think very hard before signing.
2. RED FLAG 1 – "PAY WHEN PAID" / "PAY IF PAID"
What it looks like:
"We will pay you when we receive payment from the Employer." "Payment to the Sub‑Contractor is conditional upon the Contractor receiving payment."
Why it's bad: Ties your payment to a deal you're not part of – if the client doesn't pay the main, you could get nothing. The Construction Act broadly bans these in construction contracts except where the upstream client is insolvent, but they still appear in drafts.
What to push for: Change it to a clear fixed period – e.g. "Payment within 30 days of due date regardless of client payment."
3. RED FLAG 2 – VAGUE OR VERY LONG PAYMENT TERMS
What it looks like:
"Payment terms: 90 days from end of month following invoice" or just "Payment as per main contract / at our discretion."
Why it's bad: 60–90+ day terms destroy subbies' cash‑flow; vague timing makes it easy to "lose" your application. The Construction Act expects an adequate mechanism – when sums become due and a final date for payment.
What to push for: Clear due dates and final dates for payment (e.g. due date = application date; final date = 14/21 days later).
4. RED FLAG 3 – NO CLEAR PROCESS FOR PAYMENT / NOTICES
What it looks like: No clause explaining how to apply, when to apply, or how they issue payment notices / pay less notices.
Why it's bad: If you don't follow a process, it's easy for them to argue you never made a valid application.
What to push for: Clear wording on:
- When you submit applications/invoices.
- When they issue payment and pay less notices.
- That they must explain deductions and calculations.
5. RED FLAG 4 – HIGH RETENTION AND SLOW RELEASE
What it looks like: Retention at 5–10%, released partly at completion and partly 12+ months after, or "on main contract certificate" only.
Why it's bad: You effectively give them an interest‑free loan from your profit. Long release periods, especially linked to main contract dates, mean you chase scraps long after you've left site.
What to push for: Lower percentage (e.g. 3%) and shorter release periods, or a firm final date for release not tied endlessly to the main project.
6. RED FLAG 5 – "NO LOSS AND EXPENSE" / "NO DAMAGES FOR DELAY"
What it looks like:
"The Sub‑Contractor shall have no entitlement to loss and/or expense in respect of delay or disruption." "No damages or additional payment shall be due for delay caused by the Contractor."
Why it's bad: You carry all cost for delays you didn't cause – late information, access issues, resequencing.
What to push for: At least some right to extension of time and loss/expense where delays are caused by them, not you.
7. RED FLAG 6 – LIQUIDATED DAMAGES WITH NO CAP / UNREALISTIC LEVEL
What it looks like:
"If Sub‑Contractor fails to complete by the completion date, they shall pay liquidated damages of £[HIGH AMOUNT] per week without limit."
Why it's bad: Liquidated damages (LDs) are meant to be a genuine pre‑estimate of loss, not a punishment, but they can still be very painful. No cap means delay risk is potentially unlimited, even for issues not fully in your control.
What to push for: Reasonable rate that matches your scope and value, and ideally a cap (e.g. a % of your contract sum).
8. RED FLAG 7 – BROAD INDEMNITY / YOU FIX EVERYONE ELSE'S MISTAKES
What it looks like:
"The Sub‑Contractor shall indemnify the Contractor against all losses, costs and claims arising out of or in connection with the Works."
Or wording that makes you responsible for design produced by others.
Why it's bad: You end up covering other people's errors, design defects, or third‑party losses far beyond what your insurance is set up for. Dangerous if you only meant to build to someone else's drawings, not guarantee them.
What to push for: Indemnity limited to your own negligence, and design responsibility limited to what you actually design (with matching PI cover).
9. RED FLAG 8 – UNLIMITED LIABILITY / LIABILITY NOT CAPPED
What it looks like: No cap on your overall liability, or general wording making you liable for "all losses" without limit.
Why it's bad: One serious claim could exceed your insurance and your entire business value. Many larger contractors cap their own liability but leave yours open‑ended.
What to push for: A cap aligned with your contract sum or your insurance limits, not unlimited.
10. RED FLAG 9 – DESIGN RESPONSIBILITY BY THE BACK DOOR
What it looks like:
"The Sub‑Contractor warrants the design and suitability of the works, including any design carried out by others."
Or you "accept full responsibility for the adequacy of designs and specifications".
Why it's bad: Suddenly you're on the hook for architect/engineer drawings you didn't produce and can't realistically check.
What to push for: Wording that limits your design responsibility to what you actually design and what your PI insurance can cover.
11. RED FLAG 10 – NO RIGHT TO SUSPEND OR WALK AWAY FOR NON‑PAYMENT
What it looks like: Nothing in the contract about your right to suspend works if you're not paid, or termination rights that are heavily one‑sided.
Why it's bad: Practically, you hesitate to stop work even if they're months late, because the contract gives you no clean route. The Construction Act gives a statutory right to suspend for non‑payment in many contracts, but it helps if your contract mirrors that.
What to push for: Clear wording that if not paid by the final date (and no valid pay less notice), you can suspend after notice, and ultimately terminate if it's not fixed.
12. QUICK "RED‑FLAG SCAN" BEFORE YOU SIGN
Next time you're handed a contract, hunt for these first:
- Any "pay when/if paid" wording.
- Payment terms beyond 30–45 days or vague "as per main contract" with no dates.
- Retention over 5% with no clear, early release for your part of the works.
- Liquidated damages at scary levels or with no cap.
- Indemnity and liability clauses that look unlimited or make you responsible for other people's mistakes.
- Any clause that quietly dumps design responsibility for others' drawings onto you.
If two or three of these show up together, at minimum slow down and get someone to walk you through the risks before you put pen to paper.
WHAT TO DO NEXT
- Before signing any contract, scan for the 10 red flags listed in this guide.
- If you spot "pay when paid" wording, push back - it is banned under the Construction Act for most contracts.
- Check that payment terms have clear due dates and final dates, not vague "as per main contract" language.
- If liability is unlimited or indemnity is too broad, ask for a cap aligned to your contract value or insurance.
- If two or more red flags appear together, get the contract reviewed before you commit.
SOURCES
- Housing Grants, Construction and Regeneration Act 1996. https://www.legislation.gov.uk/ukpga/1996/53
- Unfair Contract Terms Act 1977. https://www.legislation.gov.uk/ukpga/1977/50
- Late Payment of Commercial Debts (Interest) Act 1998. https://www.legislation.gov.uk/ukpga/1998/20
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