A subcontractor emails an updated certificate of insurance while its pay application sits in your queue. The same week, the certified payroll log shows three weeks received for a four-week billing period, and the owner short-paid last month’s draw. The PM wants the subcontractor paid on Friday.
Each of those is a different question with a different owner. Interpreting the policy, ruling on a wage classification, and reading the prime contract’s payment clause belong to risk, compliance, and contracts. AP tracks which requirements apply to this payment, what evidence is on file, what is missing, and who has authority to decide, and keeps the payment out of the run until that person decides.
This guide covers the compliance items that most often hold up a subcontractor payment: insurance and licensing, certified payroll on public work, owner payment status, and final-payment closeout. Lien waivers have their own guide on lien waiver tracking. None of this is legal advice. Have counsel confirm the requirements for each project.
Build a requirement matrix per subcontract
Start from the subcontract, not the vendor file. One subcontractor can work three jobs with three different insurance endorsements, one of them on prevailing wage. Record each requirement against the job and subcontract it comes from.
| Requirement | Source of the requirement | Evidence on file | Blocks which payment | Who decides |
|---|---|---|---|---|
| Certificate of insurance and endorsements | Subcontract insurance exhibit | COI, endorsements, policy dates | Progress and final, per contract | Risk manager or contracts |
| Contractor license | Subcontract and licensing authority | Lookup result with date checked | Per company policy | Contracts administrator |
| Certified payroll | Prime contract and applicable wage rules | Weekly payroll and signed statement | Draws covering the affected weeks | Compliance reviewer |
| Owner payment status | Subcontract payment clause | Owner remittance and allocation | Per contract clause | Contract reviewer or controller |
| Lien waivers | Subcontract and project requirements | Waiver log by draw | Each draw | Contracts administrator |
| Closeout documents | Subcontract closeout list | Warranties, manuals, final waivers, affidavits | Final payment and retainage | Project manager |
The last two columns matter most. A requirement with no clear owner becomes a payment that sits for weeks while everyone assumes someone else is checking.
Insurance and license records
When a new certificate arrives, check who it names, which policy periods it shows, and whether the project requires supporting endorsements. Send coverage questions to whoever is authorized to interpret the policy. AP should not decide whether a limit or an endorsement is adequate.
| Record | What to check |
|---|---|
| Subcontract | The insurance, endorsements, and license evidence required for this work |
| Certificate and supporting documents | Named insured, policy dates, relevant limits, requested endorsements |
| License record | Entity, number, status, and any classification the reviewer needs |
| Payment package | Which requirement is open, who owns it, when it was last reviewed |
Check license status with the licensing authority, not from a document the subcontractor supplies. California’s Contractors State License Board, for example, lets you look up a license by number or contractor name (CSLB license lookup). Record the date you checked and confirm the licensed entity is the same legal entity on the subcontract.
When a subcontractor works on several jobs, a renewal may satisfy one job’s requirements and not another’s. Update status job by job. Record whether each gap is a missing document, an expired record, or a question for risk or legal. Keep the original and replacement versions.
Expirations are the predictable part. Set a review for each policy end date ahead of time, so the renewal request goes out before the next draw rather than after it is already held.
Certified payroll on public and prevailing wage work
On covered work, the payment question often comes down to coverage: does the payroll on file match the weeks being billed?
For covered federal or federally assisted construction under the Davis-Bacon and Related Acts, the U.S. Department of Labor says payroll information must be submitted weekly with a signed Statement of Compliance. The WH-347 form itself is optional (DOL WH-347 instructions). State and local prevailing wage programs have their own rules. Confirm with counsel which apply to each project and what the contract requires.
| Check | Evidence to compare |
|---|---|
| Project and subcontractor | Job and subcontract identifiers on the application and the payroll record |
| Weeks covered | Dates the subcontractor worked on the job and payroll periods received, including corrections |
| Signed statement | The signed compliance statement for each submission |
| Open question | The specific week, classification, wage, or fringe issue for the reviewer |
Worked example: a coverage gap (illustrative)
A subcontractor’s application covers work from June 1 to June 28, four payroll weeks ending June 7, 14, 21, and 28. The payroll log shows submissions for the weeks ending June 7, 14, and 28.
Before assuming a payroll is missing, check the daily reports. If the crew was off site the week of June 15 to 21, the subcontractor may owe a “no work performed” submission rather than a payroll, depending on what the contract requires. If the crew was on site, the missing week goes to the compliance reviewer with the application and the dates.
AP records what arrived and links it to the bill. Questions about worker classifications, rates, or fringe benefits go to the compliance reviewer, with the affected period named. Limit who can open payroll records. When a correction arrives, keep it with the original submission and the decision.
Owner payment status and pay-when-paid clauses
The owner pays part of a progress application. Before using that receipt to decide what subcontractors get, find out which work the receipt covers. Start with the owner’s remittance and the approved application, then trace the amount to the subcontract lines.
| Situation | Evidence to send for review |
|---|---|
| Owner paid in full | Bank receipt, remittance, subcontract lines it covers |
| Owner paid part of the application | Allocation by line, amount still outstanding, owner’s explanation |
| Subcontractor’s work or amount is disputed | Invoice, dispute reason, person handling it |
| Retainage or another hold remains | Amount, release requirements, approval status |
Do not assume every subcontractor invoice can be held because one owner payment is late. Whether a pay-when-paid or pay-if-paid clause applies, and how, depends on the contract and on the jurisdiction. Have the contract reviewer confirm the clause and the deadlines. For federal construction contracts that incorporate FAR 52.232-27, the clause calls for specified subcontract payment terms and includes withholding notice requirements (FAR 52.232-27 on Acquisition.gov).
Worked example: allocating a short owner payment (illustrative)
The owner pays $270,000 against a $300,000 application and withholds $30,000, citing the electrical line.
| Application line | Billed | Paid by owner | Withheld |
|---|---|---|---|
| Concrete (Sub A) | $120,000 | $120,000 | $0 |
| Framing (Sub B) | $90,000 | $90,000 | $0 |
| Electrical (Sub C) | $90,000 | $60,000 | $30,000 |
| Total | $300,000 | $270,000 | $30,000 |
The owner’s withholding is tied to Sub C’s scope. Subs A and B are paid in full by the owner, so the owner’s payment status gives no reason to hold their payables. Sub C’s payable goes to the contract reviewer with the owner’s explanation, the affected line, and the subcontract clause. If the remittance does not explain the allocation, ask the project owner to confirm the lines before anyone decides.
For each payable, keep the owner receipt allocation, the approved amount, any withholding, and who authorized the decision.
Final payment and closeout
A subcontractor sends its final bill. Confirm what you owe before asking the project team whether the subcontract is ready to close.
- Compare the original commitment plus approved changes with amounts previously billed and paid, including credits and approved backcharges.
- Identify retained amounts and confirm which portion the project has authorized for release.
- Work through the closeout list in the contract: final waivers, warranties, manuals, as-builts, and anything else required. Record who accepted each item.
- Give every unresolved claim or missing document an owner. The authorized reviewer decides whether it affects the final release.
Where AIA G706 is required, AIA describes an affidavit submitted with the final payment request that lists known unpaid or unsatisfied claims, and a separate consent of surety form for bonded projects that use it (AIA contract administration forms). Check what your subcontract actually requires before applying either to a subcontractor.
Worked example: final balance (illustrative)
| Item | Amount |
|---|---|
| Original subcontract | $480,000 |
| Approved change orders | $36,500 |
| Adjusted subcontract | $516,500 |
| Billed to date (100% complete) | $516,500 |
| Retainage held at 10% | $51,650 |
| Paid to date ($516,500 less $51,650) | $464,850 |
| Approved backcharge for cleanup | ($4,200) |
| Final payment due on release | $47,450 |
Check: $464,850 + $4,200 + $47,450 = $516,500. If those three numbers do not add back to the adjusted subcontract, something was double-paid, missed, or not recorded. After the release is approved, compare the posted payment and remaining retainage with the approved package. The construction retainage guide covers how the same balance is tracked on the owner side.
Make holds specific and visible
All of this only works if the hold attaches to the right payment. A vendor-wide hold for one expired endorsement on one job can freeze work on four others. A missing payroll week on a federal job should not stop a private job’s draw.
Record each hold with the requirement, the job, the draw, the owner, and the date it was raised. Then open the proposed payment run and confirm only the intended payable is excluded. For more on how holds behave at invoice, distribution, and vendor level in specific ERPs, see construction AP automation and invoice holds and payment blocks. For checking the draw amount itself, see subcontractor pay applications.
What goes wrong
- Vendor-level status, job-level requirement. The vendor looks compliant while one job’s endorsement is missing.
- Certificate accepted on dates alone. The named insured or required endorsement is wrong.
- One late owner payment holds every subcontractor. Allocate the owner’s payment by line first.
- Final payment released before the closeout list is complete. The retainage check goes out and the warranty never arrives.
- No record of who decided. Months later nobody can show why a payment was released with an item open.
A first pass on your largest subcontracts
Pick the five subcontracts with the largest open balances. For each, list every payment requirement from the subcontract, its current evidence, its owner, and whether it blocks the next draw. Compare that list with what your ERP actually holds. Every gap between the two is a payment that could go out without its paperwork.