How to Manage Subcontractors While Staying Compliant with Public Works Laws

Managing subcontractors on public works projects is one of the most challenging responsibilities for general contractors. Beyond scheduling and quality control, there is an added layer of complexity: strict labor compliance requirements under federal and state public works laws. Missteps with subcontractor compliance can result in costly penalties, delayed payments, or even disqualification from future bidding opportunities.

This guide outlines best practices for managing subcontractors, ensuring your projects remain fully compliant with Davis-Bacon and prevailing wage requirements.

Why Subcontractor Compliance Matters on Public Works Projects

Public works laws were created to ensure fair pay and working conditions for all workers on taxpayer-funded projects. The Davis-Bacon Act (DBA) applies to federally funded or assisted projects, requiring contractors and subcontractors to pay workers at least the locally prevailing wage and fringe benefits. Many states, including California, have their own prevailing wage laws that apply to state-funded projects.

When subcontractors fail to comply with these rules, the liability does not stop with them. The prime contractor is ultimately responsible for ensuring every subcontractor on the project meets federal and state requirements. That means that if one subcontractor misses certified payroll deadlines, misclassifies a worker, or underpays wages, the penalties can be passed on to the general contractor.

This makes subcontractor compliance a central part of successful project management.

Key Responsibilities for Prime Contractors

To protect your company and your projects, you must take proactive steps to manage subcontractor compliance. Here are the core responsibilities general contractors should focus on:

1. Prequalify Subcontractors for Compliance Readiness
   Do not wait until after contract award to assess whether a subcontractor understands public works obligations. Include compliance readiness in your prequalification process. Ask questions such as:

   • Has the subcontractor worked on Davis-Bacon or prevailing wage projects before?

   • Do they have a system for certified payroll reporting?

   • Are they familiar with worker classifications and wage determinations?
     This early step weeds out subcontractors who could create risk later.

2. Include Clear Compliance Language in Subcontracts
   Every subcontract agreement should include clauses requiring compliance with applicable labor laws, certified payroll submission, and accurate worker classifications. Spell out the consequences of noncompliance, such as withholding payment until violations are corrected.

3. Provide Subcontractor Training
   Many compliance failures occur because subcontractors lack an understanding of the rules. Consider hosting an onboarding meeting at the start of each project to walk through certified payroll requirements, fringe benefits, and site posting obligations. Providing a compliance checklist can help clarify expectations from day one.

4. Monitor Certified Payroll Reports Closely
   Subcontractors are responsible for submitting certified payroll reports every week. As the prime contractor, you must review these reports for accuracy. Look for red flags such as missing workers, suspiciously low wages, or incorrect classifications. Spotting problems early can prevent violations from snowballing.

   • Subcontractors are responsible for submitting certified payroll reports on a weekly basis. As the prime contractor, you must review these reports for accuracy. If you need a refresher, check out our full guide: Certified Payroll Made Simple: Contractor’s Guide for 2025.

5. Conduct Site Inspections and Worker Interviews
   Field checks are one of the most effective methods for verifying subcontractor compliance. Interview workers to confirm their classifications and verify that their pay aligns with the reported amounts. Compare timecards with certified payroll submissions. Documentation from these checks can protect you if an audit arises.

6. Document Everything
   Keep thorough records of all subcontractor communications, payroll submissions, training sessions, and site checks. If an agency questions your project, detailed records are your best defense.

Common Pitfalls in Subcontractor Compliance

Even experienced contractors run into challenges when managing subcontractors on public works projects. Some of the most common pitfalls include:

• Late or Missing Certified Payroll Reports: Delays in subcontractor reporting can quickly put a project out of compliance.

• Worker Misclassification: Assigning workers to the wrong wage determination category is one of the top violations. For example, classifying an electrician as a laborer.

• Incomplete Fringe Benefit Reporting: Subcontractors often fail to account for the full value of benefits provided, leading to underpayment findings.

  • Subcontractors often fail to account for the full value of benefits provided, leading to underpayment findings. For a deeper breakdown of how fringe benefits affect compliance, see our Fringe Benefits Compliance Overview.

• Poor Recordkeeping: Without consistent records, defending against audits becomes nearly impossible.

Being aware of these pitfalls makes it easier to implement safeguards to avoid them.

Real-World Example: Avoiding Subcontractor Penalties

Consider a public school construction project in California where the prime contractor hired multiple small subcontractors. One subcontractor submitted certified payrolls that showed workers being paid significantly less than the required prevailing wage. Because the prime contractor had been reviewing payroll weekly and flagged the issue immediately, they were able to withhold payment and require the subcontractor to correct the wages before the violation escalated.

This proactive oversight saved the prime contractor from significant penalties and preserved its eligibility for future public works projects.

Best Practices for Staying Compliant While Managing Subcontractors

Here are some proven strategies to keep your projects compliant:

• Utilize a Compliance Management System: Digital tools for certified payroll tracking, worker classification, and document management facilitate easier oversight.

• Schedule Regular Compliance Meetings: Conduct brief check-ins with subcontractors to review any outstanding issues and confirm reporting deadlines.

• Partner with a Third-Party Labor Compliance Officer: Engaging experts can alleviate the burden of monitoring subcontractor compliance, providing you with peace of mind.

At Davis Bacon Solutions, we provide resources and simplified guides to help contractors and subcontractors understand their responsibilities. For contractors seeking expert oversight, Labor Compliance CA, LLC, offers third-party labor compliance officer services to manage reporting, audits, and subcontractor oversight on your behalf.

Why Third-Party Oversight Can Be a Game-Changer

Even the most organized general contractors can struggle to stay on top of compliance across multiple subcontractors. A third-party labor compliance officer acts as a safeguard, ensuring every subcontractor meets reporting obligations, preventing costly mistakes, and freeing up your team to focus on building.

When your reputation, payments, and eligibility for future bids are on the line, the cost of professional oversight is far less than the cost of noncompliance.

Managing subcontractors effectively is about more than keeping the schedule on track. It’s about ensuring that every worker on your project is paid fairly and that your company is protected from compliance risks.

By prequalifying subcontractors, setting clear expectations, monitoring certified payrolls, and documenting every step, you can stay compliant and build stronger projects. And if you need an expert partner to take compliance off your plate, Davis Bacon Solutions and Labor Compliance CA, LLC are here to help.