Difference Between a Contractor and Subcontractor (Shocker!)

Construction projects are only possible with contractors and subcontractors. It’s essential to understand the difference between contractor and subcontractor, how they work together, and the challenges they face.

Communication and coordination are vital as there are a ton of moving parts in smaller projects that together make most large construction projects.

A particular skill set is necessary for each project, as well as several different trade participants and specialties, to finish all tasks successfully.

What Is Contractor?

Technically, contractors are all people who perform work under a contract. Nevertheless, the word contractor basically refers to the person or company who has a direct contract with the property owner or homeowner. The Contractor will hire subcontractors to perform specific subtasks, and will also hire suppliers to provide materials on a typical construction project.

What Are contractors Called?

They are commonly called Original Contractor, or General Contractor or Prime Contractor, but in most contracts, they are just mentioned as the Contractor.

What Is a Subcontractor?

The main difference between contractor and subcontractor is that a subcontractor is a person or company who provides services and does not have a direct contract with the owner. In construction, they are usually called “subs”.

A construction subcontractor on a residential project is usually a plumber, electrician, or carpenter. Subcontractors are commonly small business owners or self-employed experts in a particular area in the construction industry, performing a portion of the whole project. Nevertheless, subcontracting can be done by an individual as well as by a multi-national company. They often reduce project risks, as they bring experience that the General Contractor might not have.

Contractor vs Subcontractor: Things in Common

When it comes to construction, contractors and subs are very similar in some ways, as both of them contribute work using their tools and equipment.

A contractor and subcontractor simply refer to a company or person who is not an employee from the perspective of a property owner. This is relevant because it gives the owner less responsibility to the Internal Revenue Service (IRS) under employment and tax laws.

Both contractors and subcontractors are completely separate legal entities. As a consequence, owners don’t have to bother with payroll taxes or other legal requirements, as they don’t need to provide the contractor or sub with health insurance or other benefits.

To perform their work on most construction jobs, GCs and subs will require a proper license, and they will have to run their businesses independently from the home or property owner. Therefore, all contractors and subcontractors must provide their own liability insurance, and if they have employees, they have to manage their own health insurance and other benefits as well.

Contractor vs Subcontractor: Differences

Generally, the main difference between contractor and subcontractor comes down to the contractual relationship, as Prime Contractors have “contract privity” with the property owner. Despite it sounds like a fancy legal term, it is quite simple. Having a privity of contract only means that the person was hired directly by the property owner. On the other hand, subcontractors are commonly hired by a party other than the property owner.

Subs are regularly hired by the prime contractor; however, a subcontractor can hire another subcontractor as well.

What are Contractors Common Characteristics?

Their main function is to look for contracts, provide organization in all steps to building a house or property, and oversight to successfully complete the project on budget and on time.

This means they will coordinate vendors and subs, act as the central point of communication between parties on the project, and will manage the day to day oversight. It is necessary to point out a couple of vernacular issues. A “direct” or a “prime” contractor is a contractor who has a contract directly with the home or property owner, and a “general” contractor refers to someone in charge of hiring subcontractors and coordinating their work, in order to keep the job on track to complete the project on budget and on time.

These terms are often interchangeable on many projects, which means that as the general contractor is hired by the owner, they’ll be also considered a “direct” or “prime” contractor. Nevertheless, a general contractor could also be hired by a developer, an architect, a construction manager, or any other person on a project.

Regardless, for any successful general (or direct/prime) contractor, one of their most valuable resources is their network of reliable subcontractors. Several contractors were a one-stop-shop in the past, and they managed every aspect of a project; performing a variety of different functions and taken care of the whole project on their own. However, the construction industry has nowadays moved towards specialization, and contractors commonly hire others to perform specialized work. Here is where subcontractors come into play.

Construction Subcontractors Common Characteristics

Considering the GC is the project’s general, then subcontractors are the soldiers. Subs are the ones getting small objectives done for the larger-scale plan of attack. As we mentioned before, a sub can be an individual or a company. However, keep in mind that as a sub, you are not an employee, you are an independent contractor.

Among other reasons, it is quite relevant for tax and labor law purposes. Even though you are not an employee, the GC does have some rights based on their relationship with the subcontractor. The GC even has the right to inspect the books of their subs in California and Maryland.

Subs are highly trained in a particular trade, such as plumbing, HVAC, roofing, drywall, etc. Due to their experience in a certain field, they have become experts at building and product and service delivery, always knowing what building materials you need and where to get them, and the time required to finish their tasks, which helps GCs reduce the overall costs of the project and risks involved.