Contractor vs Subcontractor: Things you need to know
Every fiscal year the federal government spends billions of dollars to hire general contractors, independent contractors, and even small business owners to provide products or services that will suit their needs. The government procures almost everything from a single piece of paper to military aircraft, technological assistance, and even complex research.
For businesses to sell their products and services to the government, they first need to pass through a bidding process. But, there are times that companies bidding on government contracts are required to outsource a portion of the project. That is why a lot of companies work with subcontractors. What is a subcontractor? Subcontractors are hired to do specific and specialized tasks.
Many are confused with the difference between subcontractor vs contractor. That is why we want to take that burden away by writing some insights about it in this article. So make sure to keep reading to find out what you need to know about subcontractor vs contractor.
Also, suppose you are a small business owner and thinking of getting into the government contracting industry. In that case, the following knowledge may help you identify whether you shall work as a prime contractor or subcontractor.
What is a general contractor?
A general contractor works under the construction business and is often hired by the federal government to perform services on their planned construction project. A general contractor often employs workers and frequently undergo a subcontractor agreement to complete a specific project.
In most cases, a general contractor acts as a manager, except they work on a contractual basis. They effectively communicate with the client for certain projects and the people doing the specialized labor. At the same time, a general contractor assesses the client’s needs and coordinates the performance work by employees or subcontractors working on specific project details.
Additionally, a general contractor may manage a vendor from the construction industry and arrange for the leasing of equipment within the budget constraints established by the client who is paying the project.
What is a prime contractor?
A prime contractor, or may also be called an independent contractor, is a company or business that has complete control over the project or residential projects and directly works for the federal client. Prime contractors often work with general contractors and subcontractors by subcontracting smaller projects to avoid failures in the things they are not good with and potentially lower project costs.
What is a subcontractor?
Subcontractors work under independent contractors to perform work where they are skilled and focus on individual projects. Businesses that have been reliable subcontractors are usually hired in the government contracting industry for they are good at product and service delivery for their expertise. One example is an independent contractor or general contractor who may employ a carpenter for a construction project or data encoder for technical research.
Is subcontractor same as independent contractor?
An independent contractor can be defined as an individual or company hired to work for an existing contract opportunity. Typically a primary contractor operates under a contractual agreement to provide materials, services, or labor to complete a project.
On the other hand, subcontractors are businesses or individuals that carry out work for a contractor as a part of a larger project or overwhelming task. Subcontractors tend to report entirely to the contractor they work for and rarely talk with the client.
So, to answer whether a subcontractor is the same as an independent contractor – NO. The most significant key differences between contractor vs subcontractor are the workflow and hierarchy:
Independent contractor or general contractor
- A primary contractor works directly with a federal client, negotiating the deals and operating and hiring subcontractors.
- A general contractor oversees the entire project, from planning and employing laborers to provide material and completing the project.
- A general contractor can work on new construction, renovations, and repairs.
- Subcontractors follow the instructions of the primary contracting company.
- A subcontractor is hired as a contracted employee without directly working for the procuring client.
- For the construction industry, subcontractors specialize in one specific construction skill such as carpentry, plumbing, painting, or electrical.
Insurance is essential for both contractors and subcontractors. However, note that you expose your business to additional risk by hiring subcontractors.
Pros and cons of being a contractor
Despite the complexity, businesses still choose to work as contractors for the federal government. The following are some of the benefits and disadvantages you shall expect when working as a primary contractor.
Advantages of being a contractor
Choose work schedule
As a contractor, you have the option to set the work hours that you believe will be most beneficial to you. Just be reminded to talk with your client about your working hours to avoid unwanted miscommunications.
Choose which customers you work with
Contractors can choose the clients or federal agencies to work with. If the past client is pleasant, the contractor can work with them again. Also, contractors can select the type of work they would like to do.
Set own rates
One of the key differences between contractors and subcontractors is setting product or services rates. By doing this, contractors determine how much profit they can generate even if they ask for subcontractors.
Choose which subcontractors to work with
Contractors can decide which subcontractors they want to work with and provide quality work. Contractors often give more work to subcontractors they trust and whose rate meets their parameters.
Spend more time managing rather than performing physical labor
In rare situations, contractors forward most of the work to subcontractors. Contractors spend most of their time managing rather than exhorting physical labor when this happens. Having this capability to look out the projects rather than perform physical work is captivating to many executives and professionals.
Disadvantages of being a contractor
As mentioned above, prime and independent contractors take full responsibility for the contract. If ever the subcontractor made a mistake, the contractor will be liable for it. Having this said, this adds more pressure to the contractor as they need to ensure that everything runs smoothly and on time.
Must find own clients
One of the most challenging aspects of contracting is locating clients. Contractors split their time between managing projects and looking for new ones. Business owners who do not feel self-promotion may not enjoy being a contractor.
Requires different skills
Lastly, as a contractor, you shall be equipped with different skills than a subcontractor. Subcontractors specialize in a particular part of the project. Contractors, however, need to know not only about the work but also about running the business. Contractors need to understand how to market a business, plan a budget, manage payroll, delegate tasks, effectively handle a team, and be efficient leaders.
Pros and cons of being a subcontractor
A company that cannot do all the necessary work of the said federal contract can work under a contractor. Working for another business or company does not mean that a subcontractor fails to achieve its full potential and success. The following are the pros and cons of being a subcontractor that you need to know.
Advantages of being a subcontractor
Since subcontractors work for a general contractor or independent contractor, they do not need to be worried about the outcome of the entire project because they are only performing work for a specific portion of the government contract.
Less customer contact
One best advantage of being a subcontractor is that they do not need to pass through a deep and complex bidding process, negotiate rates with the client or follow up about the payments. Subcontractors only need to communicate with the contractor about all the details in the subcontractor agreement.
A subcontractor who successfully provides good quality work to contractors may have a pool network of connections, leading to a steady work stream. Most of the time, contractors turn to them, providing them with job opportunities or introducing them to colleagues looking to outsource a task to a subcontractor.
While subcontractors work for contractors with some projects, that does not mean that they are employed by the contractor that hired them. Subcontractors can set their working schedules, hours, and availability to have the freedom to work for themselves.
Disadvantages of being a subcontractor
Less employer support
Since subcontractors work only for certain projects, they are considered self-employed and responsible for taxes, insurance, supplies, and more. Also, subcontractors are paid after a job is finished, not consistently.
Subcontractors starting in the industry may get fewer clients and have uncertainty about when they will work. Moreover, the contractors, federal agencies, or an official government organization like Small Business Administration may bring in all the customers, and subcontractors can only get to decide whether they will accept it or not.
More physical labor
The subcontractor is often asked to do more physical work than the contractor, especially construction work. A subcontractor may exhort more physical labor and work longer than the general contractor.
Is a subcontractor a contractor?
Yes! a subcontractor is a contractor too. However, subcontractors are usually hired for the specific skill sets required for a particular project.
In the construction field, a general contractor may employ their workers, but because some government projects contain distinct components, they may not have someone on their team to complete the work. General contractors may also prefer to outsource or subcontract the task to someone more experienced than their staff.
General contractors may want to work with subcontractors rather than acquire new staff because it is more affordable. Also, it could save them project delivery time and ensure that the job is correctly completed.
Lastly, since subcontractors are not part of the business, the prime contractor and the general contractor is not responsible for providing the benefits, social security, and full-time salaries. But, contractors and subcontractors work hand in hand in accomplishing the government project not just to earn profit but to enhance their company reputation.