A subcontractor is an individual or (in many cases) a
business that signs a
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
to perform part or all of the obligations of another's contract.
Put simply the role of a subcontractor is to execute the job they are hired by the contractor for. It is oftentimes a specialized job such as electrical or HVAC and it is the subcontractor's responsibility to execute the work as instructed.
A subcontractor (or sub-contractor) is a company or person whom a
general contractor, prime contractor or main contractor hires to perform a specific task as part of an overall
project and normally pays for services provided to the project. While subcontracting often occurs in
building
A building, or edifice, is an enclosed structure with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and fu ...
works and in
civil engineering, the range of opportunities for subcontractor is much wider and it is possible that the greatest number of subcontractors now operate in the
information technology
Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of Data (computing), data . and information. IT forms part of information and communications technology (ICT). An information te ...
and information sectors of the economy.
One hires subcontractors either to reduce
cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in whic ...
s or to mitigate
project risks. In employing subcontractors, the general contractor hopes to receive the same or better service than the general contractor could have provided by itself, at lower overall risk.
Many subcontractors do work for the same
companies
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
rather than different ones. This allows subcontractors to further specialize their skills.
Types
In
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
building industry contract law, particularly when using
JCT standard form contracts, three subcontractor types are identified:
; Domestic subcontractor: A subcontractor who contracts with the main contractor to supply or fix any materials or goods or execute work forming part of the main contract. Essentially this contractor is employed by the main contractor.
; Nominated subcontractor: Certain contracts permit the architect or supervising officer to reserve the right of the final selection and approval of subcontractors. The main contractor is permitted to make a profit from the use of nominated subcontractors on site, but must provide "attendance" (usually the provision of water, power, restrooms, and other services to enable the nominated subcontractor to do his job). In effect the appointment of nominated subcontractors establishes a direct contractual relationship between the client and the subcontractor.
; Named subcontractors: Effectively the same as a domestic subcontractor — a subcontractor who contracts with the main contractor to supply or fix any materials or goods or execute work forming part of the main contract. Essentially this contractor is employed by the main contractor.
Tax law
Under
UK tax law
Taxation in the United Kingdom may involve payments to at least three different levels of government: central government (HM Revenue & Customs), devolved governments and local government. Central government revenues come primarily from income ...
, certain activities that might appear to be subcontracting are actually treated differently. This is a subtlety of corporate taxation that may easily be missed or misunderstood, and may be relevant to research and development tax relief. Examples of activities that involve outsourced work that do not count as subcontracting for tax purposes include:
* Collaborative research – research carried out across two companies that benefits both companies.
* Externally provided workers
* Self-employed consultants.
Payment clauses
Some contractors appoint subcontractors to work under a "pay when paid" clause, sometimes called a "pay if paid" clause, where the general contractor will work with subcontractors and the subcontractors are only paid if and when the general contractor is paid for the work. As example clause from a construction context reads:
However, in the case of Avon Brothers, Inc. v. Tom Martin Construction Company, Inc., the
New Jersey Superior Court, Appellate Division
The New Jersey Superior Court, Appellate Division (in case citation, N.J. Super. Ct. App. Div) is the intermediate appellate court in New Jersey.
"The Appellate Division of New Jersey's Superior Court is the first level appellate court, with appe ...
ruled in 2000 that a pay when paid clause represents an unconditional promise to pay, merely permitting payment to be postponed for a
reasonable time Reasonable time is that amount of time which is fairly necessary, conveniently, to do whatever is required to be done, as soon as circumstances permit.
This phrase is a U.S. legal term that has been a topic of controversy for many years. It is gene ...
, and not a condition precedent which would completely excuse the contractor's obligation to pay even though not paid themselves.
[Meisik and Meislik]
Avon Brothers, Inc. v. Tom Martin Construction Company, Inc.
Case Law Summaries, opinion dated 30 August 2000, accessed 30 August 2021 Under
Florida
Florida is a state located in the Southeastern region of the United States. Florida is bordered to the west by the Gulf of Mexico, to the northwest by Alabama, to the north by Georgia, to the east by the Bahamas and Atlantic Ocean, and to ...
construction law, a pay when paid clause is unenforceable unless it
unambiguously transfers the risk of non-payment to the subcontractor.
See also
*
elancing E-lancing, also known as e-labour, is the practice of taking freelancing work through online job-offers. E-lancing websites operate as hubs where employers place tasks, which freelancers from around the world bid for. Some e-lancing websites act as ...
*
False self-employment
False self-employment is a situation in which somebody registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company. Such false self-empl ...
*
Freelance marketplace
''Freelance'' (sometimes spelled ''free-lance'' or ''free lance''), ''freelancer'', or ''freelance worker'', are terms commonly used for a person who is self-employed and not necessarily committed to a particular employer long-term. Freelance w ...
*
General contractor (aka prime contractor)
*
Independent test organization
An independent test organization is an organization, person, or company that tests products, materials, software, etc. according to agreed requirements. The test organization can be affiliated with the government or universities or can be an indep ...
*
Inside contracting Inside contracting is the practice of hiring contractors who work inside the proprietor's factory. It replaced the putting out system, where contractors worked in their own facilities. Inside contracting was the system favored by the Springfield ...
*
Misclassification of employees as independent contractors
Misclassification of employees as independent contractors is the way in which the United States classifies the problem of false self-employment. It can occur with respect to tax treatment or the Fair Labor Standards Act.
The U.S. Government Acco ...
*
Outsourcing
References
External links
American Subcontractors Association
{{Authority control
Contract law
Construction trades workers