What’s Involved with a Prime Contractor?
A prime contractor is the company that is hired by the owner of a construction project and responsible for completing that project. They have a contractual relationship with the owner, and they make the arrangements for all the materials and personnel needed to get the job done. A prime contractor generally does not consider anything he or she orders on the project to be unsafe because of the thorough inspection necessary to get awarded the contract. Prime contractors are usually capable contractors that have plenty of experience with similar projects. The prime contractor is generally a pretty big deal.
The prime contractor bears the most responsibility for a project . They are the ones who will be left holding the bag if anything goes seriously wrong. Not only do prime contractors have to deal with delays and other problems on the job site, they’re still responsible for getting paid even if the owner doesn’t pay right away. If there’s an issue with the subcontractor or any of their personnel, it can sometimes be difficult to recover from this when dealing directly with the bad subcontractor or other parties. However, the prime contractor does have the ability to mitigate losses and may even be liable for moving the project forward in spite of these issues to complete the job.
Subcontractors and the Work They Do
A subcontractor is an individual or business involved in a construction or service project that has contracted with the project’s primary or main contractor to carry out a specific part of (or the entire) contract. "Sub" means under, beneath, or below. A subcontractor may also be referred to as a 2nd or 3rd tier contractor or simply a 2nd or 3rd party to the contract.
What do subcontractors do? They may take on the entire remainder of the contract, depending on what the contractor has contracted for. Or they may take on a portion of what is included in the entire project. Common areas of contracting for subcontractors involve landscaping, plumbing, electrical work, flooring, site cleanup, and painting, among other duties.
A subcontractor may operate as part of a contracted team, or individually, depending on the project in which they are contracted. They work in conjunction with the prime contractor. A prime contractor is the main general contractor hired by the client to oversee all work on the project. A subcontractor is a party that takes on part of the work, but not the entirety of it.
Prime Contractor vs Subcontractor: Key Distinctions
At a high level, the key difference between a prime contractor and a subcontractor is the contract they have in place. A prime contractor has a contract with the project owner, while a subcontractor has a contract with the prime contractor (or another subcontractor), but not with the project owner. There are other practical differences as well, especially if the construction project is publicly funded as these projects will be subject to additional requirements as set out under the act.
As discussed above, a prime contract was entered into directly between the owner/developer and the general contractor (prime contractor). This contract sets out the terms and conditions that the parties have agreed will apply to their obligations under the contract. The prime contract is a form of contract between the parties to the construction project that allocates the risks, benefits, duties and obligations between them. It may be a simple agreement that sets out basic obligations or it may be a complex, customized agreement that is a true "one-off" agreement between the owner and the general contractor.
In contrast to the prime contract, the terms of the general contract are rarely custom drafted. Instead, the general contract represents a standardized agreement where the risk and liability have been evaluated, assessed, and assigned to a party best equipped to manage such risk by way of liability clauses in the contract. For small projects, the general contractor may enter into a standard form of agreement such as the CCA-1 Standard Colour Contract. For larger projects, general contractors often have their own form of standard general contract.
Subcontractors are hired by the general contractor and do not have a direct contractual obligation to the owner/developer. A subcontractor may be bound directly to a general contractor or bound through other subcontractors. This may happen in the following ways:
How to Decide Between a Prime or Subcontractor
When deciding whether to hire a prime or subcontractor, a project owner should consider various factors regarding the project itself, including the project size, complexity, budget and schedule constraints, as well as site constraints. Size and complexity of a project is often the most compelling reason to hire a prime. By turning to a single prime contractor to take over the burden of coordinating several smaller subcontractors, an owner can significantly reduce the administrative headaches associated with managing different trades. This often proves beneficial for larger projects with several trades heavily overlapping, as it entrusts the job of coordinating and managing the schedule to the prime, and shifts the responsibility of coordinating separate trades and supervising the work solely unto the prime.
Since prime contractors are often responsible for hiring, equipping, overseeing, and terminating the work of any subcontractors that they hire , hiring a prime means that the owner has less direct involvement in the procurement of those tradesman. While this can prove beneficial for many of the reasons provided above, sometimes the owner may not see eye-to-eye with the prime on its choice of trade to be subcontracted. The owner should be reluctant to exercise the right to approve subcontractors, if such a right exists in the contract. Owners may want to impose contract provisions that required the prime to bid or tender the work out to firms that the owner selects, so that the owner is assured that it will have some say in the selection process. For small projects of limited complexity with predictable schedules and minimal site constraints, types of work that lend themselves to a prime contractor seamlessly winding up works in progress and wrapping up jobs with an easy to understand punch list, a subcontractor may be the best way to go.
Legal Considerations of a Prime or Subcontractor
From a commercial business standpoint, the prime contractor tends to be the "face" of the relationship entered into when engaging a subcontractor. Many times, the prime contractor will "contract-out" exciting work to subcontractors as a way to either fulfill contractual obligations obtained from a third party or because the work is designed to complete the overall goal of a project.
The prime contractor takes on the primary legal responsibility of ensuring that all work performed by subcontractors is being done according to both industry standards and government regulations. As a result, it is important for prime contractors to set clear expectations prior to awarding a subcontract to clearly define the relationship being created. A prime contractor does not have the same liability as the subcontractor for issues arising out of the work between the subcontractor and a third party. However, if the prime contractor contributed to the issue or was a party to the contract, there will likely be impact to the prime contractor.
A subcontractor’s liability exposure will be broader than that of a prime contractor. Under both common law and the Uniform Commercial Code, liability flows to the subcontractor rather than the prime contractor (unless the prime contractor is also a general contractor and the project is subject to the Miller Act). In addition to taking steps to limit liability for third party claims, subcontractors should also address the following:
Conclusion: Successful Partnerships
To ensure the success of a project, it is imperative that prime contractors and subcontractors work well together. Electronic tools can help to facilitate communication and ensure that everyone is on the same page. Critical among those tools is an electronic PM system that tracks correspondence, contracts and change orders. Such a system helps reduce disputes by allowing contractors to quickly locate written communication on the job and determine when a contract provision or a change order is in effect. Collaboration is key to maintaining a positive relationship that ultimately benefits both parties. Successful projects are those where all parties work closely together. Since most small projects must follow the same regulatory requirements as large projects (i.e.auction and bid security , Davis Bacon Act, Employee Retirement Income Security Act (ERISA), Contract Work Hours and Safety Standards Act, Occupational Safety and Health Administration (OSHA), etc.), a prime contractor that does a good job setting up the subcontractor to succeed will save time and money on both sides. Unless the prime has a regular list of subcontractors that already have been set up properly, the prime can help avoid problems on the front end by making sure all the paperwork and compliance issues are done correctly from the start. At the same time, a subcontractor that does a good job keeping the prime fully informed of obligations and requests keeps cost overruns to a minimum. A productive working relationship is the best way to achieve a profitable project for both the prime and its partners.