What is a Contractor? Exploring Contractors, Subcontractors, and Trades
General contractors, subcontractors, specialty contractors, and licensed trades are the workhorses of the construction industry.
Some may use these terms interchangeably, but each contractor type has distinct roles and responsibilities. Knowing how they differ is vital to properly plan, schedule, and execute a successful project.
This article explains the critical differences between a contractor, subcontractor, specialty contractor, and licensed trade so that you can make informed decisions when hiring for your project needs.
What is a Contractor?
According to Cornell Law School, “A contractor is a business or entity that agrees to perform work under the terms of a contract.”
That means contractors are independent businesses hired to perform a specific work or to produce a particular result according to the terms laid out in a contract.
Hence the name, contractor.
Within the construction industry, contractors may take the form of a full-scale construction company with many employees or a single individual.
What are the Different Types of Contractors?
There are many types of contractors in the construction industry, and key differences separate them. These are the most common terms you’ll hear:
- General contractor
- Prime contractor
- Licensed trade
- Specialty contractor
What is a General Contractor?
A general contractor is legally engaged with the owner or developer and takes responsibility for the entire construction project from start to finish.
They work directly with the project owner and cross-channel teams, including government authorities, local building authorities, designers, architects, engineers, and suppliers.
In addition, general contractors are in charge of hiring and managing subcontractors, specialty contractors, and licensed trades if needed.
Some essential things to know about general contractors include:
- General contractors are responsible for all the materials, equipment, labor, and services needed for the project, including permits, inspections, and enforcing the project’s quality, safety, and standards.
- They manage the construction site and coordinate with onsite and offsite teams to meet the project owner’s goals.
- Many general contractors self-perform their contracts and only hire a few subcontractors.
- Others subcontract nearly all of their work, assembling project teams with the skilled trades they need depending on the requirements of each project.
- Successful general contractors stay abreast of new industry developments and use all the tools at their disposal, including project management software, to keep their projects on track.
What is a Prime Contractor?
In construction work, prime contractors have a contractual relationship with the project owner or developer.
That means general contractors can also be called prime contractors, which makes those terms synonymous.
What is a Subcontractor?
Subcontractors are independent business owners who do not have a contract with the project owner, as general contractors do. Instead, their contract is with the general contractor.
Subcontractors work under the authority of the general contractor. That means the general contractor hires subcontractors to perform specific construction work on a contractual basis, including:
- Foundations and footings
- Heating, ventilation, and air conditioning (HVAC)
- Electrical work
- Interior carpentry and finishes
As you can see, the subcontracted work aligns with only small portions of the more significant general contract, which covers all aspects of the project.
And because of that, the subcontractor’s contractual responsibilities are called a “sub-contract.” Hence the name, subcontractor.
Key things to know about subcontractors are:
- Each subcontractor is a specialist in their discipline and completes specific work packages only they are qualified to perform.
- Subcontractors must adhere to design specifications within the project contract and abide by the general contractor’s timeline, safety regulations, and quality standards.
What are the Different Types of Subcontractors?
The typical commercial construction project can employ over 20 different subcontractors.
Here are the primary subcontractor categories you’ll find working on the modern job site:
- Land clearing
- Earthwork, excavation, and underground utilities
- Footing and foundation contractors
- Concrete contractors
- Iron and steel erectors
- Framing contractors
- Roofing, siding, and sheet metal
- Glazing contractors
- Mechanical and HVAC contractors
- Telecommunications and IT
- Drywall, greenboard, and gypsum
- Tile and terrazzo
Why Do General Contractors Hire Subcontractors?
General contractors hire subcontractors because it’s more cost-effective to hire independent contractors who work on specific project elements rather than employ an entire staff.
Explained another way, if the general contractor employed all the different types of specialists required to complete a project, their payroll would be enormous, and most of those employees would only work part-time.
That’s because subcontractors are independent entities that work on multiple projects simultaneously for several general contractors. Many subcontractors work as independent contractors for their own customers too.
What is Construction Manager Multi-Prime (CMMP)?
There are situations when experienced project owners, developers, or agents for the owner choose to manage their projects themselves.
In this case, the project owners hire the subcontractors, specialty contractors, and licensed trades they need, and each hired contractor has a separate contract with the project owner.
As we’ve learned, having a direct contractual relationship with the project owner makes each contractor a prime contractor.
This project delivery method is called Construction Manager Multi-Prime (CMMP). CMMP can provide experienced project owners with an attractive alternative to traditional project delivery methods.
By directing each prime contractor themselves, experienced project owners have more direct influence over costs and project outcomes.
What is an Independent Contractor?
An independent contractor is self-employed and provides labor, materials, equipment, or services for all or specific portions of the construction project. They work directly with the project owner.
Independent contractors are responsible for completing their portion of the project as specified in their contract with the hiring party.
When working with a project owner, entities are classified as independent contractors. As opposed to working with a general contractor, when an individual or entity is classified as a subcontractor.
What is a Licensed Trade Contractor?
Licensed trade contractors are individuals and business entities with specific skills, qualifications, and training that meet the strict criteria established by their state government.
Some licensed trades working in the construction industry include the following:
- HVAC technicians
- Elevator installation and maintenance contractors
- Fire system installation and maintenance contractors
Licensed trades often fall under the subcontractor umbrella, but not always. In some states, general contractors also require licenses. Check with your local government agency or building authority.
What is a Specialty Contractor?
Specialty contractors are highly specialized in one area of construction work and are typically not necessary on most projects.
However, when you need a specialist, you really NEED a specialist, and that’s where specialty contractors come in.
Many specialty contractors work in the construction industry, but here are just a few general categories:
- Bracing and shoring
- Site remediation
- Hazardous materials removal
What Do All Contractors Need?
While each discipline is unique and requires extensive training, experience, and skill, all contractors require core competency in their field and adequate insurance coverage to protect themselves, their employees, the project owner, and the environment.
Tools and Equipment
Every contractor needs specific tools and equipment to do their work.
General contractors without self-perform work crews rely on office equipment and use digital tools, such as project management software, to manage their projects.
Subcontractors, on the other hand, need all that and more. Everything from trucks, dozers, and heavy equipment, to hand tools, screwdrivers, fish tape, and pliers.
The key differences between contractor types and their work determine the tools and equipment required.
Anyone swinging a hammer and charging for the service can call themselves a construction contractor. And by definition, they are. But it takes years of hard work and training to become skilled and even longer to attain mastery of your craft.
The best general contractors, subcontractors, specialty contractors, and licensed trades in the industry have invested in themselves, their systems, and their employees’ skill sets to be the best in their fields of expertise.
All contractors, whether small business owners or large construction firms, need adequate liability insurance coverage.
General liability insurance protects the owner and the contractor in cases of bodily injury and property damage on the construction site.
A professional liability insurance policy protects contractors from inaccuracies, errors, and omissions in their contract documents, agreements, and written work.
Workers’ Compensation Insurance
Workers’ compensation insurance, also known as workman’s comp or workers’ comp, protects contractors and provides benefits for employees who may get injured or become ill while on the job.
Work-related injuries are common in construction, and workers are sometimes exposed to dangerous substances like asbestos or silica dust.
Workers’ compensation insurance reimburses employees for lost wages, medical expenses, and rehabilitation when required.
Registration, Licensing, and Certifications
The licensed trades, like mechanical contractors, plumbers, electricians, and fire system installers, all need state licenses to perform their work.
Some federal, state, and local governments require contractors to be licensed to operate. Depending on the project size and number of employees on staff, many contractors must employ an OSHA-certified safety director.
And it’s also wise for contractors who manage construction projects to carry a Project Management Professional (PMP)® certification.
The PMP certification is a globally recognized certificate issued by the Project Management Institute (PMI) that demonstrates competency in all areas of project management.
In addition to the required registrations, licensing, and certifications, many contractors must be bonded to qualify for project consideration.
Surety bonds are a form of insurance that guarantees a contractor can fulfill payment, performance, or compliance obligations. If, for any reason, the contractor fails to fulfill those obligations, the bond, usually a substantial sum of money, is forfeited to the surety bond holder.
Knowing each contractor’s scope of work, particular areas of expertise, responsibilities, requirements, and the hierarchical breakdown of the contractual relationships on a typical construction project keeps project owners on top of their investment from project conception through completion.
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