Subcontractor
A person or business performing part of another's contract.
Last updated
A subcontractor is a person or business that undertakes to perform part or all of the obligations of another’s contract, with a subcontract being the contract that assigns that portion of work. General contractors, prime contractors, or main contractors often hire subcontractors to carry out specific tasks within a larger project, aiming to reduce costs or mitigate project risks. The general contractor expects to receive service of equal or better quality than it could provide itself, while assuming lower overall risk. The European Union has recognized the importance of subcontracting in its public procurement rules, viewing it as a mechanism to increase the involvement of small and medium-sized enterprises in supplying goods and services to the public sector.
Types
Subcontracting arrangements arise in various fields, including construction and engineering. In United Kingdom building industry contract law, particularly under JCT standard form contracts, three types of subcontractors are identified. A domestic subcontractor contracts directly with the main contractor to supply materials or execute work.
A nominated subcontractor is selected and approved by the architect or supervising officer; the main contractor must provide attendance—such as water, power, and restrooms—for the nominated subcontractor, and this arrangement effectively creates a direct contractual link between the client and the subcontractor. Named subcontractors are essentially the same as domestic subcontractors, employed by the main contractor. Companies may also enter into teaming agreements, which define their contributions to a client bid and outline proposed subcontracting if the bid succeeds; under US federal acquisition rules, these are called contractor team arrangements and apply to specific tenders, requiring renegotiation for future use.
Contracting law
In contracting law, an obligation to award a subcontract to a named subcontractor can arise if a bidding process identifies that subcontractor as an intended partner. A 2002 Canadian case, A. Dynasty Roofing (Windsor) Ltd. v. Marathon Construction Services (1991) Inc., illustrated this: the general contractor named two roofing companies as potential subcontractors, received prices from both, and then awarded the work to the higher-priced firm after winning the prime contract.
Quick Facts
- Field
- Construction
- engineering
- public procurement
- tax law
- Known for
- Performing specific tasks under a general contractor to reduce costs or mitigate risks
- Types
- Domestic
- nominated
- and named subcontractors (UK building industry)
- Legal context
- United States public acquisition regulations contain distinct definitions; calls for a consolidated definition
Facts from the source article.
Lore & Background
Subcontracting arrangements arise in a number of contexts including construction, engineering, and other fields. In United Kingdom building industry contract law, particularly when using JCT standard form contracts, three subcontractor types are identified: domestic subcontractors, who contract with the main contractor to supply or fix materials or execute work; nominated subcontractors, where the architect or supervising officer reserves the right of final selection and approval; and named subcontractors, effectively the same as domestic subcontractors. Where companies work together to plan how they will meet a client need, they may enter into a teaming agreement, which defines their contribution to the client bid and the proposed subcontracting to be put in place if the bid is successful. Under US federal acquisition rules, the term 'contractor team arrangements' is used to define and recognize such agreements.
Reader's Guide
The European Union has recognized the importance of sub-contracting in public procurement to involve more small and medium-sized undertakings. However, legal definitions vary: United States public acquisition regulations contain a number of distinct definitions of 'subcontract' and 'subcontractor', with calls for a consolidated definition.
In contracting law, an obligation to award a subcontract to a named subcontractor can arise, as illustrated by a 2002 Canadian case where the Ontario Superior Court held that a general contractor was obliged to subcontract with a named roofing company after bidding. Under Florida construction law, a pay when paid clause is unenforceable unless it unambiguously transfers the risk of non-payment to the subcontractor. Under UK tax law, certain outsourced activities like collaborative research do not count as subcontracting for tax purposes, a subtlety relevant to research and development tax relief.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Subcontractor (CC BY-SA 4.0).
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