The Effect of Subcontractor Tiers on Your Construction Project

When a contractor bids on and wins a construction project, there is usually a lot more going on than meets the eye. Learn more about sub tier contractors and how they impact your construction projects.
Ben Conry
Twitter iconfacebook iconlinkedin icon

When a contractor bids on and wins a construction project, there is usually a lot more going on than meets the eye. While it's true that the contractor agrees to take on the responsibilities outlined in the contract, he's not necessarily saying that his company will complete every task. In fact, most construction jobs aren't carried out by a single company. The general contractor who bids on the project will most likely hire tiers of subcontractors to do some of the work. Those subcontractors might even hire another company to take care of details that are beyond their area of expertise.

The entire network of contractors and subcontractors can quickly get complicated if you don't have a firm understanding of the tiers of subcontractors and how the chain of command works. This guide will help you understand the difference between general contractors and subcontractors and how all these companies navigate the many working parts of a construction project together.

General Contractors and Subcontractors: The Line of Command

General contractors and subcontractors are more than just job titles. The individuals who fill these roles have different positions and distinct responsibilities. Consider the way a construction project works. The property owner or architect hires a general contractor to complete a construction project. As the GC plans out the project, he hires subcontractors to complete specific parts of the project. When this occurs, there is a new contract between the GC and the subcontractor to define the details of the project that relates to the subcontractor.

While the GC has responsibility for overseeing the entire project (including the part carried out by the subcontractor), the sub is only responsible for their specific job. In other words, it's up to the sub to ensure they maintain their contract with the GC, but GC has to ensure the sub works in a manner that complies with the original project contract.

Tiers of Subcontractors

A general contractor isn't the only person who can hire subcontractors to work on a project. In the same way, the GC can choose to hire additional contractors to complete specific tasks. As a result, the sub might choose to hire another contractor or company to help fulfill their contract with the GC. Subcontractors hired by first-tier contractors are called second-tier subcontractors. As you might have imagined, there can also be more tiers of subs. 

Consider a project in which the GC hires a subcontractor to complete all the interior work for a structure. The sub completing the interior work may hire another contractor to take care of the finishing work. Perhaps the second-tier sub completing the finishing work doesn't specialize in trim work. Here's where the third-tier subs come in. If the third-tier subs don't specialize in cabinetry, they might call in a fourth company. The chain of command through these tiers follows the trail of hires. No matter what tier a subcontractor is defined as, their responsibility is to the contractor who hired them for the job.

Advantages and Disadvantages of the Subcontractor Chain

The ability to create tiers of subcontractors works to significantly streamline the bidding process and give the project some connectivity. Yet, a long chain of command can create confusion and delayed payments if not carefully coordinated. Consider how these important features of any construction project are affected by the subcontractor chain.

Contracts

Construction project contract
A construction project begins with a single contract. This will become the main contract that describes the details of the entire job. The cost of the project and payment details will also be in this main contract. Subcontractors don't sign the main contract. Instead, there is an additional contract written up by the contractor who hires the sub. This is referred to as a subcontractor agreement. It is the responsibility of the contractor to hire a sub to ensure the subcontractor contract also meets the demands of their original contract. Each subcontractor is only responsible for the terms included in their contract.

Project Bids

Imagine if, instead of bidding on a project, a contractor was only permitted to bid on the portion of the project to be completed by their company employees. This would require an architect or property owner to divide the project into sections that would be awarded to separate companies. The bidding process would take considerably longer. As a result, the contractors working on the project would have little incentive to cooperate with each other. In the end, this situation leads to disorganized chaos.

Compliance

All construction projects must meet the standards of federal, state, and local requirements. Certain projects must also comply with government requirements. This means a general contractor is often required to meet many licensing requirements to win a project. Conversely, subcontractors might not need to have the same level of licensing as the GC. Instead, the GC will oversee the project. this means ensuring all levels of subcontractors stay in compliance with all required regulations. In other words, this process is only easy if compliance requirements are included in contracts.

Additionally, advances in technology also help GCs and subs maintain compliance. Compliance management tools ensure you can track compliance across all levels of subs.  Additionally, cloud storage means documents are less likely to be misplaced. Furthermore, other project management tools allow you to determine exactly how your subs are permitted to submit critical documents.

Specialty Contractors

Typically, general contractors focus on the big picture, but any type of building relies on fine details to be truly complete. When subcontractors specialize in different areas of expertise, they have the capability to do a specific thing really well. This benefits everyone involved with the project. For instance, most projects require a subcontractor that specializes in glass to install windows, another sub to take care of hardwood flooring, and a different professional to install cabinetry.

Change Orders

Modifications to the scope of a project are common. These changes often come into play when a subcontractor makes adjustments to the terms of a portion of the project. When a change is required, a change order must be filed. Next, it must be approved before additional materials can be purchased or extra work is completed. As a result, the change order might need to be approved by multiple contractors or project owners.

Finally, construction projects frequently call for multiple tiers of subcontractors and contractors. Without this structure, completing projects would be much more difficult and time-consuming. While multiple tiers of contractors can potentially lead to confusion. That doesn't have to be the case. When you use specific tools for the trade it's easier to manage multiple tiers of contractors. 

Ready to try Flashtract?

Be sure that you're managing your sub contractors, and sub tier contractors effectively and accurately when you use Flashtract's construction billing software. Let us walk you through the best ways to keep your project organized and on track.

Don't suffer through another month end close-out...

See why everyone is switching to Flashtract
Get started now
Correct documents, every time
Eliminate compliance risk
Easy to use and get started