What is a subcontractor?

The answer to this question seems obvious – a subcontractor is a contractor that contracts with the prime contractor to perform a scope of work on a construction project.

However, it is not always easy to distinguish a subcontractor from a materials supplier (sometimes referred to as a “materialman”). That distinction is important in the context of claims by lower-tier subcontractors or materials suppliers on payment bonds, such as those provided by prime contractors on federal and state public works projects. That is, a lower-tier subcontractor or materials supplier may not be entitled to recovery from a payment bond if its contract is with a materials supplier instead of a subcontractor. Therefore, identifying the role of the party with whom a contractor is contracting is a key task the prudent contractor will perform at the outset of a project.

This distinction is most important in the context of federal public works projects. For those projects, the Miller Act restricts claimants on payment bonds to those who had a contract with the prime contractor and those who had a contract with a subcontractor, provided that in the latter case the claimant provides notice to the prime contractor. In other words, if a firm has a contract with a materials supplier, as opposed to a subcontractor, the firm does not have entitlement to payment under the bond. Courts look at the “total relationship” between the parties to determine if the party in question is a subcontractor or materials supplier.

Courts have applied a balancing test to make this determination, with some factors weighing in favor of a subcontractor relationship and other factors weighing in favor of a materials supplier relationship.

Keep reading this article at: https://idahobusinessreview.com/2019/02/28/the-definition-of-a-subcontractor-and-why-it-matters/