Subcontract
A subcontract lets the general contractor delegate specialized work (electrical, plumbing, glazing and curtain wall, waterproofing, structural steel, HVAC) to firms that master that trade, instead of self-performing it with in-house crews. The scope of the subcontract is defined by line items in the bill of quantities and is usually agreed on a unit-price or lump-sum basis.
Unlike piecework —which is only a way to pay for labor per unit produced—, a subcontract transfers the responsibility for delivering a complete work item: the subcontractor supplies the inputs, directs its own crew, and answers for the result. Payment to the subcontractor is normally handled with the same instruments as a construction contract: a down payment, periodic progress estimates (payment applications) against work in place, retainage held as security, and final settlement.
Even when the subcontractor performs the work, the general contractor keeps responsibility toward the owner for the compliance, quality, and schedule of that portion of the project; that is why bonds, insurance, and proof of tax, payroll, and social security obligations are commonly required from the subcontractor. In many jurisdictions, labor regulations restrict pure staffing outsourcing, while the subcontracting of specialized works and services remains valid when it is properly registered and meets the applicable legal requirements.
Example
A construction firm building an apartment complex subcontracts the entire electrical installation for $1,800,000. The subcontractor provides materials, labor, and equipment; it receives a 30% down payment ($540,000) and bills through monthly progress estimates against work in place, from which the down payment is amortized and a 5% retainage is withheld and released at final settlement.
Frequently asked questions
What is the difference between a subcontract and piecework?
A subcontract is the hiring of a third party to execute a complete work item or trade, with its own materials, labor, and equipment, and with responsibility for the result. Piecework is only a way to pay for labor per unit produced, generally within the project itself and without transferring responsibility for the work item.
Who is responsible for the work toward the owner when there are subcontractors?
The general contractor. Even though the subcontractor performs the work, whoever signed the contract with the owner remains responsible for compliance, quality, and schedule. That is why they usually require bonds, insurance, and proof of tax and social security obligations from the subcontractor.
How is a subcontractor paid?
Usually with the same mechanisms as a construction contract: an initial down payment, periodic estimates against the work actually completed and verified, amortization of the down payment, retainage held as a guarantee, and final settlement once the work is finished and the retainage is released.