Sometimes even government contractors need contractors, which is why we’re dedicating a full blog to the subcontractor definition!
Government subcontractors help suppliers maximize efficiency and cut costs when providing contract deliverables for government buyers. Should your government contracting business be using subcontractors and, conversely, should you look at subcontracting with other companies?
If you have these questions, then you’ve come to the right place. We’ll look at the more frequently asked questions about the subcontractor-contractor relationship in this blog:
- What distinguishes a primary contractor from a subcontractor?
- What are the benefits and drawbacks of hiring a subcontractor?
- Can prime contractors be subcontractors – and vice versa?
- Does my business get past performance credit for being a subcontractor?
- Will hiring a subcontractor enable me to use their socioeconomic status in a set-aside?
Let’s get started!
What distinguishes a primary contractor from a subcontractor?
When a company wins a bid from a government agency, it is unlikely that the selected firm will be able to independently provide all the necessary labor, skills or products needed to fulfill the contract’s tasks. To satisfy certain obligations, these “prime” or “general” contractors may resort to soliciting other firms for outside work to ensure that they can provide the public buyer with requested project deliverables. These firms are referred to as “subcontractors” because they are a customer of the prime contractor who is directly accountable to the government agency.
These subcontractors can even enlist the services and support of other subcontractors. While there may be a chain of companies working on any specific project task, it is ultimately the responsibility of the prime contractor to ensure that the government buyer receives its contractual deliverables. For federal work, a prime contractor must also register with the System Award Management (SAM) system, whereas companies who solely operate as subcontractors are not required to do so.
What are the benefits and drawbacks of hiring a subcontractor?
Like in any business decision, there are both benefits and risks associated with delegating work to a subcontractor. Contracting out work that is highly specialized can be optimal for prime contractors who have won bids for large-scale, sprawling projects that require specific expertise or unique capabilities to complete advanced contractual tasks. However, with prime contractors being the sole party ultimately liable for presenting deliverables to the government buyer, the possible lack of accountability felt by some subcontractors to the project’s end goals may lead to substandard work performance, popped deadlines, and unsatisfactory outcomes for the prime contractor. Given this consideration, it is often beneficial to rely on familiar subcontractors with positive rapport and past performance credit to ensure that contractual tasks are executed diligently and in a timely fashion.
Can prime contractors be subcontractors – and vice versa?
In theory, yes. There is no formal restriction limiting a contractor from serving as both a prime contractor on one project and a subcontractor on another. However, by virtue of distinction, a contractor can only serve as a prime contractor or a subcontractor on a given contract. In practice, prime and subcontractors often face different incentives and as such behave differently in the contracting marketplace. Prime contractors are chiefly concerned with pursuing leads to identify business opportunities with contracting agencies, while subcontractors are looking to accept contracts with prime contractors that may be narrower in scope. This creates a dynamic whereby prime contractors tend to be more customer oriented in their outreach efforts compared to routine subcontractors.
Does my business get past performance credit for being a subcontractor?
Simply put: it’s complicated. While some agencies do examine past performance of subcontractors as a criteria for bid selection, the U.S. Small Business Association (SBA) only mandates that such reviews take place under certain conditions. This contradicts the widely held misconception that Federal Acquisition Regulation (FAR) requires review of subcontractor past performance. However, recent policy changes suggest that standardized review for past subcontractor performance may soon become the norm for federal contracting.
From a practical standpoint, however, a company may list past experience as a subcontractor on any future effort. It is beneficial for some companies to gain subcontracting experience before pursuing prime contracts, regardless of whether they may earn formal past performance credit for such work.
Will hiring a subcontractor enable me to use their socioeconomic status in a set-aside?
No. The Small Business Act mandates that a prime contractor complete at least 51% of the work associated with the provisions of the contract. So even if a prime contractor relies solely on subcontractors whose socioeconomic designations match the desired small business set-aside status, it will not sufficiently be considered a set-aside project. Similarly, if a prime contractor with set-aside status wins a bid, they are legally obligated to ensure that they do not subcontract over 50% of their work to subcontractors. This policy helps ensure the integrity of the contracting process by eliminating potential loopholes.
Where can I find subcontractors for my business?
Govshop.com utilizes powerful machine learning technology to allow suppliers and government users to search and identify millions of business matching opportunities. Head to www.govshop.com today to create your free profile and learn more about what GovShop can do to help match you and your business with fantastic public sector opportunities.
References
“41 U.S. Code § 8701 – Definitions.” Legal Information Institute, Cornell University, www.law.cornell.edu/uscode/text/41/8701.
Jensen, John E, and Alexander B Ginsberg. “Taking Credit for Subcontractor Past Performance.” Pillsbury Law, 21 Feb. 2017, www.pillsburylaw.com/en/news-and-insights/taking-credit-for-subcontractor-past-performance.html.
Prairie, John R., and George E. Petel. “SBA Changes Limitations on Subcontracting Requirements.” Wiley, 2 June 2016, www.wiley.law/alert-SBA-Changes-Limitations-on-Subcontracting-Requirements.
Specht, Damien, and James Tucker. “New Small Business Rules: Capabilities Of Small Business Joint Venture Members And First-Tier Subcontractors.” JD Supra, 23 Oct. 2020, www.jdsupra.com/legalnews/new-small-business-rules-capabilities-70063/.
“Subcontractor vs Contractor: Understanding the Difference.” ESUB Construction Software, 5 Nov. 2020, esub.com/resources/subcontractor-vs-contractor-understanding-the-difference/.
“Subcontractor.” The Free Dictionary, Farlex, legal-dictionary.thefreedictionary.com/Subcontractor.