In the construction industry, subcontractors are individuals or companies hired to handle various aspects of larger projects. For example, one subcontractor may be responsible for pouring a skyscraper’s foundation while others install the steel frame, windows, and bricks. Keep reading for more information about these different roles. We’ll also discuss how to become a subcontractor.
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The role of subcontractors in construction
Construction projects typically have many moving parts. Tasks might include:
- Tearing down existing structures
- Erecting steel frames
- Pouring concrete
- Installing HVAC and plumbing systems
- Carpentry
It would be impractical for a single company to handle all of this. Consequently, general contractors outsource much of the work to subcontractors and manage projects at a higher level on behalf of the client. Here’s the hierarchy:
How to become a subcontractor
The exact process for becoming a subcontractor depends on the services you’re looking to provide. Here are the steps at a high level.
1. Gain relevant construction experience
General contractors need faith in your ability to handle whatever aspect of the job they’ve sent your way. Consequently, you’ll have an easier time finding work as a subcontractor if your resumé demonstrates extensive experience.
Subcontractors often gain this experience by:
- completing an apprenticeship
- attending a trade school or technical college
- working for a larger subcontracting firm before venturing out on their own
If you’re not certain about the correct path, consider searching for your area of specialization in the U.S. Bureau of Labor Statistics’ Operational Outlook Handbook. There, you’ll be able to see the typical education and training requirements for professionals in your field.
2. Obtain the necessary licenses and certifications
Depending on your location and intended area of specialization, you may need licensing to operate as a subcontractor. In the state of California, for example, electrical subcontractors need C-10 licensing.
Any reputable general contractor will only hire subcontractors operating legally according to federal, state, and local laws.
Consult the appropriate authorities (i.e. federal, state, or municipal government websites) regarding how to get a subcontractor license where you live. For more information about construction certifications, check out our top certifications for career development.
3. Create your company’s financial structure
Next, it’s important to plan your financial structure in a tax-efficient manner. Subcontractors are generally considered self-employed, although it may be worth setting up a corporate structure if you intend to hire other workers as part of your service.
Consult a licensed accountant specializing in construction subcontracting to determine the ideal solution.
4. Get insured
Once you’re licensed and aware of the financial structure your subcontracting business will take, look into securing appropriate insurance coverage. While you’ll work under general contractors, their insurance policies typically won’t apply to you and your workers.
Examples of insurance policies subcontractors often need include:
- general liability
- worker’s compensation
- automobile liability
- builder’s risk
- surety bonds
- errors and omissions coverage
Appropriate insurance coverage is often necessary for you to operate legally as a subcontractor. Even when it’s not, however, general contractors may refuse to work with you in the absence of appropriate insurance coverage. Think about it; if an incident happens and you lack coverage, a general contractor may fear you’ll pursue them for compensation. Your own insurance policy makes this less likely.
5. Begin seeking clients
Once you have the appropriate experience, licensing, company structure, and insurance, it’s time to begin finding work as a subcontractor. Check out this article for some tips on finding projects accepting bids.
Don’t underestimate how much of your time as a subcontractor will be spent finding opportunities. After all, you’re operating a business. That comes with administrative tasks!
If you have prior experience working for other subcontractors in your area of specialization, it may be worth brushing up on any relevant non-compete clauses.
For example, let’s say you previously worked for an electrical subcontractor in your area. When you left the company, did any clause in your contract render you incapable of rendering those services in the area again? You’d be wise to keep any such restrictions in mind since flouting them could prompt legal action.
6. Establish a bidding strategy and start submitting applications
Once you’ve found suitable projects, it’s time to start bidding. Check out this article for some tips on bidding as a subcontractor. In a nutshell, you’ll need to:
- Understand a given project’s needs before submitting your bid
- Effectively estimate your costs to ensure a suitable profit margin
- Format your bid based on the general contractor’s specifications
- Build a strong case regarding your suitability for the project
Read this blog for tips on writing an executive summary.
More tips for becoming a subcontractor
Here are some more tips that should help you thrive as a construction subcontractor.
Use available tools to operate your business smoothly
There are many applications (including our very own Bridgit Bench) designed to help subcontractors allocate resources effectively. You’d be wise to make proper use of them since your most successful competitors almost certainly are as well!
Don’t take on too much work
Subcontractors thrive on good reputations and relationships. Don’t take on so much work that it overwhelms you or your staff. This could lead to poor quality work and word will spread quickly.
If you have a hard time pacing yourself and earning a decent living, it may be worth investing in additional workers for your subcontracting business.
Don’t underestimate the importance of branding and marketing
While you may be tempted to focus solely on referrals and bids to secure work as a subcontractor, don’t ignore other forms of marketing.
When in doubt, look at what your competitors are doing. Do they advertise in local newspapers or on local radio stations? You may want to consider following their lead.
Respect the general contractor-subcontractor hierarchy
As a subcontractor, you’re typically expected to function as an extension of the general subcontractor. That means you should rarely go above them to raise concerns with the client. This would constitute jumping the chain of command, which is typically a big no-no in construction.
Carefully track your financials
If your primary passion is providing subcontracting services, you may not be particularly excited about crunching numbers. It’s incredibly important to stay on top of your expenses as a subcontractor, though. Don’t just assume you’re turning a profit only to discover later you’ve been operating in the red!
See this article for a list of common reasons construction projects go over budget. We also share some tips regarding accounting for hidden and unexpected expenses.
Subcontractor in Construction FAQ
How do I sell myself as a subcontractor?
You will want to highlight your experience, specialized skills, and demonstrate past successes with previous projects. It’s a good call to network with general contractors, join industry associations, and consider maintaining a professional online presence.
What are the cons of being a subcontractor?
While being a subcontractor can provide lots of benefits, some of the cons include inconsistent work, dependency on general contractors, and the added expenses of handling your own business expenses. It’s important to consider you’ll often be responsible for your own insurance and equipment costs.
Can you make a lot of money as an independent contractor?
Being an independent contractor can be very lucrative. You can make substantial income through high-paying contracts, especially if you’re focused on specializing in niche markets and are effective at managing your profit margins.
How are subcontractors usually paid?
Subcontractors are usually paid per project or based on milestones achieved. Payment terms are often outlined in contracts and may include progress payments or lump sums upon project completion.
We hope this article has helped you understand what it takes to become a subcontractor in construction. To summarize, the exact process varies depending on your area of specialty. Generally speaking, however, you’ll need experience, licensing, effective tax planning, insurance, and a solid bidding strategy.
If you are looking for similar advice for another role, read our detailed guide on how to become a construction project executive.
For more construction management tips, visit our blog. Also, check out how increasing transparency can improve recourse planning.
