The difference between a contractor and a subcontractor comes down to who hired them and what they are responsible for. A general contractor signs directly with the property owner and runs the entire project. A subcontractor is a specialist that the general contractor brings in to handle one trade, such as electrical, plumbing, or roofing, and has no direct contract with the owner. That single structural difference drives almost everything else: who pays whom, who can sue whom, who carries which insurance, and who answers to safety regulators when something goes wrong on site.
The General Contractor’s Role
A general contractor, sometimes called the prime contractor, is the single entity that holds the contract with the owner or developer. That contract covers the full scope of work, delivered on schedule and on budget. In federal procurement the terminology is formal: the general contractor is the party awarded the prime contract, and every firm supplying labor or materials under that contractor is a subcontractor.
Day to day, the general contractor coordinates every moving part of the job. That means sequencing trades so they don’t collide, ordering materials, pulling building permits, and confirming the finished work meets code. The general contractor is also the owner’s point of contact. Questions and complaints from the owner go to the general contractor, not to individual trade workers on site.
Most states require general contractors to hold a license before taking on projects. The specifics vary, but licensing usually involves passing an exam, demonstrating financial stability, and carrying minimum insurance. Unlicensed contracting can lead to fines, project shutdowns, and loss of the right to enforce a contract in court.
The Subcontractor’s Role
A subcontractor is a specialized firm or individual hired by the general contractor, not by the owner, to perform a defined portion of the project. Common subcontractor trades include:
- Electrical work: wiring, panel installation, and fixture hookups
- Plumbing: water supply, drainage, and gas lines
- HVAC: heating, ventilation, and air conditioning
- Masonry: brickwork, stonework, and concrete block
- Structural steel and framing
- Roofing and waterproofing
Subcontractors bring expertise the general contractor doesn’t keep in-house. Because many of these trades involve safety-critical systems like high-voltage wiring, gas piping, and structural loads, most jurisdictions require subcontractors to hold their own trade-specific licenses. A general contractor’s license does not authorize a subcontractor’s regulated work, and a trade license does not authorize overall project management.
Why the Contract Chain Matters
The legal backbone of this arrangement is privity of contract: two parties share a direct agreement that gives each enforceable rights against the other. On a typical project, two privity relationships exist. One is between the owner and the general contractor. The other is between the general contractor and the subcontractor. The owner and the subcontractor have no direct contract between them.
That has real consequences when things go wrong. A subcontractor with a dispute over scope, schedule, or payment pursues the general contractor, not the owner. An owner who discovers defective work pursues the general contractor, who then pursues the responsible subcontractor. A subcontractor ordinarily cannot sue the owner for breach of contract, and the owner cannot sue the subcontractor, because neither promised anything directly to the other.
Flow-Down Clauses
To bridge that gap, subcontracts often include a flow-down clause that imports selected terms from the prime contract. The purpose is to hold the subcontractor to the same quality standards, scheduling requirements, and specifications the general contractor promised the owner. How far a flow-down clause actually reaches depends on state law. Some states limit these clauses to scope items like plans, specifications, and quality standards. Others allow broader obligations such as indemnity and dispute resolution to flow down. Important terms are safer spelled out directly in the subcontract than left to a vague reference back to the prime contract.
How Each Gets Paid
Payment follows the contract chain. The owner pays the general contractor. The general contractor pays the subcontractors. That ordering sets up most of the payment risk a subcontractor faces, because the subcontractor’s money depends on a transaction it is not a party to.
Pay-When-Paid and Pay-If-Paid Clauses
Subcontracts commonly include clauses that link the subcontractor’s payment to whether and when the owner pays the general contractor. These come in two forms that look similar but carry very different risk:
- Pay-when-paid: the general contractor pays the subcontractor within a reasonable time after receiving payment from the owner. Courts generally treat this as a timing mechanism, meaning the subcontractor will still get paid even if there is a delay.
- Pay-if-paid: the general contractor’s obligation to pay only arises if the owner actually pays. This shifts the entire risk of owner nonpayment onto the subcontractor.
Many states restrict or refuse to enforce pay-if-paid clauses, on the view that they place an unfair burden on a subcontractor who has no relationship with the owner and no ability to evaluate the owner’s creditworthiness before signing.
Mechanic’s Liens
When a subcontractor goes unpaid on a private project, every state offers a mechanic’s lien. The lien is a legal claim recorded against the property title, securing payment for the labor and materials the subcontractor provided. Because it attaches to the property rather than to a person, the lien pulls the owner into the dispute even though the owner and subcontractor have no direct contract.
Filing deadlines vary significantly, running roughly from 60 to 365 days after the subcontractor’s last day of work. Missing the deadline usually means losing the right to file. Most states also require a preliminary notice to the owner before or shortly after starting work in order to preserve lien rights later.
Federal Projects and the Miller Act
Federal property can’t be liened, so Congress built a different safety net. The Miller Act requires anyone awarded a federal construction contract exceeding $100,000 to post a performance bond guaranteeing completion and a payment bond guaranteeing payment to subcontractors and suppliers.1Office of the Law Revision Counsel. 40 US Code 3131 – Bonds of Contractors of Public Buildings or Works The payment bond generally equals the full contract price.
An unpaid subcontractor on a federal project may sue on the payment bond if it has not been paid in full within 90 days of its last day of work. The lawsuit must be filed within one year of that last day of labor or materials.2Office of the Law Revision Counsel. 40 USC 3133 – Rights of Persons Furnishing Labor or Material A lower-tier subcontractor or supplier with no direct contract with the general contractor must also give the general contractor written notice within that 90-day window. Many states have “Little Miller Acts” that impose similar bonding on state-funded work.
Federal projects also come with prompt payment rules: the general contractor must pay each subcontractor within seven days of receiving the government’s payment for that subcontractor’s work.3Acquisition.GOV. FAR 52.232-27 Prompt Payment for Construction Contracts Many states have enacted comparable prompt payment statutes for private work.
Taxes and Worker Classification
Subcontractors are independent businesses, not employees of the general contractor. That shapes federal tax reporting. For payments made in 2026, a general contractor who pays a subcontractor $2,000 or more during the year must file a Form 1099-NEC with the IRS by January 31 of the following year.4Internal Revenue Service. Form 1099-NEC and Independent Contractors The threshold was $600 for payments made before 2026.
Classification matters because treating a true employee as a subcontractor exposes the hiring party to back taxes and penalties. The IRS weighs behavioral control, financial control, and the overall relationship of the parties to decide which category fits, and no single factor is decisive.5Internal Revenue Service. Topic No. 762, Independent Contractor vs. Employee A worker who sets their own hours, supplies their own tools, bears a risk of loss, and takes work from multiple clients looks like a subcontractor. A worker trained, directed, and scheduled by the hiring firm looks like an employee, no matter what the paperwork says.
Insurance, Indemnity, and Safety
Insurance Carried by Each Side
Subcontractors generally carry their own workers’ compensation insurance for their employees. If a subcontractor shows up without that coverage, the general contractor usually ends up on the hook, both for the premiums and for any claims by the subcontractor’s injured workers. That is why general contractors routinely demand a certificate of workers’ compensation insurance before letting a subcontractor start. If the general contractor cannot show proof of subcontractor coverage during a premium audit, the insurer recalculates the general contractor’s premium to include the subcontractor’s payroll.
Subcontractors also typically carry their own commercial general liability insurance for property damage and bodily injury caused by their work. General contractors usually set a minimum coverage amount and require the subcontractor to name the general contractor as an additional insured, giving the general contractor direct access to the policy when a claim arises from the subcontractor’s work.
Indemnity Clauses
Most subcontracts include an indemnity clause requiring the subcontractor to reimburse the general contractor for losses tied to the subcontractor’s work. These range from narrow clauses, where the subcontractor covers only losses it caused through its own negligence, to broad clauses that reach losses even when the general contractor is partly at fault. Roughly 45 states have anti-indemnity statutes limiting or prohibiting the broadest form in construction contracts, preventing a general contractor from pushing the cost of its own negligence entirely onto a subcontractor.
Workplace Safety
On a construction site with multiple employers, OSHA can cite more than one company for the same violation. Under its multi-employer citation policy, the general contractor usually qualifies as a “controlling employer,” meaning it has general supervisory authority over the site, including power to correct hazards or require others to do so.6Occupational Safety and Health Administration. Multi-Employer Citation Policy The standard applied to a controlling employer is “reasonable care,” judged against the size of the project, how quickly hazards change, the safety history of the subcontractors on site, and whether the general contractor ran periodic inspections with an effective system for fixing problems.
A general contractor that merely tells a subcontractor about a hazard, without stopping work or withholding payment until it is corrected, can still be cited. Subcontractors remain independently responsible for their own workers and can be cited as exposing or creating employers regardless of what the general contractor does.
Quick Comparison
- Contract with the owner: the general contractor signs directly with the owner; the subcontractor contracts only with the general contractor.
- Scope of work: the general contractor oversees the whole project; the subcontractor performs one trade.
- Licensing: both need licenses, but the general contractor holds a broad project management license and the subcontractor holds a trade-specific license.
- Tax reporting: the general contractor issues Form 1099-NEC to each subcontractor paid $2,000 or more during the year.4Internal Revenue Service. Form 1099-NEC and Independent Contractors
- Payment disputes: a subcontractor’s claim runs through the general contractor; on private projects, a mechanic’s lien is available against the property, and on federal projects, suit on the payment bond is the remedy.
- Insurance: both carry their own policies, and if the subcontractor lacks workers’ compensation, the general contractor absorbs that cost.
- Safety: the general contractor is responsible for overall site safety as a controlling employer; the subcontractor is responsible for its own workers and the hazards its trade creates.