Prime Contractor vs. Subcontractor: Things You Need To Know

Government contractors and subcontractors are instrumental in supporting the growth of the country. Working hand in hand, these contractors fulfill their unique roles to complete government contracts, from procuring and distributing COVID-19 vaccines to safeguarding the nation’s cyberspace against internal and external threats.

Now that the government contracting industry is growing faster than ever, the need for government contractors and subcontractors is also on the rise. Each role uses its expertise to bring government plans to fruition—from managing a project to lending specialized labor.

With your strengths and business goals in mind, know if you are a much fit to be a prime contractor or subcontractor by reading this article. 

What is a prime contractor?

A prime contractor is a company who enters into a direct contract with the government. Since they have complete control in the movement of the government project, the prime contractors are responsible for tracking the progress of the project, monitoring project costs, and managing subcontractors.

What is a subcontractor? 

A subcontractor is also a company who offers its specialized services to prime contractors. Unlike prime contractors who focus on the managerial side of the government contract, the subcontractors tend to dedicate its efforts to lending its expertise to the project. And because of this, subcontractors are deemed to be the most suitable in product and service delivery projects that can help boost the success of a project.

Subcontractors are usually hired for a huge government contracts, such as executing a construction project for a local government office.

Is a subcontractor a contractor?

Yes. There are two common types of contractors in the government contracting industry: the prime contractor and the subcontractor. They cooperate to accomplish the government contract awarded to the prime contractor.

Is a subcontractor the same as an independent contractor?

The subcontractor and the independent contractor are usually confused with each other, but they are different.

An independent contractor is an individual working on a contractual basis for a company, whether public or private. Also known as a freelance employee, an independent contractor functions the same as an employee, but they have the freedom to decide their scope of work and schedule. However, unlike full-time employees, independent contractors are considered self-employed and must file their taxes.

On the other hand, a subcontractor is a company who enters into a subcontractor agreement with a prime contractor. Subcontractors specialize in different niches that is valuable in completing more complex projects.

What is the difference between a prime contractor and a subcontractor?

One of their key differences is their work dynamic. The prime contractor is a company directly working under the government on a contractual basis. On the other hand, the subcontractor works under the prime contractor to complete a specific area of the project that needs their expertise. 

What are the requirements to become a prime contractor?

Being a prime contractor requires patience, dedication, and great attention to detail. The process to become one is strict and thorough that anyone can get lost in the sea of requirements. But, here is an overview of the things you should expect to do before you undergo the process of becoming a prime contractor.

1. Evaluate your business

Before entering the contracting industry, you have to ensure that your business possesses all the necessary documentation to be recognized as a legal, commercial entity. The process of registering your business differs depending on your size and corporate structure. Talk with your local government about their specific requirements.

2. Get familiar with the federal contracting policies

On top of learning the ropes of the confusing process of becoming a government contractor, you should also understand the federal laws that govern the industry. For starters, read up on Federal Acquisition Regulations or FAR.

3. Obtain your federal and state tax ID numbers

Your federal and state tax ID numbers are necessary to apply for business permits, pay taxes, and qualify for SAM.gov. SAM.gov is the official federal website for government contracts. Learn more about registering your business at SAM on the succeeding steps.

4. Request for your DUNS number

It is easy to get your DUNS Number at the Dun & Bradstreet website, and not to mention—free. Fill out the form found on the website, then wait for at least 1-3 business days for your DUNS Number to be sent to your registered email.

5. Identify your NAICS Codes

The North American Industry Classification System (NAICS) is a widely-used system by the federal government to classify businesses for statistical purposes. Using the codes in the NAICS website, you have to select which category or categories your products and services belong to. This will help you, and the government buyers easily identify whether your business is aligned with the contract opportunity.

6. Register your business at SAM

The System for Award Management (SAM) is a one-stop portal for all your government contracting needs. SAM houses essential services every contractor needs, such as an open database for government contract opportunities. But before you become qualified for opportunities, you have to register your business at SAM first. Here are the things you need to prepare:

• DUNS number
• Taxpayer Identification Number (TIN) and taxpayer name
• For businesses established within the U.S., your Contractor, and Government Entity (CAGE) code. If you don’t have your CAGE code yet, it will be provided to you after completing your SAM registration.
• For businesses outside the U.S or its territories, you should get your NATO Commercial and Government Entity (NCAGE) code.
• Financial and banking information for your Electronic Funds Transfer (EFT)

7. Complete your SBA Profile

Government contracting officers utilize several channels to seek contractors, and one of them is the Dynamic Small Business Search (DSBS). So if you’re a small business owner, you should pay greater attention to utilizing this search tool.

Contracting officers use DSBS to scout for suitable small business contractors for their projects. And to get a glimpse of whether the contractor will fit the bill, the contracting officers will take a look at the contractor’s SBA profile.

So after you have completed your SAM registration, you should now start editing your SBA profile. Your SBA profile should reflect your skills, experience, and expertise in the field, so crafting a brief company background on the platform might get you considered for a contract.

Fulfilling these requirements is just the tip of the iceberg. To know more about becoming a prime government contractor, check out this beginner’s guide to orient yourself in the ins and outs of the industry and tips on how to write a government contract bid. After that, here is another guide to help you network with executives during live events and even online conferences to secure more contracting opportunities.

What are the requirements to become a subcontractor?

Unlike the stringent requirements to become a prime contractor, the process to become a subcontractor is more forgiving, especially for beginners and small business owners. If you choose to test the waters a subcontractor first, here’s what you need to do:

1. Ensure your business is properly registered

Just like a prime contractor, you have to ensure that your business is duly recognized as a legal commercial entity and has acquired the necessary permits to operate.

The requirements to register your business vary depending on the size of your enterprise. Here is a quick guide by the Small Business Administration regarding the basic requirements for business registration.

2. Become well-versed in the subcontracting regulations

Entering the federal contracting industry means that you will subject yourself to a series of strict procedures, from seeking contract opportunities to drafting the contract with the prime government contractor.

Although you will not be working directly with a federal agency, subcontractors are still bound by policies and legal rights to ensure a fair and just deal between the subcontractor, prime contractor, and the government. To get you started, you can begin by reading the Code of Federal Regulations, the Federal Acquisition Regulations, the Legal Protections for Subcontractors on Federal Prime Contracts, and publications of different federal agencies.

3. Get certified in your specialty

Prime contractors seek subcontractors for their expertise in their respective fields. So if you want to thrive in this hyper-competitive industry, you have to continually acquire certifications that can upgrade your unique skillsets to the next level. For example, if you want to venture into the federal construction industry using your expertise in plumbing, you have to acquire the necessary certifications that can also build up your company profile.

Aside from obtaining certifications for your specialty, you can also seek mentors and thought leaders to gain the latest insights and trends about your industry.

4. Keep tabs with subcontracting opportunity websites

Once you have completed all of the basic requirements to become a subcontractor, you can now start looking for subcontracting opportunities. Fortunately, in this day and age, federal agencies and prime contractors use these official online platforms to publish opportunities for subcontractors.

Subcontracting Network (SubNet)

A free web service offered by the Small Business Administration (SBA), you can use SubNet to search for subcontracting solicitations, sources sought, and outreach events.

Directory of federal government prime contractors with subcontracting plans

In larger and more complex government projects, prime contractors are bound by the contract to craft a subcontracting plan. This requires the prime contractors to seek qualified small business subcontractors to assist them on the government project. That is why the SBA maintains this directory to help subcontractors connect with the prime contractors directly regarding the opportunity.

Subcontracting Directory for Small Businesses

Similar to how SBA’s directory works, The General Services Administration (GSA) also maintains its subcontracting directory. Browse subcontracting opportunities using their built-in search tool, ezSearch.

5. Explore insurance policies

In some cases, the prime contractor does not include the subcontractors in their insurance policy. However, insurance policies are imperative to protect your subcontracting firm from liabilities due to unforeseen damages and accidents.

So before you enter into a federal prime contract, try to explore insurance policies first, such as the Commercial General Liability (CGL) insurance plan.

Take a deeper dive into the federal subcontracting industry with this guide for new and aspiring subcontractors.