When a mechanical contractor asked me whether he should stay a subcontractor or become a prime contractor, my first question was: "What problem are you trying to solve?"
The subcontractor vs. prime contractor decision isn't about one being better than the other — it's about what fits your business, your risk tolerance, and your goals.
Let me break down the differences.
Defining the Roles
Prime Contractor (General Contractor)
The prime contractor has a direct contract with the project owner. They're responsible for delivering the entire project — coordinating all trades, managing the schedule, and ensuring the work meets specifications.
Subcontractor
A subcontractor has a contract with the prime contractor (not the owner). They perform specific portions of the work — electrical, plumbing, HVAC, drywall, etc. — under the prime's coordination.
In Between
Some contractors work both roles:
Key Differences
Contract Relationship
**Prime:** Direct contract with owner. Full responsibility for project delivery.
**Subcontractor:** Contract with prime. Responsible only for their specific scope.
Payment Chain
**Prime:** Paid directly by owner. Manages payment to all subs.
**Subcontractor:** Paid by prime (who's paid by owner). Subject to payment chain delays.
Risk Level
**Prime:** Higher risk. Responsible for project-wide issues, all coordination, schedule, and all subcontractor performance.
**Subcontractor:** Lower project-wide risk. But still responsible for their scope, and dependent on prime's payment.
Insurance Requirements
**Prime:** Higher liability limits. Often require umbrella policies. Responsible for project insurance coordination.
**Subcontractor:** Standard GL, workers comp, auto. Limits set by prime's requirements.
Bonding
**Prime:** Often required to bond the entire project value.
**Subcontractor:** May need performance bonds for larger scopes. Generally lower bonding requirements.
Staffing Needs
**Prime:** Need project managers, schedulers, estimators for full-scope work. Larger administrative overhead.
**Subcontractor:** Can focus staff on trade expertise. Smaller overhead possible.
Financial Comparison
Prime Contractor Financials
**Revenue potential:** Higher. You're billing the full project value.
**Profit margin:** Varies widely. Can be 5-15% on good projects.
**Cash requirements:** Higher. You're paying subs before owner pays you.
**Risk of loss:** Higher. Overruns on any trade can eat your profit.
Subcontractor Financials
**Revenue potential:** Limited to your trade scope.
**Profit margin:** Often higher percentage, 8-20% is common for good specialty work.
**Cash requirements:** Lower. Smaller project portions mean smaller outlays.
**Risk of loss:** Limited to your scope (though still subject to prime's payment issues).
Advantages of Being a Subcontractor
Specialize Deeply
You can focus on what you do best. An electrical subcontractor can be the best electrician on every job without worrying about managing carpenters.
Lower Overhead
Smaller staff, simpler operations, less administrative burden.
Reduced Risk
You're not responsible for the whole project going wrong. Your liability is limited to your scope.
Easier Entry
Starting as a subcontractor requires less capital, bonding capacity, and administrative infrastructure.
Work With Good Primes
Partner with quality GCs and let them handle the coordination headaches.
Advantages of Being a Prime Contractor
Higher Revenue
You capture the full project value, not just one trade.
Control
You make the decisions. You set the schedule. You choose the subs.
Client Relationships
Direct owner relationships can lead to repeat business and referrals.
Growth Potential
More opportunities to scale into larger projects.
No Middleman
You're not dependent on a GC to pay you from owner payments.
Challenges as a Subcontractor
Payment Dependency
If the prime doesn't get paid, you don't get paid.
Lack of Control
You work within the prime's schedule, processes, and decisions.
Relationship Leverage
You're always one step removed from the owner.
Bid Competition
Many subcontractors compete for the same scopes.
Scope Creep Pressure
Primes sometimes push extra work onto subs.
Challenges as a Prime Contractor
Coordination Complexity
You're managing multiple trades, schedules, and personalities.
Cash Flow Intensity
Paying subs while waiting for owner payments strains resources.
Broader Liability
Problems anywhere on the project become your problems.
Bonding Requirements
Larger projects require larger bonds, which require financial capacity.
Administrative Burden
More paperwork, more compliance, more management.
Making the Transition
If you're a subcontractor considering becoming a prime:
Start Small
Your first prime contracts should be projects you could complete with your own forces if subs failed.
Build Relationships
Establish relationships with reliable subcontractors in other trades before you need them.
Develop Systems
You'll need project management, scheduling, and financial systems that can handle multi-trade coordination.
Increase Bonding
Work with your surety to build bonding capacity before you need large bonds.
Price Appropriately
Don't forget that prime contractor overhead is real. Include it in your pricing.
Accept Learning Curve
Your first projects as a prime will have challenges. Budget time and money for learning.
Hybrid Approaches
Many contractors blend these roles:
Subcontractor Primarily, Prime Sometimes
Stay a subcontractor for large commercial work while priming smaller projects where you can self-perform.
Prime on Design-Build
Act as design-build contractor for your specialty, subbing the rest.
Construction Management
Offer management services without the risk of traditional prime contracting.
Joint Ventures
Partner with prime contractors to access larger projects while limiting your risk.
Which Is Right for You?
Consider these factors:
Risk Tolerance
High risk tolerance? Prime might work. Prefer predictability? Stay subcontracting.
Capital Availability
Prime contracting requires more working capital. Can you fund it?
Expertise
Are you great at one trade, or do you understand project-wide coordination?
Growth Goals
Want to build a large company? Prime offers more paths. Comfortable where you are? Subcontracting works.
Market Conditions
In your market, are good GCs plentiful? Or would you benefit from controlling projects directly?
Frequently Asked Questions
Can I do both at the same time?
Yes, many contractors subcontract on some projects while acting as prime on others. Just manage the workload carefully.
Does going prime require different licenses?
Often yes. Check your state's licensing requirements for general contractors versus specialty contractors.
Will becoming a prime hurt my subcontractor relationships?
It might. Some GCs won't hire you if you're competing with them. Some subs become wary. Manage perceptions carefully.
Is the profit really better as a prime?
Not necessarily. Profit percentage is often lower as a prime, but total dollar profit can be higher on larger projects.
How long does the transition take?
Expect 2-3 years to fully transition from subcontractor to confident prime contractor on meaningful projects.