Distinguishing Vendors from Subcontractors

Vendors and subcontractors are two types of suppliers relied upon by businesses. Both are issued 1099s by the business paying for their services, and they look similar at first glance. However, distinguishing between the two is important due to key differences in liability exposure, workers’ compensation, and general liability insurance coverages.

“In addition to contract requirements, there are available legal remedies for liability claims and insurance coverage for injuries sustained in the workplace,” said Brian Rome, Risk Control Manager at Safety National. “For this reason, it is critical that an insured contractor collects certificates of insurance from all subcontractors they use. Misclassifying a vendor as a subcontractor and failing to obtain a certificate could result in the client being required to pay workers’ compensation premiums for all uninsured subcontractors.”

Here are the elements that help define each class of supplier.

Vendors

A vendor in construction is an entity or individual that sells or delivers products, materials, or standard services to the project or company. Sometimes also referred to as a dealer, distributor, or merchant, they provide goods or pre-defined services based on purchase orders or supply contracts, usually at a fixed price. Vendors operate with limited project involvement and have no control over how the materials are installed or integrated into the project.

Examples of vendors include a:

• Lumber yard supplying framing materials to a general contractor.
• Ready-mix concrete supplier delivering concrete to a job site, but not performing placement or finishing.
• Tool rental company providing heavy equipment or tools.
• Building supply dealer selling roofing shingles, nails, or drywall.
• Consulting firm performing administrative or design support services, such as estimating or surveying, without site work responsibilities.

Subcontractors

A subcontractor is an entity or individual hired by a general contractor or construction manager to perform a specific, substantive portion of a construction project. Subcontractors are responsible for adhering to applicable regulatory compliance requirements and executing physical work or specialized tasks in accordance with a contract or scope of work that contributes directly to the overall project’s completion. Subcontractors have control over their own means, methods, and labor, and are usually responsible for compliance with safety, licensing, and insurance regulations. They must carry their own liability and workers’ compensation insurance, while providing certificates of insurance to the general contractor before work begins.

Examples of subcontractors include a:

• Concrete subcontractor hired to pour and finish slabs for a commercial building.
• Electrical contractor wiring a new office complex.
• Roofing subcontractor installing membranes and flashing on a warehouse project.
• Mechanical subcontractor responsible for HVAC installation and commissioning.
• Drywall and framing subcontractor completing interior partitions on a tenant improvement job.

Differences Between Vendors and Subcontractors

There are several differences between vendors and subcontractors, including:

1. Scope of Work and Control – Subcontractors have greater control over the scope of the project being performed, rather than performing to exact specifications provided by the prime contractor. Vendors supply materials or standard goods and services according to specifications set by the contractor or architect.
2. Project Involvement – Subcontractors contribute directly to the construction process and are integral to completing project milestones. Vendors support the project indirectly through materials or equipment delivery.
3. Insurance and Risk – Subcontractors must carry and provide proof of liability and workers’ compensation insurance. Vendors generally provide proof of product liability or commercial general liability, but are not covered under workers’ compensation for on-site labor since they do not perform work on the site.
4. Contractual Relationship – Subcontractors sign a subcontract agreement outlining their scope, schedule, and compliance responsibilities. Vendors receive a purchase order for materials or standard services.

In the construction industry, distinguishing vendors from subcontractors ensures proper risk management and compliance. Accurate classification protects the general contractor or construction manager from unexpected liability, insurance exposure, and premium increases.