Contractor able to Sub Out Work to Different Company?

Question

Hello, if I start my own construction company, am I able to sub out the whole scope of work to a different non-licensed company (llc) as long as I get permits and verify work?  They would have their own insurance, electricians, plumbers, etc but the only thing they wouldn't have is the general contracting license.  Please let me know.

Aaron Junck · Answer

J  Scott Yes, "paper contractor" is another way of saying "briefcase contractor".

J Scott · Answer

Greg -

If you're pulling the permits, you are essentially responsible for the job.  As Jon said, you'll likely HAVE to hire licensed specialty contractors to do their share of the work, and you'll want to hire other contractors to take care of the stuff that doesn't require licensing/permits.  You'll also have responsibility to ensure that everyone is insured appropriately to protect yourself and the investor/client/homeowner.

The other option is to serve solely as a "paper contractor" or "construction manager" (same thing, different terminology).  Not sure if this is what Aaron referred to as a "briefcase contractor," but could be.

In that role, you are essentially a consultant.  You contract with the homeowner to help get the project done by helping put together a scope of work, interview contractors, manage contractors, etc.  But, you don't actually have a contractual relationship with these contractors -- their contracts are with the investor/client/homeowner, not you.  You don't pull permits, you don't pay anyone, you don't sign contracts.  Again, you are just a consultant who helps the client manage the entire process.

For this, you may get paid a percentage of the renovation costs (and perhaps a bonus for coming in under the client's anticipated budget), you may get paid a flat fee or you may get paid hourly.  You have essentially no liability (you don't have contracts with anyone, your client does), and you have essentially no risk.

In most states, you probably need to have a GC license to legally play this role, but in at least a few, you don't (in many, it's not clear based on how the laws are written).  Clients who don't want to sign contracts and want to be completely hands-off during the process probably won't want to hire you in this role; but many clients are happy to be more hands-on in return for paying you less (though I guess you could charge just as much as a regular GC if you're really good at convincing clients to pay that) to basically be just a consultant.

Jon Holdman · Answer

In my area, certain trades require their own licensing.  Electrical, plumbing and mechanical (HVAC) in particular.  So, as a GC, you not only can,  but effectively MUST sub out the work for these trades.  But they do have to be licensed.

I've not heard of a one or five year warranty around here.  I supposed that's possible in some areas.  But you will be on the hook for the work of your subs.

Aaron Junck · Answer

Most of us hands on GC like to refer to those in which you are referring to as briefcase contractors.

A lot of people make money being briefcase contractors but just keep in mind some people want to hire those that are more hands on.

Some briefcase contractors have no experience in construction and so thats why they become a briefcase contractor. IMO you should have a very good understanding of the start to finish of the construction process if you want to be a briefcase contractor, even a general contractor otherwise you can be way over your head really fast and not make any money and have people upset with you . Not good!

Best of luck!

Aaron Junck · Answer

Yes, you can but you have to keep in mind that you still at the end of the day are responsible for the project in which you are hired for. So for that you better be sure to make a profit for the risk involved.

It also varies by state, but the minimum I know of is that you have to warranty the home ( I assume you are referring to SFH) for 1 full year, I have heard of other states requiring 5 year warranties but haven't validated that.

Contractor able to Sub Out Work to Different Company?

Most Popular Reply