1: Background Info

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What is Subcontracting and Why Do Companies Subcontract

A subcontractor is usually type of contractor who works in a specialized area and could be a freelancer, independent contractor, or vendor.

While the contractor maintains relationships with clients (e.g., corporations or the government), the subcontractor works with a contractor, providing

their specialized skill-set in exchange for a contractual fee. The subcontracting individual or company reports to the primary (Prime) contractor, who is

responsible for managing the contracted work from initiation to completion. (Ref Investopedia By Adam Hayes)

What is Privity of Contract and Why Is It Important

With Privity

- Prime Contractor ultimately responsible for fulfilling prime contract requirements.

- Subcontractor is ultimately responsible for fulfilling the subcontract requirements

- Direct legal relationship between the parties to a contract that is recognized by law

Without Privity

- No Contract

- No Control

- No enforcement mechanism

- No involvement

- No obligation

Who Can Subcontract

• Large/Medium/Small Companies

• Small/Women/Veteran/Disadvantage, etc.

• Anyone that has a product/service that is needed by another entity.

Why Do Companies Subcontract

• Can’t do the work with internal resources

• Subcontractor could increase competitive advantage because of existing relationships

• Possibly to provide more cost effective solutions

• Share contract risk/reward

• Customer Preference

• Need to meet SB (Small Business)/SDB (Small Disadvantage Business) goals

• Commercial or unique product/service

• Quantity discounts due to long term subcontractor relationships