General Contractor Definition: What they Do, and How they Get Paid

What is a General Contractor?

Here’s the best general contractor definition for the construction industry:

 

A general contractor is a party with the responsibility to oversee a construction project and who enters into the prime contract with the property owner.

 

The general contractor is sometimes known as the direct contractor, and this is very important when it comes to getting paid. We’ll explain why by first explaining what is meant by using the terms “direct” and “prime.” A DIRECT contractor is a party who contracts with and is hired directly by the owner of the property. Another name for this is the PRIME contractor. This is determined by who the agreement is with, and not the nature of the work, the name of the company in question, or any other factor.

 

To put it another way: if your construction company is working on a project or job, and you were hired directly by the property owner, then that makes you the direct or prime contractor. The general contractor is always going to be a direct contractor. However, not all direct contractors necessarily see themselves as “general” contractors.

 

To illustrate this point, let’s take roofers as an example. Often when an existing roof needs to be repaired or replaced, a roofing company might be hired directly by the property owner to do the work. In this case, that roofer would be the direct (general) contractor. On the other hand, if the project is commercial, new construction and the roofer is hired by the general contractor that’s overseeing the entire project, then the roofer would probably be a subcontractor in that case.

 

There are many, many examples of construction companies that serve as the general contractor on some projects and jobs (when they are hired directly by the owner), while they are subcontractors on other jobs (when they are hired by someone other than the owner). When it comes to getting paid, this distinction is very important.

 

Getting paid on a construction project is one of these things where the details really matter, and one of these details that matters a great deal is the role that the party in question has on the project. “General contractor,” “subcontractor,” “material supplier,” and “property owner” are all examples of potential roles on a construction project (though there are many more, of course).

Your Project Role is Determined by who Hired you to Work on the Project

Figuring out your “role” seems like it would be very easy. However, we frequently hear from folks in the industry that they have trouble determining how to classify their role on certain projects. “Am I supposed to be the GC on this job, or am I considered a subcontractor?” Here at levelset, we get questions like this one every single day.

Here are a few of the major project payment issues that are affected by a party’s role on the project, and how these issues relate to general contractors.