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Key Takeaways. Subcontracting refers to the practice of bringing in an outside company or individual to perform specific parts of a contract or project. In most cases, a company subcontracts another business to perform a task that cannot be handled internally.
Not only can you make money from your subcontractors, but you also save about 25 percent when you hire a subcontractor compared to hiring an employee to handle the work, according to the Small Business Administration.
Choosing to be a subcontractor can mean a reliable source of work without seeking new clients or being employed by a company. However, it can come with some significant drawbacks \u2014 pay may be less reliable, taxes may be more complicated and you'll probably have less control over who you work with on a day-to-day basis.
Federal law requires a subcontracting plan if the value of contract exceeds a set dollar amount\u2014currently $750,000. This amount is known as the \u201csimplified acquisition threshold.1\u201d
If administered properly, subcontract management promotes consistency in managing subcontracts across functions, mitigates risk to the organization and contract, and can increase profitably. Defining expectations across procurement and program management personnel is a critical component of subcontract management.
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SBA's Table of Size Standards provides definitions for North American Industry Classification System (NAICS) codes, that vary widely by industry, revenue and employment. It defines small business by firm revenue (ranging from $1 million to over $40 million) and by employment (from 100 to over 1,500 employees).
Small business subcontracting plans are required from large prime contractors when a contract is expected to exceed $750,000 ($1.5 million for construction) and has subcontracting possibilities.
Disadvantages of Subcontracting Lack of staff development. Contractors will use more time researching potential subcontractors. Contractors will lose their control over the timeliness and quality of work. Poor performance quality.
Subcontracting can reduce the risk associated with hiring staff by ensuring you are getting a safe pair of hands from an established company to help your business. Taking into account salaries and associated costs, you can be looking at a 20 to 30 percent more cost effective solution than hiring full-time staff.
Like all self-employed people, subcontractors have a lot of freedom \u2014 but less of a guaranteed paycheck. Subcontractors might face dry spells when they're not getting hired for jobs. Or they might get so much work that it can be hard to manage.

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