What is a prime contract?

A prime contract is a two-way agreement between a federal agency and a contractor.

It’s also known as a principal or underlying contract.

It outlines the terms and conditions for the completion of a project and is typically used in construction.

Two parties participate in a prime contract.

The first is the client, who’s responsible for funding the project and defining expectations.

The second is the direct contractor, who will see the project to its completion. 

Prime contracts are typically created for larger-scale projects, and during project management, a prime contractor will likely need to employ several subcontractors.

The government often uses prime contracts, but they’re sometimes used commercially too.

These legal agreements define the contract’s terms, such as compensation and any deadlines.

What is a prime contractor?

The prime contractor may also be known as the main or primary contractor.

They’re responsible for completing the project according to the client’s guidelines and are liable for any damages resulting from a failure to meet their contractual obligations.

The prime contractor will typically hire subject matter experts and subcontractors to help them with the project.

This is done to ensure it’s completed to a suitable standard and on time.

Privity of contract separates liability between the client and any third-party contractors. 

As the liable party in a prime contract, the main contractor is responsible for the following:

Project management

Creating a plan and milestones, allocating client resources, and completing the project on time.

Managing subcontractors

Selecting subcontractors, third-party contract tracking, and aligning work with project goals.

Communication with the client

Providing regular updates and responding to stakeholder feedback.

Financial resource management

Managing subcontractor bids, contract disputes, and project expenses. 

Quality assurance

Meeting client standards and project deliverables.

Risk management

Identifying and mitigating risks.

Legal compliance

Ensuring local laws relating to building codes, safety regulations, and so on are met.

Project deliverables

Accountable for the final outcome.

Prime contractor vs. subcontractor: What’s the difference?

So, what’s the difference between prime contractors and subcontractors?

A primary contractor is essentially a project manager who selects and oversees any subcontractors. 

A prime contractor is hired for their ability to manage vast and complicated projects, whereas subcontractors are brought on for their specialist knowledge and expertise. 

These specialists are there to ensure the work aligns with client expectations. 

Subcontractors may also hire other subcontractors while fulfilling the agreement. 

One point of differentiation is their scope. The main contractor sits at the apex of a project.

They assume legal responsibility for any work done by third parties. The scope of a subcontractor’s agreement covers a smaller piece of the overall project puzzle. 

Each must coordinate and complete all of the tasks stipulated in their contract. However, the primary contractor is obligated to the client, while the subcontractor is obligated to the prime. 

This difference in scope and oversight translates to differences in compensation and liability.

The value of a contract is paid to the prime by the client according to the agreement’s terms.

The primary contractor pays subcontractors when they complete milestones and deliverables. These terms are outlined in separate contracts.

Primary contractors are also liable for delivering the completed project to the client. Subcontractors are only responsible for deliverables bound to their contractor agreements.

This represents a major difference between the two.

Let PandaDoc help with all of your contract needs

Working with prime contractors and subcontractors can be complicated.

However, you need these partners to complete ambitious projects.

Depending on where you stand in the project food chain, this might mean you’ll be handling a lot of legal paperwork. 

Getting your project up and running is one thing; meeting your deliverables on time is another.

You can’t afford to be slowed down by monotonous admin and paperwork tasks.

With Pandadoc’s contract management software, however, you can generate contracts in minutes and streamline document approval by automating laborious tasks. 

PandaDoc makes it easy to manage prime contracts and other legal agreements.

All your documents are stored in one centralized place, and you can collaborate seamlessly to get agreements signed as quickly and painlessly as possible.