How to grow from subcontractor to general contractor

To grow from subcontractor to general contractor, add the pieces a GC needs that a sub does not: the right license class, bonding capacity, project management and scheduling skill, a bench of reliable subs, and the cash to carry payroll and sub payments before the owner pays. The safest route is staged. Start with GC jobs where your own trade is a large share of the work, such as a roofer taking a re-roof with minor carpentry and sheet metal, then grow into jobs you mostly coordinate. Many subs who jump straight to large GC work find that coordination, not craftsmanship, is the hard part.

What changes when you become the GC

Signs you are ready to make the move

There is no single revenue number that says a sub is ready. These signs matter more:

• Clean financials. Reviewed or audited statements, current job cost reports, and a WIP schedule your banker understands.
• Cash to carry a job. You can fund payroll and pay subs for two or three months before the owner's money arrives.
• A second leader. Someone other than the owner can run the field or the office for a week without calls.
• Owner demand. Building owners already ask you to handle the other trades on small jobs.
• A sub bench. You can name a reliable sub for each trade you would need to hire.

If two or more are missing, fix those first. They are cheaper to build before the first GC job than during it.

Step by step: a staged path from sub to GC

1. Check licensing first

Many states license general contractors separately from specialty trades, with different exams, experience, insurance, and financial requirements. Some cities and counties add their own. Your trade license may not let you contract for work outside it. Look up your state on the contractor license pages before you bid anything outside your trade.

2. Build bonding capacity

Public and many commercial owners require bonds. On federal construction, FAR 28.102-1 requires Miller Act performance and payment bonds on contracts over $150,000, and for contracts over $35,000 up to $150,000 the contracting officer picks at least two alternative payment protections, such as a payment bond, letter of credit, or escrow. Sureties look at your financial statements, working capital, and track record. Start the conversation with a surety agent a year before you need the bond. Small firms that cannot qualify elsewhere can look at the U.S. Small Business Administration Surety Bond Guarantee program, which the U.S. Small Business Administration says covers contracts up to $9 million non-federal and up to $14 million federal. See how bonding capacity is calculated.

3. Learn the GC's paperwork before you need it

You already see GC paperwork from the receiving end. Now you will produce it: schedules, RFI and submittal logs, meeting minutes, owner pay apps with sub billing rolled in, change order logs, lien waivers from every sub and supplier, and closeout binders. Pick a system before job one. Trying to run your first GC job from texts and spreadsheets is how small GCs lose margin.

4. Price general conditions honestly

Subs often underprice GC work because they forget the costs a GC carries: supervision, temporary facilities, dumpsters, cleanup, permits, insurance, bonds, and the PM's time. Build a general conditions estimate by week of duration and add a fee that covers your overhead and the risk of every sub you hire.

5. Build a bench of subs you trust

Your GC relationships taught you which subs show up. Recruit them. Prequalify each one: license, insurance, safety, and references. Level their bids carefully; see how to level subcontractor bids. One unreliable sub can sink a small GC's first job.

6. Start with jobs where your trade is the anchor

Take GC jobs where your own crews do a large share of the work. You control the critical activities, you know the costs, and you only coordinate a few other trades. Some federal contracts also require the prime to self-perform a set share of the work; FAR 52.236-1 leaves the percentage blank to be filled in for each contract, so read the solicitation.

7. Hire a project manager before you are overwhelmed

Owners of trade firms usually run the field. A GC needs someone running the paperwork and the owner relationship. When GC revenue reaches the point where you are doing estimating, PM work, and field supervision at night, it is time to hire. See how to hire a construction project manager.

Worked example: an electrical sub takes its first GC job

Here is an illustration. An electrical sub with $3 million a year in revenue bids a $410,000 lighting and controls retrofit for a school district as the GC. Its own work is about $290,000. It subs out ceiling work, painting, and abatement.

On its first try, the sub's estimator left out general conditions and the GC fee and priced the bid at $361,000. That would have cut the profit on the job to almost nothing once supervision and dumpsters were paid. The second version is the one to submit.

Mistakes to avoid

• Competing with your best GC customers in their core market without thinking through the relationship.
• Bidding outside your license class.
• Leaving out general conditions or pricing them as a flat percentage you never checked.
• Taking a big job with mostly subbed-out work as your first GC project.
• Paying subs before you are paid without a cash plan, or holding sub payments longer than your contract and state law allow.
• Skipping lien waivers from subs and suppliers, which leaves the owner exposed and can hold up your payment.

Templates, terms, and tools

Start with the construction schedule template, bid leveling template, and WIP report template. Related terms: general contractor, prime contractor, performance bond, and payment bond. Smart Business Automator gives a growing firm job costing and WIP views across self-performed and subcontracted work, through job costing and WIP automation.