What is a subcontractor? The answer to the question seems obvious, but it is not always easy to distinguish a subcontractor from a materialman (i.e., materials supplier). However, this distinction is important in the context of surety bonds.
For example, on federal public works projects, the Miller Act restricts claimants on bonds to those who had a contract with the prime contractor and those who had a contract with a subcontractor, provided that in the latter case the claimant provides notice to the prime. 40 USC § 3133(b)(2). In other words, if you have a contract with a materialman, as opposed to a subcontractor, you do not have entitlement to payment under the bond. Courts look at the “total relationship” between the parties to determine if the party in question is a subcontractor or materialman. F. D. Rich Co., Inc. v. Indus. Lumber Co., Inc., 417 US 116, 123–24, 94 S Ct 2157 (1974). Lower courts have implemented this guidance by adopting a 13-factor test to determine whether a party was a subcontractor for purposes of the Miller Act. Conveyor Rental & Sales Co. v. Aetna Cas. & Sur. Co., 981 F2d 448, 451–52 (9th Cir, 1992).
Another example is Oregon Construction Contractor Board (“CCB”) bonds, which allow contractors to make claims on the CCB bonds of its subcontractors. ORS 701.140(3). The same issue arises here as in Miller Act claims: if the subcontractor against which the contractor brings a claim is actually a materialman, the contractor will not have access to the CCB bond. The Oregon Supreme Court has held that “[t]he term ‘subcontractor,’ from its very definition, means one who has contracted with the original contractor for the performance of all or a part of the work or services which such contractor has himself contracted to perform.” Fitzgerald v. Neal, 113 Or at 116. The court distinguished subcontractors from materialmen, finding that the latter “must refer to materialmen furnishing material to the original contractor, for which, under the terms of the statute, the surety is liable, if furnished for use in the prosecution of the work provided for in his contract.” Id. The Oregon definition of subcontractor is obviously not as in-depth as the 13-factor test, but the federal test can serve as guidance in answering the question of what is a subcontractor.
Thus, determination of whether the party with which you are contracting is a subcontractor or a materialman can become an important one in terms of access to surety bonds.
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