Subcontractors and Suppliers

Subco ntrac tors andS uppl iers 247
10.01    subCo ntr aCtor s a nD  sup plie rs
A. Subcon tractors versus Suppliers : What I s the Difference
and W hy Does It Mat ter?
It is common to think of subcontractors as those entities that furnish services
such as the installation of electrical or mechanical systems to the project at
the project site. It is common to think of suppliers as those entities that deliver
products or goods to the project such as electrical or mechanical equipment.
The distinction between the two is unclear and becoming fuzzier as traditional
subcontractors increasingly furnish and even design products and goods and
as more suppliers install their own products.1
1. The generally accepted distinction between a subcontractor who performs work at the job
site and a supplier who does not is not appropriate in federal government contracting, which
regards any party furnishing supplies or services for performance of a prime contract or subcon-
tract as a subcontractor. The de nition of the party has important implications for the nature of
the clauses that are required to be included in its contract. Brian A. Darst, Subcontract Incorpora-
tion by Reference and Flowdown Clauses under Federal Government Construction Projects, CON-
STRUCTION BRIEFINGS, March 2005, at 1, 8.
and Suppliers
248 CO N S T R UC T I O N L AW
Why does the distinction between subcontractors and suppliers matter and
what principles apply to the distinction? This section addresses those issues.
Whether the entity is a subcontractor or supplier may have serious impli-
cations for that entity’s security rights. Subcontractors and suppliers are some-
times treated differently under mechanic’s lien statutes and payment bonds.
More importantly, the Uniform Commercial Code (UCC) commonly applies to
the furnishing of goods by suppliers but not to the furnishing of services by
The UCC’s application to a particular transaction may affect the parties’
rights. These include the application of the statute of limitations,2 the existence
of special warranties,3 the buyer’s remedies,4 buyer’s notice requirements,5 and
either party’s right to adequate assurance of performance.6
B. Sub contractor s and Suppliers : Te lling Them Apart
All parties are well advised to understand the nature of their transaction—
whether it constitutes a subcontractor or supplier relationship. This may not
be an easy determination since many transactions are mixed; that is, the same
party furnishes both services and goods as part of the same agreement.
Some courts have applied a predominant factor test, analyzing “whether
the predominant factor . . . is the rendition of service, with goods inciden-
tally involved, or whether they are transactions of sale, with labor incidentally
involved.”7 The fact that the product furnished by the party was fabricated
2. The UCC statute of limitations may be of different length than the statute applicable to
furnishing services to construction projects. Compare NEB. U.C.C. § 2-725(1) (four years) with
NEB. REV. STAT. § 25-205 (ve years). Further, the ability of the parties by agreement to modify the
statutory period may be different. Section 2-725(1) of the NEB. U.C.C. allows the parties to reduce
the period of limitation to not less than one year, but they may not extend it. Moreover, when
the statute of limitations starts to run may also differ. Compare NEB. U.C.C. § 2-725(2) (regardless
of knowledge, the cause of action accrues when the breach occurs) with NEB. REV. STAT. § 25-223
(allowing extension of the statutory period if the cause of action is not discovered).
3. The UCC provides for an implied warranty of merchantability (§ 2-314) and an implied
warranty of tness for a particular purpose (§ 2-315), as well as other implied warranties that
may also rise from the course of dealing (§ 2-316) and sets forth the method of creating express
warranties (§ 2-313). Section 2-316 allows the parties to disclaim and exclude warranties.
4. The UCC provides buyers with certain remedies that they may exercise at various points
in any transaction. See, e.g., sections 2-711 (buyer’s remedies in general), 2-502 (buyer’s right of
recovery), 2-712 (“cover”), 2-713 (contract-market damages for nondelivery), 2-714 (breach of
warranty), 2-715 (incidental and consequential damages), 2-716 (buyer’s right to specic perfor-
mance or replevin), and 2-717 (deduction of damages from purchase price). The UCC also con-
tains specic provisions allowing parties to limit the buyer’s remedies (see 2-719).
5. See UCC §§ 2-607(3), 2-608(2).
6. See UCC § 2-609.
7. Mennonite Deaconess Home and Hosp., Inc. v. Gates Eng’g Co., 219 Neb. 303, 363 N.W.2d
155 (1985).

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT