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Whether it’s a family home, an apartment building, or a skyscraper, make no mistake: A construction project contains many moving parts. But, unlike the gears, pistons, and hydraulics in the machines that grade the earth or lift the steel, the moving parts in the construction machine are people. Companies full of people, to be exact. And there are essentially 10 types of construction companies.
To ensure that a construction project — regardless of how small — goes off without a hitch, a property owner needs to understand them all.
But without a background in the construction industry, you might not know what or who those companies are, or even what they do. This guide will explain it all, from the types of construction businesses that design the project to the ones that actually build it. We’ll quickly explore each type of construction company, what they do, and how they relate to each other.
10 types of construction companies
If you’re in the beginning stages of a construction project, you might not realize everything and everyone involved in getting the job off the ground. Choosing the right contractors, subcontractors, and suppliers can be challenging, but it’s well worth the time spent.
All of the following types of construction companies have a role to play in completing the project, and they typically work under their own contract or a subcontract. The problem arises when the project owner is unaware of the existing contracts or subcontracts, which can lead to payment issues. And, since nearly anyone on the project can file a mechanics lien, project owners can find themselves in hot water with construction companies they didn’t know existed.
1. Real estate developer
When it comes to kicking a project off with the money and vision, it’s usually the real estate developer who’s responsible. Commonly, the real estate developer actually owns the property, but a property owner might also hire a developer for their expertise in overseeing a project.
If the project owner hires a real estate developer, the developer is typically at the helm of the project. They have the task of hiring several other construction companies, including a design firm and GC, and ensuring they get paid. For that reason, these companies must understand how mechanics liens work.
2. Architecture/design firm
For all but the most basic construction projects, architecture or design firms will draw up the plans that the other construction companies will follow. They’re typically hired by the real estate developer or project owner.
Design firms have another vital role to play, as well. They review pay applications submitted by the other construction companies working on the project. These firms compare the applications to the drawings and specs to approve or deny the app.
Some of these companies operate as design-build firms, meaning they not only create the drawings and plans, but also act as the general contractor on the project. In which case, they’ll not only review the apps, but they’ll also be responsible for hiring subcontractors and distributing payments.
In certain states, architectural firms do have lien rights, while others might only allow a design professional’s lien.
3. Engineering firm
For complex commercial, public works, or civil projects, engineering firms will work alongside the architecture firm to draw up plans. Their role is to ensure that the designs are safe, up to code, and meet any particular environmental or site considerations.
Engineering firms don’t typically hire any subs, so they aren’t responsible for paying other companies. However, they do benefit from mechanics lien or design professional lien rights in some states.
4. Construction management company
Construction management companies are the boots on the ground, overseeing every aspect of a construction project, including accounting, staffing project managers, hiring subcontractors, or even hiring several general contractors if the project warrants it.
With such an integral role in the hiring process, payments typically flow through the construction manager down to the contractors they hire. Construction managers usually have mechanics lien rights.
5. General contractor
On smaller projects, owners might not have to look much further than hiring a general contractor. Also known as the prime contractor (as they hold the prime contract with the owner), they’re the most visible of the companies performing actual construction work. On large projects, you can quickly determine who the GC is by the banner hanging on the fence outside of the job.
General contractors might enter into a contract with the developer, the project owner, or the construction manager. They have the task of hiring subcontractors, which means they’re also responsible for distributing their payment. They also have mechanics lien rights, providing recourse in the event of non-payment.
6. Subcontractor
When the general contractor finds other contractors to handle certain aspects of the project, they’re hiring subcontractors. There are several types of subcontractors on a typical project, including but not limited to:
Framing
Plumbing
Electrical
HVAC
Roofing
Drywall
Flooring
As long as the subcontractor pays attention to mechanics lien requirements in the state they’re working in, they have mechanics lien rights.
7. Material supplier
Somewhat of an unseen construction company, material suppliers are responsible for gathering the materials necessary for building the project.
Generally speaking, subcontractors each have their own materials suppliers, which means that there could be a seemingly endless number of suppliers on a job. And each of them has the right to file a mechanics lien, but they may also have the right to a materialman’s lien (which is essentially the same).
8. Equipment lessor
While many construction companies own their own machinery, many choose to rent the necessary equipment rather than own it. These construction companies, known as equipment lessors, supply the tools and heavy equipment necessary to get the job done.
Equipment lessor’s typically do have mechanics lien rights, which can be a significant risk to project owners. If the project owner is unaware that the contractor doesn’t own the equipment, and the contractor doesn’t pay the bill, the lessor can place a lien on the property.
9. Restoration/remediation contractor
When a natural disaster such as a flood, hurricane, or fire occurs, the contractors that come in to fix the building are known as restoration or remediation contractors. It’s their job to rebuild and bring the home back to snuff.
Generally speaking, restoration companies are hired directly by the project owner, yet wait for payment from the insurance company (which can seemingly take forever). They might also hire subcontractors. And, since everyone on the project has lien rights, the lengthy wait for the insurance company to pay can cause serious issues.
10. Renovation contractors
Usually, projects that involve renovating an existing building don’t draw the same types of construction companies as large projects. Those firms prefer to avoid the impulsiveness of the project owner and the difficulty of creating accurate estimates. Smaller companies specializing in renovations tend to handle these jobs.
Usually, the renovation contractor deals directly with the project owner. However, this contractor will often have its own subs and material suppliers, both of which they’re responsible to pay. And since they both have mechanics lien rights, project owners need to know who they are.
Why the payment chain matters
With so many different types of construction businesses, it’s important to understand how the payment chain works and why it matters.
When a project owner hires a general contractor or project manager to head up their project, they’re the “prime contractor.” This relationship is so straightforward and outlined in such detail in the contract that some states don’t require formal documents like preliminary notice in order to protect lien rights.
The GC then has the responsibility of hiring the subcontractors. Even smaller projects require several subs, each of which enters into a subcontract agreement with the GC (not the project owner). Because the project owner might not realize the sub’s existence, many states require subs to send preliminary notice and Notice of Intent to Lien to protect their lien rights.
Subs will generally shop around for the best prices for the materials specified in the drawings or plans. For that reason, there could be several materials suppliers attached to the project. The subcontractors are supposed to pay these materials suppliers. If they don’t, suppliers have lien rights, too.
It’s also a fact that subs sometimes hire their own subs, which might come with their own suppliers.
Payment issues happen on construction projects for a myriad of reasons. Understand that if there is an issue with contractors, subs, sub-subs, or suppliers getting paid, they all have the right to file a mechanics lien against the property.
A mechanics lien is the most effective way for a contractor, sub, or supplier to speed up the payment process. These liens encumber the property, forcing the project owner to seek resolution or defend their case in court.
For that reason, it’s important to find smart, capable contractors who are dedicated to paying their subs on time and in full.
Contractor profiles tell the whole story
Finding the best contractors and subcontractors can seem daunting. Between verifying their skill, credit, licenses, and insurance compliances, there is a lot to check into. But, as a project owner with a lot on the line, it’s equally as important to check into their payment practices.
One of the best ways to verify that a contractor pays its subs and suppliers on time is to check out their Contractor Profile. These profiles take actual data from public records, reviews from subcontractors, past disputes and liens, and more and compare it to thousands of other contractors across the nation. Each Contractor Profile is then given a payment score, which is a helpful benchmark for gauging how responsible a contractor is with their projects.
And, since subcontractors can just as easily file a lien against a property as a GC, it’s worth checking out the Subcontractor Profile of any company the GC hires. The same data exists for Subcontractor Profiles as for Contractor Profiles, so payment scores and past disputes are readily available.
Armed with these profiles, you’ll be able to make smarter choices when choosing from the different types of construction companies. You’ll know what they do, how they get paid, and most importantly, how they manage their money. If you consider excessive liens and disputes as the red flags they are, you’ll be doing your best to keep your project and property free of liens for the long haul.
CITATIONS:
10 Types of Construction Companies & What They Do