A Tier 1 contractor is a contractor with a direct contract with the client. Tier 2 contractors work under the Tier 1, and Tier 3 contractors work under a Tier 2. The tiers describe where a firm sits in the contract chain on a particular project. They do not describe how big it is.
That second point matters, because most guides to this question get it the other way round and define Tier 1 by turnover, usually £500 million and up. No UK definition does. This guide sets out where the definitions actually come from, what each tier does, and why the tier you sit at decides how you get paid.
It is written from the utility side of the industry, where most of the work happens under Tier 1 civil engineering contractors rather than at the top of the chain.
The three tiers in one table
Contractor tiers on a UK project
| Tier | Holds a contract with | Typical role | On a utility scheme |
|---|---|---|---|
| Tier 1 | The client | Main contractor, overall delivery, programme, site management | Civils contractor on a water company framework |
| Tier 2 | The Tier 1 | Specialist works package | Utility contractor laying the mains and services |
| Tier 3 | A Tier 2 | Trade, labour-only, plant or materials | Traffic management, plant hire, aggregates |
Tier 1 is usually a household name in the trade. Tier 2 is where the specialist work actually gets done, and on a normal commercial job there are a lot of them. Tier 3 is the layer beneath, and it can go deeper still on large schemes.
Where the definitions come from, and where the turnover version came from
The only institutional definition on record is a research paper commissioned by the Department for Business, Innovation and Skills in 2013, Supply Chain Analysis into the Construction Industry. It defines Tier 1 as designers and constructors that have a direct contract with the ultimate client, and describes Tier 1 contractors as main contractors, most Tier 2 contractors as specialist contractors, and labour-only subcontractors as typically operating at the third tier. The Cabinet Office’s 2014 two stage open book guidance says the same thing in five words: a Tier 1 contractor is a contractor appointed directly by a client.
Neither document mentions turnover. Nor does any UK procurement body, framework or regulator. The tier is contractual.
The £500 million figure comes from Australia, where the industry does band contractors by revenue and where the same tier language is used with a different meaning. It has crossed over through guides that borrow from Australian sources and swap the currency symbol, and it now appears in enough UK explainers to look like a rule. It isn’t one. Some of the largest specialist contractors in the country, in mechanical and electrical and structural steel, sit at Tier 2 on nearly every job they do and are bigger than many of the main contractors they work under.
Tier is a position, not a status
Because the tier comes from the contract, the same firm sits at different tiers on different projects.
Take a utility contractor. On a water company repair and maintenance framework, the water company is the client and the framework is usually held by a Tier 1 civils contractor, so the utility firm doing the work is Tier 2. On a self-lay water network for a housing development, the same firm contracts directly with the developer, which makes it Tier 1 on that job. Nothing about the company has changed. McFadden works at both positions in the same month.
The practical upshot is that “we are a Tier 2 contractor” is shorthand for “most of our work comes through a Tier 1”, not a grade. If you are appointing a firm, the question is not what tier it calls itself but who it will be contracting with on your project, because that decides who carries the risk and who you chase when something goes wrong.
What your tier means for getting paid
Money and risk both flow down the chain, and they do not flow evenly.
The 2013 BIS study looked at five projects between £1 million and £25 million and found it was not uncommon for a single project to have between 50 and 70 Tier 2 suppliers and subcontractors. It described the stacked layers of profit, overhead and risk at each level as a source of cost that added no value to the client. Thirteen years on, that structure has not changed.
For a firm at Tier 2 or Tier 3 it means three things. Payment terms are set by the tier above, not the client. Retentions are held by the tier above and released when the tier above is paid, not when your work is done. And if the Tier 1 fails, the contract that protects you is with the Tier 1, not the client, which is why the losses from a main contractor collapse land on the specialists beneath it rather than on the project.
Related terms and common mix-ups
Principal Contractor is not Tier 1. Principal Contractor is a legal role under the Construction (Design and Management) Regulations 2015, appointed by the client to plan, manage and coordinate the construction phase where there is more than one contractor. Tier 1 is trade shorthand with no legal standing. On most jobs the Tier 1 is also the Principal Contractor, which is why the two get merged, but the roles are separate and a small firm can be Principal Contractor on a small job without anyone calling it Tier 1.
Main contractor, general contractor, principal supplier. Main contractor is the UK term for Tier 1. General contractor is the US and Australian equivalent and turns up in UK guides that have borrowed from abroad. Principal supplier is the wording in older government guidance and PAS 1192, and means the same thing.
Framework tiers. Public sector procurement frameworks sometimes divide their own lots into tiers by value band. That is a different use of the word and has nothing to do with a firm’s position in a project’s contract chain.
If you are trying to understand where a utility firm fits in all this, our guide to what a utility contractor is covers the accreditation side. If you are a main contractor looking at the utility scope on a scheme, the civil engineering contractors page sets out how that package usually runs.
Questions on this topic
A Tier 1 contractor is a contractor with a direct contract with the client. The 2013 BIS supply chain study defines it as designers and constructors that have a direct contract with the ultimate client, and the Cabinet Office’s two stage open book guidance as a contractor appointed directly by a client. In UK practice it is the main contractor.
A Tier 2 contractor holds its contract with the Tier 1 rather than the client, usually to deliver a specialist works package such as utilities, groundworks, mechanical and electrical or structural steel. The label describes contract position, not company size. Some of the largest specialist contractors in the UK work at Tier 2.
A Tier 3 contractor holds its contract with a Tier 2. This is typically trade work, labour-only subcontracting, plant hire or materials supply. The 2013 BIS study noted that labour-only subcontractors typically operate at the third tier.
No. No UK government document, procurement body or regulator defines the tiers by revenue. The £500 million threshold that appears in some guides comes from Australian usage, where contractors are banded by turnover. In the UK the tier is contractual.
Yes, and it is common. A utility contractor working under a civils contractor on a water company framework is Tier 2. The same firm contracting directly with a developer on a self-lay scheme is Tier 1. The tier follows the contract, not the company.
Not by definition. Principal Contractor is a legal role under CDM 2015 appointed by the client to manage the construction phase. Tier 1 is trade shorthand with no legal standing. They are usually the same firm on a given project, but a small contractor can be Principal Contractor on a small job without being described as Tier 1.
