In terms of cost accounting, given identical contract values, I can't see the differnces bewteen a vendor, subcontractor, or subrecipient. Basically, the difference is legal, what kinds of controls can you exercise over the subrecipient that you can not exercise over the vvendor. I understand this practice runs through most all instiutions, but from the accounting perspective it is arbitrary. I will offer my reason for the different treatment bewteen vendors and subcontractors. A subcontractor is an organization that is actually conducting part of the scope of the work of a particular project, often another University in collaboration.
Vendors provides products, stuff they manufacture for resale.
I think the reason was simply an effort by the Feds to find another way to reduce their IDC obligation and this particular decision was the path of least resistence at the time.