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Kristen Hampshire

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Command your troops

Business Management

When it comes to subcontracting, controlling the process can prevent an unwelcome customer defeat.

October 17, 2014

Tom Trench has operated on both sides of the contract, as the business owner and the sub. He enlists subcontractors to complete projects for his Denver, Colo.-based firm, Landscape Systems and Designs. And he has served as the specialist, working as the landscape designer/sales arm at Cooperative Design Resource.

“It’s a partnership, no matter what side you are on,” Trench says of the sub-owner relationship. “Because, if either party does not perform the way they are expected to, you’ll get a bad reputation.”

Virtually every problem related to subcontracting out work – payment, scheduling, quality – can be traced back to one culprit: communication.

“I’d love to tell you there are 10 secrets to working with subs effectively, but there are no secrets. It’s all about communication,” Trench says. “You have to be honest and upfront, and make sure that everyone is on the same page.”

And when that happens, subcontracting can result in business expansion and more. For that reason, Trench says he loves working on both sides of the arrangement.

“I love it because I just make sure everyone knows what’s going on,” he says, adding that subcontracting gives business owners the flexibility to expand their scope of work, respond faster to clients’ deadline demands and, of course, bring in more revenue.

Subbing can even jumpstart a business. At Reliable Property Services in Minneapolis, Minn., winter work defined the company’s services until six years ago when the firm expanded into commercial maintenance, thanks to subcontracted mowing crews. “Subcontracting mowing has allowed us to take on locations that are out of our working area,” says Tom Hougnon, COO.

A lot of Reliable Property’s key winter accounts involve large parking lots – not necessarily a “prime summer stage” but clients still want the same company servicing their site year-round, Hougnon says. “We can build a route with all of those small sites, and our contractor partners can take that mowing off of our hands,” he says.

Hougnon provides contractor partners that perform mowing with a route – four days worth of work. Sites are inspected Monday through Thursday. Many of these subs work with the company during winter, so there’s already a strong relationship.

Hougnon adds that the work goes both ways. “This provides opportunities for our winter contractor partners – if we get a call from a customer that wants concrete work done, we can pass that work on to them. We try to partner with them on both sides: they work for us, but we pass work to them.”

Whether you’re currently using subcontractors, working as one or considering adding this type of labor to enhance your crews, here are some keys to managing and growing a mutually beneficial subcontractor relationship.
 

Come clean with clients.

Tell customers up front who will be working on various aspects of their project. If you’ll enlist in a sub to lay a flagstone patio or install a pool, be clear about the relationship between your company and the contracted labor.

“We tell clients that we have a lot of resources we pull together to make sure the job is completed on time and up to their expectations,” says Bill Banford, president, Sharper Cut, Upper Marlboro, Md.

Banford also lets clients know there is a mark-up fee for his company managing the subcontractor’s work.

“Our clients get it and they are happy with it,” he says, relating that the markup is generally 10 percent using an overhead recovery system.

“If it’s a job that we 100-percent sub out and we buy the materials, we might add more profit to make sure our gross margins are where we want them to be,” he says.
 



 

Set expectations.

Everyone talks about “managing expectations” but what does it mean? The reality is, the sub you’re hiring is not ingrained in your company culture – he or she is an independent. This professional brings to the table a quality your company needs to complete its work – skills in masonry, electrical, carpentry, plumbing and beyond. And, if you needed this skill on every single job, you’d probably hire someone full time.

You have set expectations for your employees and your standards should hold true for subs. But remember, subs are generally not attending your tailgate meetings and starting their mornings at your shop. So communicating a project’s timeline, fees, materials requirements and quality demands upfront is critical.

Banford carefully reviews the project specs with subs. “We don’t send the subs out and let them wing it,” he says. “We have a project manager that makes sure that it is done per spec.”

Trench encourages owners to ask these questions of subs: 1) When can you start the job, and how long will it take you to complete it? 2) What would prevent you from meeting the project timeline? 3) What payment terms do you expect? 4) Do you understand the specifications (after they are reviewed)?

“Having an open discussion so you are on the same page is important,” he says.

The timeline factor can cause real problems if not ironed out before a contract or verbal agreement is determined. Trench recommends putting everything in writing, but says he has a 25-year relationship with an electrician, and a phone call and hand shake, followed by immediate payment, work for both parties.

Trench recalls one project where a company assumed that the subcontracted mason it always worked with would show up on a job per an email request to “start on Tuesday.” The mason never confirmed – and never showed up. “The result was an extremely unhappy client,” he says. “In this case, they only emailed and presumed the mason would be there.”

Another mason was brought on the scene for a premium price – 30 percent more than budgeted, which the company ate.
 

Outline payment terms.

Speaking of rates, settle the payment terms before the sub starts. Hougnon says once subs come on board at Reliable Property Services, they tend to stay. “We pay quick,” he says of the net 30- to 60-day terms. “When the work is done, we pay them as soon as their hours are in and we are invoiced. That helps keep relationships strong.”

Banford pays subs when his company gets paid, and he is upfront about this term. For smaller jobs, such as concrete work requiring “a few hours here or there,” he settles up immediately after that work is completed. “For larger jobs, like decks, we offer progressive payments.” Installments are paid out upon Sharper Cut getting paid.

Trench reminds that the contracting company is responsible for collections – not the sub. So slow-paying clients are not the subs problem, and holding up payment on sub invoices as a result can scar a relationship.

“The sub is not working for the owner; he is working for the contractor, so he needs to know that the contractor will pay him in a timely manner,” he says.

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