The use of subcontractors has accelerated in this world of specialization. Companies want to offer one-stop shopping but often realize that they can focus better by performing only certain services with their own crews. The balance of services offered but not performed "in-house" need to be subcontracted.
This article is not designed to help you determine which services to subcontract or how to price those subcontracted services. That is a large topic within itself. This article is dedicated to help answer the question, "How do you safely subcontract those services you have decided to offer?"
Vendor Qualification: First, you need to develop a qualified list of bidders for the trades you will subcontract. This will be based on your experience, discussions with other contractors, discussions with common vendors and a background credit check. One of the worst nightmares for any contractor is to have a subcontractor disappear from a site without a trace. Even if you have held enough retention, you still have to replace the contractor in mid-stream, which usually means delays and confusion.
Share that qualified vendor list with your sales people. It seems simple, but as a company grows and sales people are added, information such as qualified vendors may not be known to all. Post your list on your bulletin board wherever your estimators and sales people work. Establish a policy as to how vendors are added and taken off the list. Share that information with the approved subcontractors as well as those who want to be approved.
Request for Proposal: A request for proposal (RFP) should accompany any significant bid you send out, and for many companies, that is every bid requested. Any subcontractor that is 10 percent of the job should be considered significant and should have a formal RFP. An RFP gives detail as to the scope and specifications of the work to be bid, including job name, contact name with your firm, bond requirements (if any), bid dates, completion dates, penalties, etc. A good RFP should closely mirror the requirements of your proposal to the customer, whether that customer is a $10,000 residence bid to the owner, or a $500,000 commercial installation bid to a general contractor. This will help you to avoid any confusion when you convert the RFP to a formal contract between you and the subcontractor.
Contracts: If you have only bid to qualified subcontractors, you should be able to take the lowest bid of those responding after you factor in any qualification by the subs. Next is the contract. You should almost never use the contract provided to you by the subcontractor. It will most certainly be slanted toward the subcontractor’s best interests at your expense. If you have access to a contractual lawyer, have him or her provide you with a subcontractor’s agreement that gives you the protection you need while still treating your vendor fairly. Some agreements allow you to attach the subcontractor’s proposal if the scope of work described is accurate, but your contract supercedes any legal terms in the vendor’s contract.
Another very good document is the American Institute of Architects’ (AIA) Standard Agreement Form. This form, with customization, calls out many items which need to be considered when subcontracting, including timing of payments, bond requirements, performance and default criteria, etc. Remember that the time to take care of your contractual set up is before you have a problem, not after.
Also, remember that every time you allow the subcontractor’s bid to deviate from the contract you have with your client, you open yourself up to additional expenses and liabilities you may not be able to charge back to the client. Make sure your contract with the client matches your contract with the sub in all aspects or is more favorable to you.
Subcontractor Management: So, you have done all the steps correctly and have a signed contract with the owner and your subcontractor. Everything will flow smoothly – right? Wrong! Your work or the work of your project manager has just begun.
So many things can cause problems with the subcontractor, from their schedule to weather to other trades and utilities. These problems are magnified with the size, complexity and length of the job. Managing the subcontractor’s performance once the job is sold is the one thing that can mean the difference between a subcontracting experience that is rewarding from a financial and reputation building perspective and one that weakens your reputation and dilutes your income.
Ultimately, you need a checklist and forms to follow in order to take the subjectivity out of the subcontracting process. The checklist will make sure that the job file includes the RFP, the spread of bids and qualifications to the bids, a copy of the successful bid, a copy of the contract with the subcontractor, an insurance certificate from the subcontractor and/or bond, contact list for the sub with emergency numbers and other important pre-job information. Forms to be filled out during the job will be approved, including change orders, correspondence and performance notes, waivers and approval for payments to be made noting retention to be held, if any. If you do not have documentation and there is a dispute, you may have difficulty in remembering or justifying non-performance issues.
Relationships: Nothing will replace a good relationship with a vendor. That may mean occasionally sending that subcontractor a check early to help them meet payroll or helping them load their debris with your on site tractor, etc. This is a team process, it is good to have someone you can call when the heat is on you and you need that subcontractor on site.
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Courtesy of the Associated Landscape Contractors of America, serving interior and exterior landscape maintenance, installation and design/build contractors. The author, Bruce Church, is a CLP with Church Landscape – a TruGreen-LandCare Company.
For more information on ALCA, please call 1-800-395-2522 or click on the ALCA logo above.
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