How To Identify a Reliable Subcontractor
Juan Rodriguez writes for The Balance – about how to identify a reliable subcontractor in construction.
“In many situations, a subcontractor is a right way to go because there are certain areas that a contractor needs an expert in certain trades. A construction business or general contractor is dedicated to managing the overall activities and performance between subcontractors. Companies have different methods of evaluating and shortlisting subcontractors depending on past performances, financials and other important factors. The following article presents some ideas on performance indicators that will facilitate choosing the right subcontractor for your construction project.
Can a Subcontractor Perform Better Than Your Own Crews?
The first question that you will need to answer yourself is the one that will eventually guide you to choose a subcontractor. Understanding the scope and project requirements is vital before you can acknowledge the need for a subcontractor. A subcontractor is needed when the work falls outside of your expertise area or when your resources are already assigned to a different project, limiting the capabilities to execute the work using internal resources.
How Big Is Your Project for Your Subcontractor?
Before starting the qualification process, the general contractor needs to determine the size of the scope being subcontracted out and the resources needed to perform this work. It is important to understand this part prior to execution in order to get the proper bonding and insurance coverage for you and your subcontractor. When the subcontractor scope is too broad, then you might need to do one of two things: break the project into smaller components or analyze if this is the right project for your organization.
Once determined that it is suitable for your organization, let’s then move on to qualifying the right subcontractor.
Subcontractor Qualifying Indicators
Now that you have decided to get a subcontractor to supplement your workforce, the general contractor needs to evaluate the following areas:
Project Plan and Schedule
Letter of Recommendation or References
Project Cost and Payment Terms
Theses factors should be weighed in resulting in a total score that it is used to determine the best option for your project. A subcontractor must be able to provide this information as an answer to your RFP or during an RFQ process.
One of the most important factors when qualifying subcontractors are their safety performance. Be sure to review the EMR rates, OSHA recordable, time loss due to accidents/incidents. From a contractor standpoint, you will need to review who is their main safety officer, its background, and credentials. As a contractor ask for their safety plan and program and be sure to review it so that it aligns with your safety expectations. Safety can also include environmental response and procedures upon emergencies and spills.
Subcontractor Financial Capabilities
A key aspect of protecting your business is to hire a financially solid subcontractor. I know most of the companies will not disclose their financial information, but there is some information that they can provide like bonding capabilities and letters from financial institutions that will express their financial stability. Always make sure that all the bidders are actually qualified to work as a subcontractor, and have the required licenses and insurance
As part of the qualifying process, a subcontractor should provide basic information along with resumes highlighting the relevant experience of SPOC (Special Point of Contact), person in charge, Sr. leadership directors and personnel who will be in charge of the project. The org chart must be clear enough that you must have resources assigned to your project and depending on the project, those resources can be 100 percent dedicated to your project.
A subcontractor must bring their own equipment and tools, so be clear to specify that in your RFQ and review the subcontractor proposal to make sure those tools are included. The equipment described in the proposal must meet your demands and also include a maintenance repair plan. Please note that all maintenance, lube and fueling cost must be part of the subcontractor responsibilities. Transportation permits and costs are subcontractor’s items so they should be taking care of those items.
Project Plan or Subcontractor Schedule
A subcontractor must provide a detailed plan of action including a narrative on how they will manage the project and how they handle unforeseen conditions. A good subcontractor will provide a detailed schedule of activities including information on how much time it will take them to complete the work. A project schedule might help in many instances and a conference call to go over the scope is highly recommended.
A subcontractor proposal must make reference to their previous experiences but most important they should reference similar projects, in size and scope. Feel free to ask about concurrent projects and how those project could affect the resources devoted to your project. A list is similar projects must describe scope, schedule, budget, manhours worked and any special consideration that was part of the project. It is very important to determine whether the project was performed in recent years, similar conditions or to similar contractors/owners.
It is your responsibility to call and verify references provided before awarding the subcontractor a construction contract. Using the listed names and projects included in the RFP, the general contractor should call or ask specific details about the subcontractor performance on a particular project. Please note the position of the person giving the information and be as specific as possible when asking for details and contract information. You can use a service just like the one provided by Geniebelt.
Geniebelt provides project management for the construction industry.
Not always the lowest bidder is the best option for you. Once you have evaluated the items listed in this article, you will be better positioned to make a recommendation whether to use a specific subcontractor or not. Ask for details on payment terms, and avoid using subcontractors asking for large amounts of down payment, that might be a red flag. Discount terms and payment terms must be discussed and agreed especially final payment and release of waivers.”
Another good article from The Balance – Is Direct Hiring the Right Solution for the Construction Industry?
“Subcontracting vs. Direct Hiring? Sometimes you will wonder when does it make sense to hire an employee or to subcontract it out. Many models in the construction industry suggest that subcontracting can be easier and faster than direct hiring, but every situation must be carefully analyzed and assessed before making a decision. Subcontracting can offer you some warranties and hiring someone directly will require additional efforts from you, not to mention the costs and burden associated with it.
But what is the best decision? Well, we cannot answer that simple question without analyzing further in details the description and kind of job that you are trying to complete.
When Is a Subcontractor Needed?
Subcontracts in the construction industry are the preferred method of doing business used when affronting complex situations. Although it will require some additional legal steps and precautions, when completing or servicing specialized areas it is the best way to manage a job without adding personnel and overhead costs. The benefits of using subcontractors are:
Useful if the project scope is too broad for the contractor
Can free up time and resources so you can concentrate on growing your construction business
Usually less expensive than hiring a full-time employee
A construction contract must be written to ensure warranties of the service being provided
A subcontractor must provide its own equipment
Reduce the payroll taxes and benefits being paid
Payment can be used as a tool to negotiate for completed and accepted jobs
Construction contracts can be terminated easily
Can provide you with additional knowledge and resources
Legal responsibility could be transferred to the one executing the job
Your organization can vary in size from one day to the other
Cna be used as needed and will not consume your time and resources
Loss of control over the quality and timeliness of work, however, this can be controlled by adding additional staff or management
Misrepresentation of a contract can lead to severe fines by IRS.
Some employees can turn mad thinking that they could be replaced
Normally follows its own rules, if not stated differently
Performance criteria can be an issue
Will prevent you from developing your own staff
Time must be spent analyzing and reviewing other company’s work
When Direct Hiring is the Best Option
There are some cases when you need to hire someone directly for a construction job and create your own staff to handle projects. Usually, routine ‘simple’ construction jobs are the ones assigned to directly hired employees. Direct hiring method for construction jobs will give you assets, the most important ones; your workforce. If you decide to hire someone permanently, you must consider for how long does the employee will be needed and the benefits that you will get when hiring someone.
Direct hire can also have some benefits:
The company will have immediate results
The employee will provide continuity to your ideas
The rules are set by the employer
The employee can provide multitasking services and serve in different construction trades
A direct hire can provide great input knowing the specific needs of your construction company
Employees can be trained to do specialized construction jobs
Quality control can be closely tracked
Work hours can be better defined
A company with employees is better looked than construction companies performing only with sub-contractors
Employees are always available
The construction cost can be ‘controlled.’
Direct hiring should be used when loyalty and long-term relationships are desired
On the other hand, these are some of the drawbacks of direct hiring
Will add overhead cost for your construction company
Tools and equipment must be provided
Employees have broader rights when compared with sub-contractors.(This can also be a benefit)
Taxes and benefits will be added to the employees’ paycheck and your operational costs
When using a direct hire, production and quality must be measured, but it will be harder to keep track of it
Requires training and additional resources that will cost you money but that will generate positive results for your organization
It is up to you the decision on how to get your workforce. Remember to check with the IRS and with your local or state agency’s to assure that you are doing things correctly.”