The Value of Subcontractors in Construction

09/21/2021

General contractors the world over partner with subcontractors – trade partners that perform certain work scopes for a given jobsite. For the purposes of today’s article, we will include materials suppliers in the same category, as we depend on our materials suppliers and subcontractors to complete our work. The value of excellent trade partners cannot be overstated. They contribute their labor, expertise, technology, ideas and enthusiasm to the construction industry as a whole, and commercial construction projects cannot be completed without them.

Today we will dive deeper into the role that subcontractors play, as well what the relationship looks like between general contractors and subcontractors.

Contractual Arrangements with Subcontractors

At a foundational level, the agreement between a general contractor (GC) and a subcontractor is a contractual one.  Similar to the way an owner hires Perlo to complete their work, subcontractors are engaged to complete portions of work, with contractual agreements to lay out the terms and conditions.

A single commercial construction project may have very few, or up to hundreds of trade partner agreements in place. Subcontractors may also have their own contractual arrangements with lower-tier subcontractors and suppliers. For instance, a mechanical contractor that completes heating and cooling work may have a contractual arrangement with a sheet metal fabrication shop to produce their ductwork. Perlo’s contract would be with the mechanical contractor, and that entity would have a separate agreement with their ductwork supplier.

The terms for subcontract agreements will differ from GC to GC, and from project to project. Both parties must agree to these terms for each individual project. Agreements will cover a variety of items, including but not limited to:

  • Scope of work
  • Price for the work
  • Insurance requirements
  • Payment terms
  • Owner terms and conditions
  • Schedule of work
  • Indemnification
  • Clarifications
  • Claims procedures

These agreements are important to set expectations and clarify which party is completing what element of work. These must be in place before the contractor is onsite.

Subcontractor Expertise

While a GC needs to know the overall scope of each project and verify that quality is being delivered, the individual subcontractors are truly the experts in their trades. Their craft workers are specially trained to complete their work and are equipped with all of the specialty tools they need.

Subcontractors can provide valuable assistance in both the preconstruction and construction phases of work, as well as with future maintenance needs. Additionally, these trade partners help to identify the lead times that may be involved in procuring equipment and materials to complete the work. In today’s volatile climate, this is particularly important, as delays in production and shipping are making deadlines challenging to meet. In addition to completing the work, many subcontractors also have design teams on staff and complete the engineering plans and specifications for systems like HVAC, plumbing, electrical and fire protection.  

Like a general contractor, subcontractors must be licensed with the Construction Contractors Board (CCB) as well as the Secretary of State. Specialty licensing to allow for engineering, as well as insurance and bonding must be in place for a subcontractor to legally complete their work. Finally, trade partners must be experts in the necessary safety protocols for completing their own work. While the GC is responsible for the overall site, subcontractors are responsible for the safety of their own crews and must educate their workers on safe work practices.

Subcontractor Recruitment and Retention

To provide crews and craft workers for hundreds of projects each year, GC’s must work hard to know all of the subcontractors in the area and partner with them to bring projects to completion. A single GC may work with hundreds or even thousands of trade partners in a single year. When projects are in the preconstruction phase, effort is made to inform subcontractors of upcoming bid opportunities.

Some of the methods used to notify them include:

  • Direct email communications, typically through the use of software programs like Building Connected or others made for this purpose
  • Advertisements in local trade journals (i.e. Daily Journal of Commerce) and at the local plan centers
  • Notifications to minority group partners, such as:
    • NAMC – National Association of Minority Contractors
    • OAME – Oregon Association of Minority Entrepreneurs

Relationships between GC’s and subcontractors must be mutually beneficial to encourage a continuation of the relationship over the course of many projects and time. This means that both parties must endeavor to:

  • Clearly communicate expectations and needs
  • Provide equipment and materials on time
  • Complete work safely
  • Submit invoices and complete payments in a timely manner
  • Work to find mutually beneficial solutions when challenges arise

Projects run smoothly when all parties are working together as a team. When communication is clear, deadlines are met, and discussions lead to continuous improvement and mutually beneficial solutions, the relationship between a GC and subcontractors will remain strong.

Planning and Building Construction Projects Together

There are many keys to making working relationships between GC’s and subcontractors work well. It starts with both parties communicating their expectations and capabilities with each other. A general contractor will review and consider several facets when determining which subcontractor should be awarded any one scope:

  • Price
  • Crew member availability
  • Supplier relationships
  • Financial health
  • Available technology
  • Ability to complete the work by the schedule deadline

It’s important that the right team members be chosen for each project. For example, if a drywall scope is worth approximately $1million, it wouldn’t be wise to hire a subcontractor that only completes $1million in volume in a single year. It’s dangerous for any vendor to have all their ‘eggs’ in one basket, which would be required with such a large project size.

Like we discussed in the Challenges of Auto Dealership Construction, some buildings require a much higher level of finish quality, and not all vendors are set up to provide that high level of finish. Instead, it’s best to match skillsets with the level of sophistication that the job requires.

Sometimes it may be beneficial to hire more than one company per trade to accommodate schedule needs or to combine expertise on complex projects. For instance, public education projects must often be completed during the summer break and have a firm deadline to complete prior to students returning to school. It’s possible to hire two separate roofing contractors to split up the work to ensure that crews can be robust enough to finish on time. Two companies may be needed to achieve a large enough crew size to meet the schedule demands, where one company would not have the depth to achieve this on their own.

Final Thoughts

We find significant value in ensuring that our trade partners are treated fairly and supported so that the entire building process is beneficial for them, our clients, our company and our communities.

If you would like to work with Perlo on future projects, please visit our Bid Opportunities page to learn more about upcoming bid opportunities, as well as our pre-qualification process.

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