Managing risk — Getting the right subcontractor

18 July 2017
Tony Dymock

Whether you’re a builder or a tradesman, at some point or another, you’re going to need to subcontract work so you can continue yours.

Having an effective and efficient stable of subcontractors on your side can be the difference between a successful project with a healthy profit margin, and declaring bankruptcy on a failed train-wreck. Your subcontractors are a direct representation of your company, and it pays dividends to build your team wisely.

The keys to building a strong subcontracting army is a simple four-step process;

1. Finding your subcontractors
2. Getting a quote
3. Vetting the trade
4. Contract negotiations

Let’s begin!!

Finding your subcontractors

Construction is one of those industries that seems to be resistant to the technological stampede that is crashing through society. We’re a stubborn bunch, and we’re more at home with a power saw or nail gun in our hands than a mobile phone or computer.

The traditional method of finding subcontractors still works today. Asking friends who have completed similar projects, browsing the Yellow Pages, a basic internet search, and plenty of cold calling will all produce results. But it’s a slow way of doing things.

Most builders already have extra long lists of subcontractors built up over the years. With an estimator’s workload full enough as is, they often revert to the “tried and true” subbies. Finding the next up and coming subcontractor who could help save a builder a lot of time and money can be tough, yet fruitful for everyone involved. After all, it make sense to continue to look for subbies you haven’t used before.

Fortunately, EstimateOne is here to connect subcontractors and builders in an easy to use system. Listing a project on our noticeboard will let all registered subcontractors view and download your documents. You can observe who’s seen them and know who to chase up.

Would you rather spend hours searching the internet or cold calling phone books, then printing documents out, and posting them by hand? I didn’t think so!

(*hint hint nudge nudge* — go make a free account here, I’ll wait!)


Getting a quote

Now you’ve found a stable of subcontractors, you need to get suitable pricing to compare them all.

If you feel like being lazy, the easiest path is to leave them to it and what comes back is what you get. You will leave yourself at the subcontractor’s mercy and hope that everything is quoted. If you get pricing at all, that is!

Let’s say you want to build up a strong database of subcontractors who you know and trust. Then you first need to show them that you are worth knowing and working with. The best way to do this is to complete half their quoting for them. Enter the “scope of works” document.

Creating a scope of works document clearly outlining what you need to be priced for a project goes a long way to proving your capabilities as an estimator or project manager. You’re giving the subcontractor something to reference as they review the documents and specifications, and if they are not able to price something on your list, they can mark it as such instead of saying “mate, I just didn’t price it.”

As a former estimator who worked for a commercial builder, I speak from experience when I say that very little in this industry is more frustrating than receiving five quotes and not a single one is comparable. If you spent the 30 minutes to give your team direction at the start, you could save yourself hours at the end plugging the quotes full of holes.

Creating a complete, detailed scope of works document will be the topic of another blog post.


Vetting the trade

It’s essential at this stage that you understand what each subbie has allowed for. There’s no one “correct” way to get this done. Some builders use software like Buildsoft, CostX, or Expert Estimator to fill in information and start ticking boxes. Others use custom Excel sheets. Provided you have a way to compare quotes apples-to-apples, you’re ready to start your vetting.

So you did your scope of works document, your subcontractors are singing your praise, and hopefully you now have three or four comparable quotes to review. This is the comfortable place us estimators refer to as “nirvana.” The estimating manager gets to leave his butt-kicking boots in the cupboard for the day.

If you’re using EstimateOne, your subbies should have read our subcontractor quoting guide. The quote would list inclusions, exclusions, clarifications, and any other information they deem relevant that you may have missed. Again, you need to be in a position to compare apples to apples. We don’t have time for oranges in this mix.

Rule one of Estimating Club — never go off price alone. If you have three prices at $100k, and one at $30k, do NOT for the love of building pick the $30k subcontractor yet. Something is off. Either three subbies are in cahoots or someone got left behind.

When everything is noted down and compared, you may find that the $30k price you received excluded supply of everything, or only allowed for a partial scope of works. And maybe the $100k subbies have allowed for items which are marked as provided by the client and their price comes down. Sometimes you may even find that by combining subbie quotes you wind up with a better price altogether. (Side note; double check with the subcontractor before doing this. Their price may change if you start pulling things off their quote!)

By now you should have three or four prices that are fully vetted and ready to withstand the bashing that managers like throwing your way. You have covered all the risk associated with the subcontractor, adding or subtracting cost where appropriate. You might even find you can play them against each other to bring the price down further.

It’s important to note at this point that price is just ONE aspect of many to picking the right subcontractor. You need to know they have the people and skills required for the job, the financial backing, the insurances, the attitude, etc. The sharpest price can be shot to flames in contract negotiations …


Contract negotiations

Let’s recap.

You’ve found some tradies, you’ve issued them a scope of works, they’ve sent their quotes across, you’ve compared them apples-to-apples, and now you’ve picked the one or two best of the bunch.

There are a few more things to do before anyone is told they have the job.

Reference checks

If you go to the bank and withdraw one million dollars, would you feel confident giving it to a stranger who says the right things? This is the same as handing a contract to a subbie you haven’t reference checked.

Subbies who’ve been in the industry a while will have a few project managers who can vouch for their work. If they haven’t included them in their quote, let them know you’re interested in their quote but you need to do some due diligence. Call the project managers and query them on the subbies work ethic, punctuality, time management, quality of work, and how they handled variations and defects.

These last two are critical to understanding what happens when the subbie is under stress and needs to fix issues with their work. If the subbie is always on time, ahead of schedule, and under cost, but is tardy at repairing defects and constantly charges variations, then you run the risk of cost and time blowouts in rectification works.

Sometimes your preferred subcontractor is a new tradie which doesn’t have much experience. This can be risky, but at the same, you could also be assisting an absolute superstar grow their own business. If their company is new, ask for previous employer references so you can verify the details as above.

Add all the reference notes to the trade vetting for further comparison.


Contract type

There are two categories of contract often used in construction. They are as follows;

Builders are often signed up to an AS2124, AS4000, or AS4300 commercial contract. This is between the client/project manager and the builder and dictates performance terms, payment schedules, defects liability, etc.

Subbies are generally signed up to companion documents depending on the builder’s preference;
TAB- AS2545 — subcontract conditions (companion to AS2124)
TAB- AS4303 — general conditions of subcontract for design and construct (companion to AS3400)
TAB- AS4901 — subcontract conditions (companion to AS4000)

* Australian Standards contracts can be purchased on the SAI Global page (www.saiglobal.com).

The ABIC contracts are produced by the Master Builders Australia and Australian Institute of Architects and are generally used where an architect acts as client-side project manager and administers the contract on the client’s behalf.

Subcontractors will usually come across the following;
– Major Works Subcontract (MW SC-1 2002)
– Simple Works Subcontract (SW SC-1)
– Basic Works Subcontract (BW SC-1)

* ABIC contracts may be purchased from Master Builders (www.masterbuilders.com.au)

Once you’ve verified the subcontractor’s abilities and settled on the contract to be used, it’s time to ensure you’re both steering the same ship.

Understand the intricacies of the contract you’re using and make sure that you both agree to the terms and conditions you’re signing. Make sure the payment terms match those of the client, so the money flows downstream properly. Make sure the defect liability period is suitable. Make sure the quality details in the contract are at a level you’re both comfortable with.

Spending extra time on the contract review up front could again save significant time and money down the line should an issue arise. As far as the law is concerned; it’s not what you know, it’s what you can prove!


Get building

Congratulations, you’ve now got a subcontractor from a pool of many who has passed all your tests. Now your risk is reduced, you can get on with the job of building.

To recap;

  1. Get a good number of subbies to price your project.
  2. Make the subbies job as easy as possible to quote, including giving them a scope of works document.
  3. Vet the trade. Compare them all apples-to-apples, and leave no stone unturned on their quotes. Understand everything allowed for and/or excluded.
  4. Pick the right contract for the job and ensure you both agree to all the terms. You’re there to work TOGETHER, not at each other’s throats.
  5. Profit