7 Ways to Improve Your Subcontracting Business’s Profitability Now!

 1.    Read the Subcontract

This may seem obvious to the uninitiated but the reality is that many Subcontractors do not familiarise themselves with the terms of the Subcontract upon which they have been asked to submit a tender price submission.

Many reading this are saying to themselves but what’s the point, if we want the work we have to accept the terms, we know where the market is at in terms of price, we use rates which we know are competitive, if we increase our prices to cover all the risks in a Subcontract we won’t win any work, simply as that!

Other common reasons for not thoroughly reading the Subcontract prior to submitting a tender price include:

• The cost associated with doing so is considered too high or unsustainable;
• A lack of expertise within your organisation;
• A belief that your relationships with the client will protect you against any unsavoury terms in the Subcontract;
• A belief that being too contractual will be seen in a negative light by your prospective clients and in turn result in you not being invited to tender on future work or your tender not being accepted for this reason.

If the foregoing describes your outlook, you’re not alone, however, as is often the case, the consensus view is completely wrong!

Understanding the Subcontract completely will allow you to fully appreciate the risks you are exposed to, which in turn, should inform your pricing strategy, why take on risk if there is no reward for doing so, despite what you might tell yourself, some Subcontracts are more risky than others, taking a systematic approach to such risk will improve you bottom line, no question!

Furthermore, when you do win a job, you already have a clear understanding of what you are required to do in accordance with the Subcontract, ensuring you can proceed in a proactive manner instead of simply reacting to client requests.

2.    Be Willing To Walk Away

If you take my advice under item 1 above, there is a good chance you will come across risks over which you have no control, which cannot be mitigated and which, if they occur, have the potential to put you out of business, be prepared to walk away.

Don’t let promises of the next job, the prestige of completing a landmark project, the opportunity to take a step up in terms of project value and / or complexity stop you from walking away from a Subcontract that could put you under.

If wish to be taken as a credible negotiator you have to be willing to walk away, should you be required to do so, there are risks for which the consequences and likelihood of occurrence are just too great!

3.    Ensure the Subcontract You Execute Reflects Precisely What Was Agreed

Again, this may seem blatantly obvious but the number of times I have seen the final document being issued with unagreed, or without agreed, changes and amendments being incorporated only for the Subcontractor to happily sign it beggars belief.

With entire agreement clauses common place in Subcontracts, it doesn’t matter what documents you based your tender price on or what discussions and agreements were made with the client, if the final executed document doesn’t reflect exactly what was agreed, you can sing for it!

It is vitally important that everything from the documents upon which your final tender price submission was based, their exact revisions and all other aspects of your tender price submission and any subsequent negotiations are unambiguously and consistently incorporated into the Subcontract.

Remember, it is the final hard copy of the Subcontract which you execution that counts, as this will in most cases supersede everything before it, spend the time to ensure it is right, as this will often prevent heart ache further down the track.

4.    Administer the Subcontract

After all, you signed up to the Subcontract, why would you now choose not to fulfil the obligations set out therein, perhaps you think:

• Why create work for myself, if I were to properly administer the Subcontract, it would take time and resources which I could put to better use like getting in and getting the job done. Whilst I appreciate the sentiment, the reality is that submitting notices of delay, programmes, variations, claims etc. at the times and in the formats required by the Subcontract are responsibilities you have accepted just the same as the physical works you have been engaged to construct.
• I don’t want to fulfil certain obligations in the Subcontract such as submitting notices of delay (potential or otherwise) as it may affect the relationship I have worked so hard to develop with the client. As the saying goes, the road to hell is paved with good intentions, sticking with the example of the delay notice, the truth is that providing delay notices in a timely manner helps the client ensure that potential delays to the project are resolved quickly and with minimum impact to progress, failing to comply with such a requirement may impact not only your entitlements but your clients ability to mitigate delays to the project.
• I don’t want to prepare a detailed baseline programme, it’s a waste of time as things always change and it becomes redundant, I will provide something high level with minimum effort to gain approval. Preparing a baseline programme should never be seen as a tick the box exercise, a well thought out and properly constructed programme ensures that all stakeholders are clear on how you intend on completing your works, sets out the timings for provision of access, information/approvals, completion of work by others etc.

5.    Keep Records

One of the most important things you can do when it comes to maintaining your rights to claim under a Subcontract is to ensure that you have the contemporaneous records available to support your position should you require, such records include:

• Correspondence
• Minutes of site meetings
• Engineer’s instructions – including lists of errors and unsatisfactory work
• Confirmation of Verbal Instruction – (CVI)
• Request for Information – (RFI)
• Contract and shop drawings
• Labour Allocation Sheets
• Correspondence with subcontractors and suppliers
• Site diaries
• Daily weather reports
• Receipt of drawings schedule
• Progress photographs with dates in picture
• Effect of work done by third parties
• Materials schedules - orders and deliveries
• Invoices
• Plant Allocation Sheets
• The Baseline Programme
• Updated Programme(s)

Ensuring a disciplined approach to record keeping will ensure you are in the best position possible when the need to submit a claim arises.

6.    Staff Training and Oversight

The reality is that none of the foregoing is possible unless you have staff members with sufficient knowledge and expertise to understand events, in the context of the Subcontract, as they unfold in real life, and act accordingly.

Most Subcontracts nowadays come with strict time bars and short time frames in which to comply so not only is the onus on you to provide a raft of evidence to support your variations, claims etc. but you are required to do so in a short space of time.

If your staff members are slow to interpret events as they unfold and don’t comply with the requirements of the Subcontract in a timely manner, it doesn’t matter how good your records are or how well you have administered the Subcontract up till that point in time, you may quite simply have missed out on a golden opportunity to improve your revenue and get reimbursed for events beyond your control for which you could not have priced for and are entitled to under the Subcontract but for being time barred.

Seek expert advice and training to ensure that when the time comes your staff are capable of delivering for you and your company.

7.    Don’t Mistake Confidence for Competence and / or Expertise  

So you worked your way up off the tools, you were a site manager, a project manager, a project engineer, a senior project engineer the list goes on but here is what I can tell you, if you have not specialised in contracts or commercial management for your entire career, whether it be pre-contract estimating or post-contract administration, all things being equal you will not be as good at this aspect of the business as someone who has dedicated themselves in this manner.

Of course there is nothing wrong with this, very few of us have the capacity to be experts in all aspects of our businesses, however, the ability understand both our strengths and weaknesses and act accordingly is often the difference between mediocrity and excellence.

Ask yourself, why do I think we are competent or excellent when it comes pricing work or administering contracts, unless you have been audited by experts in the field who have come to this conclusion, can you really be sure?

If you have any questions about this article or wish to discuss the matters raised, please do not hesitate to contact the author on +61 457 213 454 or by email ([email protected])