SUBCONTRACT PROCUREMENT

In the construction industry, the main contract is typically the tier 1 contract between the client and the main contractor.

A subcontract is a contract that involves a subcontractor undertaking part of the main contract on behalf of the main contractor. This is generally a tier 2 contract.

Subcontracts normally involve work of a specialist nature carried out by Specialist Subcontractors Subcontracts on a project can encompass many trades but commonly include:

·      Anti-termite

·      Dewatering

·      Shoring

·      Piling

·      Drilling

·      Post-tension Works

·      Formwork

·      Precast Works

·      Waterproofing

·      Masonry Works

·      Elevators and Escalators

·      MEP Works

·      Joinery

·      Cladding and glazing

·      Specialist Finishes (Flooring, Plastering, Painting, ceiling etc)

·      Swimming Pool

·      Utility Works

·      Civil Engineering

·      Building Services

·      Structural Steel Works

·      Hard & Soft Landscaping

Procuring subcontractors is the process by which these various specialist trades are brought into a project.

There have been three main types of subcontractor:

1.    Domestic subcontractor: A subcontractor selected and appointed by the main contractor.

2.    Nominated subcontractor: A subcontractor selected by the client to carry out an element of the works.

3.    Named subcontractor: A subcontractor selected from a list of approved sub-contractors provided by the client.

However, on large or complex projects, the work will cascade down the supply chain to a plethora of subcontractors, sub-subcontractors, and so on.

Larger companies offering continuity in construction have taken an increasing interest in establishing relationships beyond direct, first tier suppliers. Framework contracts and partnering agreements have pioneered this approach, encouraging the involvement of selected suppliers at relatively early stages of projects while offering continuity of work.

In addition to providing construction services, increasingly, specialist subcontractors undertake aspects of technical design. Earlier engagement with specialist subcontractors is also possible, and it is common during the ‘developed design’ or ‘detailed design’ stage for the project team to consult with specialist subcontractors to begin to address specific aspects of the design.

Early design input can be secured from specialist subcontractors before the supply contract has been agreed by:

·      Informal agreement.

·      Writing a closed specification that could only be satisfied by the specialist subcontractor.

·      A two-stage tender process where the specialist subcontractor's design services are procured in the first stage along with agreed rates, overheads and profit for the products or services to be supplied in the second stage.

It is important that appointment documents make it clear who has responsibility and liability for different aspects of the design at different stages of the project and the level of detail that they will be expected to produce. Where building information modelling (BIM) is being used, handover of an element of the design to a specialist may require a 'change of ownership' procedure for those parts of the model. A design coordinator may be appointed with specific responsibility for coordinating and integrating specialist subcontractors' designs.

The subcontractor management process: 

The subcontractor management process can vary significantly from contractor to contractor and company to company. The size of the projects being worked on and the size of the contracts can vary massively from subcontractor to subcontractor, and different sized projects will require varying levels of subcontractor management:

1.   Prequalification: The only risk you assume here is the lost of vetting an unqualified sub. Take the time to thoroughly screen who you will be working with. You’re likely to minimize headache down the road. Start by confirming they are licensed or insured. Then look at experience, supervision of work, safety record, Quality workmanship, Adequate manpower, ability to meet the schedule, financial capacity, business management (is it well run, organised and in good standings), legal history and processes on and off the jobsite.

2.   Help those who help you: When subcontractors help you get awarded the job by offering a low value price, great ideas or value-engineering alternatives which improve your competitive advantage, you are obligated to award them the contract. By treating every qualified subcontractor fairly, not shopping their bids, and awarding subcontracts to the lowest responsible qualified bidder, you’ll maintain a great reputation and build a great team of subcontractors for the future.

3.   Set Expectations: You know how you want jobsite to run and the quality of work you expect. Make sure subcontractors have a clear understanding of the same. Getting on the same page at the start of a project can save valuable time and money when you’re against a deadline.

4.   Have a Plan: This is something most project managers are doing anyway. Make sure subcontractors are included in plans for safety talks, workflows, material deliveries and everything else that goes on during a construction project.

5.   Re-qualify: Insurance expires. Safety records change. The sub you hired may no longer meet the standards you set up at the beginning. Rechecking subcontractors ensures you and your project are always in compliance.

6.   Meet to review the proposed subcontract: After you decide which subcontractor you want to award the work to, and have drafted their subcontract and scope of work with inclusions and exclusions, meet with them in person and review everything required to make the project successful including:

·     Price, detailed scope of work, inclusions, and exclusions

·     Subcontract terms and conditions versus their proposal

·     Alternates, substitutions, and value-engineering

·     Schedule, manpower requirements and liquidated damages

·     Safety requirements, jobsite rules, permits, tests and inspections

·     Change order mark-up and standard crew rates

·     Required shop drawings and submittals

·     Required project meetings, supervision, and authorized representatives

·     Temporary facilities, power, phone, water, clean-up and trash

·     Guarantees and warranties received from Subcontractors

·     Final punch list and project close-out requirements

·     Payment and insurance requirements

Having a subcontract system will improve your bottom-line and eliminate those nasty problems and change orders that occur in the field when you don’t have everything covered.

7.   Use Contract Scope Checklists to write complete subcontracts: To make writing complete subcontracts easier, sort all the bids and proposals you have received from subcontractors over the last year or so on all of your projects. Then make a list of all the inclusions and exclusions submitted for each trade. Compile these lists into ‘Contract Scope Checklists’ to use as templates when writing subcontracts. This will eliminate those items easily forgotten or costly change orders when discovered later out on the job.

8.   Employ a subcontract coordinator: Main contractor must employ subcontract coordinator in order to improve coordination and communication with subcontractors.

9.   Communicate often: This may seem simple, or even obvious. But with so many moving parts, communications are often overlooked. Have frequent check-ins with subs to ensure their work is progressing as planned. Ask about potential issues and give feedback on work performed. Even the best subcontractor can’t fix something he doesn’t know is broken.

10. Monitor Lead Times: Always have two-way lead times built into subcontract agreements. Two-way means that the main contractor and subcontractor agree on an appropriate time for the main contractor to notify the subcontractor when to begin work and an appropriate amount of time for the subcontractor to inform the main contractor of any conflict. Main contractor should monitor subcontractor’s schedule by developing a system or adopting advanced technology software that allows main contractor to track causes of schedule variance.