Keys to Procurement and Management of Sub-Contractors

3rd June, 2020

Managing subcontractors properly is a particular skill which not all main contractors, project managers and quantity surveyors are capable of doing. The construction industry has an underlying stigma of mistrust between main contractors and sub-contractors, with both parties feeling the other is trying to exploit them. Sub-contractors have long played an important role in helping main contractors source the skills they need in a flexible way.

A current trend in the construction industry is many large main contractors sub-contracting much of their work out to smaller companies, then acting as a management contractor co-ordinating the sub-contractors to deliver the project. This reduces a main contractor’s overheads and reduces risk for them as when they employ their own large workforce it means that workforce constantly needs fed work or the main contractor is losing a lot of money.

            The procurement and management of sub-contractors are critical skills to master for main contractors to be successful on construction projects. They can achieve success by following these eight key points: 

1. Procure via Competitive Tendering

The main contractor should competitively tender the packages by sending them out to at least 3 sub-contractors for pricing. This will ensure best value for money is achieved for both the client and main contractor. When this is carried out for each trade package or for all labour on a project this can lead to significant cost savings. Competitive tendering also allows the quality of each sub-contractor to be studied and the best sub-contractor for the job is selected.

2. Finding Good Sub-Contractors

Good sub-contractors are easy to work with, can follow instructions, are easy to pay and deliver a high standard of workmanship. The main contractor is appointed by the client to complete the works, therefore, are directly responsible for ensuring the project is delivered to the client’s desired quality. If the sub-contractor fails to carry out the work to the clients desired level it is the main contractor who ends up having to deal with it, either getting the same sub-contractor to correct defects or employing another sub-contractor to do the work properly.

            It is important for main contractors to establish working relationships with a network of good sub-contractors to work on each of their individual projects. In the case of more obscure trades such as specialist steelwork, gilding etc. this is particularly important. Once the main contractor has one good tradesperson on board, they will often lead the main contractor to other good tradespeople with whom they regularly work. After all, a good tradesperson doesn’t want to have to follow a bad one.

3. Build supply chain relationships

This is referred to in the previous point, it is important for a main contractor to build good relationships with sub-contractors and other supply chain members. Particularly where the sub-contractor is very good, it is important for the main contractor to keep them onboard, busy with work and happy to work with them. Establishing good supply chain relationships is critical to consistently delivering high quality workmanship and value for money to clients. Working consistently in the same group of contractor / sub-contractors allows a fantastic working relationship and understanding to develop, resulting in faster construction times and a great team ethic to consistently deliver great projects.

4. Put formal sub-contracts in place 

Putting in place a formal sub-contract can provide both parties some protection and promotes a good working relationship between them. A formal sub-contract clearly lays out the terms of agreement, defines the duties of both parties during the project, and lays out other terms such as payment and health & safety commitments. A formal sub-contract can also ensure a guaranteed lump sum fixed price for the main contractor which reduces their risk of losing money on a project. A formal sub-contract can also protect both parties and give them a legal stance if one of the parties does not fulfil their contractual obligations.

5. Payment of sub-contractors

Payment is the most common reason for a break down in relationships between main contractors and sub-contractors. Often main contractors can struggle with the cashflow side of their business, meaning that when they receive their monthly valuation from the client it can often be used to pay off bills from several months ago or is needed to fund their own labour and plant for the next month. This sometimes means a sub-contractor could go several months without payment, meaning they struggle with cashflow and often refuse to do any more work for the main contractor until the debts are settled. Main contractors can get a reputation as being poor payers, meaning they find it difficult to get good sub-contractors to work with them. 

Establishing a formal sub-contract should be important for both parties, detailing payment terms which means both parties know what to expect prior to commencing on the project. This contract is also legally binding meaning the sub-contractor can seek damages if payment terms are not adhered to. 

6. Site Manager / Project Manager role

The Site Manager / Project Manager is the most important person for the main contractor when dealing with sub-contractors. They set the programme of works and co-ordinate the sub-contractors on-site to ensure the project is completed on-time. The Site Manager also manages the sub-contractors on a daily basis, ensuring they have what they need to complete the works. They also carry out inspections and give instructions to the sub-contractors on a daily basis. They are also responsible for passing on design changes to the sub-contractors. 

            The Site Manager / Project manager are a vital cog in the main contractor’s machine to ensure works are completed to a high standard and on time. They are also the main face of the main contractor in dealing with the sub-contractors so it is important they set a good tone, respecting the sub-contractors and make them feel like part of the team.

7. Manage poor performance

The main contractor acts in a management role to the sub-contractor, directing them, co-ordinating all trade packages and inspecting works carried out. When performance is slow or the work carried out is poor, the main contractor needs to approach this in the correct manner with the sub-contractor. If the main contractor is brash or highly critical of the sub-contractor this can lead to a breakdown in the relationship between parties, with the sub-contractor perhaps walking off site or not being particularly helpful to the main contractor. The main contractor always has the upper hand over the sub-contractor as they pay them, and it is important the main contractor pays the sub-contractor fairly but not generously in each monthly valuation in case contention does arise and they walk off site. Holding retention on these monthly valuations should also be agreed in the sub-contract, this acts as further protection for the main contractor in case the sub-contractor walks off site.

It is also important for the main contractor to manage poor performance without micromanaging the sub-contractor. Micro-managing can lead to a breakdown in working relationship, and also reduces the economic viability of the project for the main contractor. This is because if they are micro-managing the sub-contractor they may as well be carrying out the work themselves.

8. Make them feel like part of the team

This relates and feeds back into almost every one of the previous points. By making the sub-contractor feel like part of the team it promotes good performance, makes them easier to co-ordinate and also build lasting relationships with them. Often, good sub-contractors are heavily employed and need to turn down a lot of work. This means if that sub-contractor enjoys working with other sub-contractors or a particular main contractor they will always chose to do so. If they don’t feel comfortable working with a particular contractor, they can simply turn down the work.

If all main contractors can procure and manage their sub-contractors in accordance with this guidance, they will develop a fantastic supply chain who are happy to work with each other from project to project. In turn, this will deliver clients faster construction times and a high quality end product. Procurement via competitive tendering can also ensure the main contractor and the client are receiving the best value for money. Therefore, delivering in time, cost and quality requirements.