Working with Subs

When to use and how to evaluate subcontractors and write up sub contracts.

By Charles Vander Kooi

I believe in expanding the talents of your people so you can do more work without subcontractors. The more you can do in-house the more competitive your bids will be. It's also easier for you to coordinate jobs without depending on subcontractors.

But, I recognize there are times when it's wise to take a job that has certain tasks you can do very profitably if you subcontract the other portions you can't do, or can't do as profitably. Ask yourself 2 questions in deciding which work to subcontract:

1. Is this the kind of work your people can do well, or will it stretch their abilities too far and end up costing more as they work slowly and make mistakes learning on the job.
2. Do your people have the time to do this work, or will it interfere with other more important work or potential work?

Some contractors subcontract all or most of a job. They become construction managers only. In this business, I have yet to find anyone who does that with great success. Generally speaking, you must do at least 75% of the work with your own people to remain competitive.

Check Subs Out

Since you are responsible for your subcontractor's work, you must make sure they are capable, do good work, and will be around to cover any warranty work. Ask for references and call those references to see the subcontractors did their work on time and cooperated with the contractor to produce a quality job.

Most contractors like to receive bids from more than one subcontractor. If you can't get 2 or more bids, then call people you trust to get a feel for pricing the work. Try to meet with potential subcontractors to get a feel for them as people.

Subcontractor Contracts

Before you submit your bid, get a detailed written proposal of exactly what is included in the subcontractor's price. For example, do they expect you to move their materials with your equipment, or to do grading for them? What kind of grade do they expect? If you need performance bonds from them, did they include that cost in their price?

A word of caution: Do not sign a subcontractor's proposal form or contract and use that as the contract between you. Signing could get you into trouble if that contract does not include legal requirements that are in your contract with the customer. The subcontractor should sign a contract that you initiate which binds them legally to the contract you have with your customer.

Once you are awarded the job, you are obligated to get the subcontractor's work done at the price you gave the customer. So, don't delay in getting the subcontractor's signature on a contract. Many a contractor has hesitated too long, and found that the subcontractor's costs have gone up or they have become too busy to handle the job.

Subcontractor Laws

The Internal Revenue Service has very strict guidelines which determine who qualifies as a subcontractor. I suggest you get a copy of those guidelines and study them. Generally speaking,

• Subcontractors are independent business people who perform a part of your contract for a firm price.

• Neither subcontractors nor their employees work under your direction for some hourly charge.