Management Talk: The battle to keep subcontractors

We received the following note from a loyal reader­—

“My biggest challenge as a residential remodeler is obtaining and keeping qualified and experienced subcontractors willing to do smaller type projects. The construction market here is so robust, selling a job is relatively easy but producing the job seems almost impossible. Talk about some tips to deal with this situation.”

Good question.

It should be clear to your subs that if they want the “big jobs,” they must be willing to do the little stuff as well. If they aren’t willing to come out for a small job, find a new sub for your bigger jobs. When you do call them for small jobs, then you must be willing to pay a minimum trip charge. I was figuring a minimum trip charge of at least $150 some 20 years ago. I don’t know what the going rate is today.

How do you attract subs willing to do both the big and the small jobs? Be sure you have an agreement that you use for ALL subcontractors. (Check out our Subcontractor Manual, a customizable manual for your company.) An agreement lays the groundwork for your relationship so you both know what to expect from the other, and it’s a commitment that makes both of you more apt to work through the tough times. The agreement must have two parts.

The first part is broad, and covers all potential jobs with the sub. Include what you expect from them such as a firm price quotation for each job, showing up on the agreed time, keeping the jobsite clean, no loud radios, no drugs, smoking, or alcoholic drinks, no talking with the customers, etc.
You must include a statement that it is up to the subcontractor to provide proof of required licenses, bonds and insurance, and proof of financial competency. Without either, they will not be allowed to set foot on your jobs.

It also states everything they can expect from you. Include exactly how and when you will pay them, and what will stop you from paying them. For example, if a job is not being kept clean, or if they aren’t doing a specific job as agreed. This should also lay out what you mean by “being on time” and what is a legitimate reason for them not showing up as agreed.

You must also specify that you do not allow Cost Plus or T & M quotes for work to be done. Fixed figure quotes on all work other than minor changes should be the rule.

Finally, you should specify how written or verbal changes are to be made, how verbal invoices are to be handled and any penalties or bonuses that will be included. Remember, penalties and bonuses must work both ways.
The second part of the agreement is a form you use on each job. Specify exactly what you want done, and have a place for them to quote a price for that work. Now, there are no disagreements over what is or was to be done and by whom. This eliminates the “extras or changes” that can crop up.
You will quickly find that if you agree to pay every two weeks on your jobs, you will attract the best subs. The last thing subs need is a general contractor telling them, “I can’t pay you until I have been paid.” That approach is not only dishonest, it’s dumb as well. Don’t do it.

When you pay your subs, it should be by company check only. Never, never, never pay any sub or any labor with cash. Company checks have your company name, your business address and a number on that check. No exceptions. Paying subs or labor by cash is just asking for a visit from either the state or federal auditors, and is unethical.

Now, if you ask a sub to do design work of any kind, you should be willing to pay for that service. If you use their designs and don’t pay, then go to another sub because they are cheaper, there is something seriously wrong with your way of doing business. Don’t do it.

Always be fair. If a situation comes up that is not in your subcontractor agreement, err on the side of fairness to the sub. Remember, they have families and a business to take care of just like you do. Trying to chisel a sub out of a dime is going to cost you dollars in the long run. Many general contractors never figure that one out, and wonder why they can’t find and keep good subs.

Here is an idea I used almost from the start of my career in sales in 1969. If I asked a sub to give me a quote on a job, and they did, if I got the job, they got the job. I didn’t shop them around; I didn’t get three bids on each job. If they helped me put an estimate and proposal together, they got the work. I had many of my subs that went back 5, 10, 15 years and more with me. My roofer went back more than 30 years.

Once a job was quoted, I expected the price to hold for that job. But my subs knew me well enough to know they could come and tell me about price increases at any time. If they needed to quote a higher price for the next job based on a legitimate price increase, that was OK. I never fussed at them over prices. It is a fact of life if their price goes up, yours goes up. Now if a sub started running the price of their work up for unnecessary reasons, I made sure I knew my numbers well enough I could call them on it. Running prices up just to try and get more money out of me got them a one-way pass out of the relationship.

Using a subcontractor manual will help to eliminate the bad subs, even before they show up. They will know they can’t perform and they will just go away.

Michael Stone is a business coach and consultant with more than three decades of experience in the construction industry. He wrote the book Markup and Profit: A Contractor’s Guide, published by Craftsman Book Co. For Michael’s free newsletter, sign up at www.markupandprofit.com. Michael also is an experienced speaker and is available to speak at conventions and workshops. He can be reached by email at michael@markupandprofit.com, by phone at 888-944-0044, or on the web at www.markupandprofit.com.

Related Posts:

  • No Related Posts

COMMENT