Most general contractors or construction managers subcontract a large portion, or even all of the project work out. This is done for a variety of reasons, such as risk transfer, avoiding dealing with manpower issues in multiple trades, overseeing and managing a large workforce, or eliminating the oversight of a variety of vendors and suppliers, to name a few.
One of the most important things they need to do is to make sure that the subcontractors they select to do some portion of the work are competent, cooperative, and capable to do the work in accordance with the contract documents as well as the general contractor/construction manager (GC/CM) requirements and expectations. This is especially critical when it comes to quality.
General Industry Practices
Construction is challenging because the projects generally have a lot of "moving parts" and a high dependence on other organizations and their employees delivering on their obligations and promises. There are also many factors over which the parties have limited or no control, such as the weather, transportation, availability of capable tradespersons, cash flow, poor scheduling, etc.
Generally, the GC/CM tries to use subcontractors they have worked with before. But there may be instances when hiring a new company is necessary. This requires a rigorous process for the prequalification of that organization.
The GC/CM Approach to Subcontracting
There are basically two general approaches to subcontracting. First, the GC/CM may assign the project to a project executive (PE) or project manager (PM) to be in charge of pricing, bidding the work, and overseeing the construction of the project. Another way is to have specialized estimating, procurement, cost, and scheduling departments involved in the process of securing the subcontractors to perform the work and get scheduling assistance from the cost/scheduling department. These two methods have advantages as well as disadvantages.
Small projects can take at least 12–48 months to complete. This means that the PE/PM overseeing the complete process may bid on work maybe once every 2 or more years. This leaves few opportunities to become familiar with qualified subcontractors in the particular building or geographical areas. This may negatively affect their ability to develop efficiencies and potentially get "better" pricing. On the positive side, the PE/PM may have a more cooperative and open relationship with the subcontractors used. This can result in an easier time when managing the work, ensuring success, and enhancing their careers.
On the other hand, having specialized departments involved in the process has advantages as well. These departments concentrate on specific (work) specialties and, therefore, become very good at it. They also see dozens or maybe even hundreds of projects a year, so they have a good understanding of the strengths and weaknesses of the subcontractors in their geographic area. Disadvantages of this approach may include the possibility that procurement (a purchasing agent) may select the lower-priced subcontractor rather than a more capable one, realizing that, should that subcontractor fail in some aspect of the work, the field staff would more than likely be blamed—not the purchasing agent!
Details of a Robust Selection and Managing Process
To systematically manage subcontracting activities, the CG/CM must have a defined process to ensure the "best" organization for a specific project is selected. There must be a mechanism to make certain their field staff clearly understands project goals and expectations. They must enhance the performance of the work in accordance with the project expectations as well as document their successes or failures in the quality of that performance by identifying the degree of their responsiveness, cooperation, engagement, problem-solving, and other relevant actions.
The following is an outline of such a comprehensive process.
Prebid Efforts
Subcontractor evaluation criteria
The purpose of this activity is to ensure that the "right" criteria is devised for the selection of the "right" subcontractor for that particular project.
Bid activity
Ensure that the subcontractors have a good understanding of the scope of the work, the project's performance requirements, quality, safety, expectations, etc., as well as any specific GC/CM requirements that must be taken into account in the proposals.
Subcontractor selection
After receipt, all bids are reviewed, evaluated, and compared.
Exclusions or deviations from requirements, if any, are noted. Those that are close in other areas may require clarification; others are rejected outright.
A few that meet requirements are selected for further assessment, discussion, and clarification.
One subcontractor is then chosen.
Contract Activity
Notify the successful bidder.
Discuss areas that need clarification.
Thank the other bidders.
Specify the contract term.
Review and agree on contract language and terms.
Address and resolve any and all issues.
Review and agree on any and all special or unique project expectations or requirements.
Award the contract.
Issue the contract to all involved parties.
Preconstruction
Make initial contact.
Meet with a representative from the subcontractor's office as well as the key person who is going to be assigned to run the project. Alert them to the scope of the preconstruction discussion so that they may come prepared.
Set expectations.
Deploy project expectations.
If necessary, review the qualifications of the proposed site assigned key person.
Review the schedule, confirm the work's duration.
Confer about manpower if deemed necessary.
Discuss the project requirements and expectations.
Reaffirm the start of the field operations.
Discuss the process for expeditious resolution of any issue, concern, or dispute.
Confirm decisions.
Construction
Provide oversight.
The GC/CM superintendent will oversee the construction activities, run a weekly subcontractor meeting, outline key points. Spell out expectations.
All subcontractors' foremen are required to attend weekly subcontractor performance-review meeting with reports on progress, issues, next week's expected performance.
Report on the project's overall progress and discuss any issues.
Summarize the previous week's progress and address any challenges or concerns.
Confirm next week's activities and production expectations.
Report on the level of manpower and any manpower challenges.
Address any issues with other subcontractors.
Communicate the status of changes or issues.
Report any problems with coordination or interaction with other subcontractors.
Quality, safety, and incidents will be covered if necessary.
Minutes of this meeting will be distributed.
Manage the operation's key points.
Walk the site.
Address field performance.
Resolve issues.
Coordinate with other subcontractors as required.
Manage engineering progress and issues.
Require subcontractor reports on the following.
Daily manpower
Daily production
Any challenges, concerns, accidents, or issues
Postconstruction
The purpose of this activity is for the GC/GM's project staff to review and evaluate every subcontractor's overall performance on the project. Submit to the main office a report covering their performance. The purpose of this is to update every subcontractor's performance, areas of strengths and weaknesses, responsiveness, manpower, staff capabilities, and any other issue of relative importance that occurred on the project.
Each of these five areas above will have three main elements that will be covered during each step of the subcontractor's management evaluation or activities on the project under consideration.
Participating personnel
Each area requires people with different expertise to address the risks associated with that area of performance. The evaluation team members will be designated by senior management, depending on the project nature, scope, complexity, and any requirement deemed especially important to that particular project. A typical list of the possible required evaluation team members follows.
Prebid efforts
Procurement and operations (PE or PM, supervisor, quality, safety, legal, etc.)
Contract activity
Contracting specialist, operations, procurement, legal, possibly safety, quality, etc.
Preconstruction
Project management, superintendent, engineer, cost/scheduling, contract administrator, safety, quality, etc.
Construction oversight and management
Project executive, involved staff (project manager, superintendent, project engineer, cost engineer, scheduling engineer, safety manager, quality control manager, accountant, various assistants, if required), etc. Conduct field tours, weekly oversight meetings, monthly staff meetings, special meetings, unscheduled meetings, one-on-one meetings, etc.
Postconstruction
Involve the project staff, procurement personnel, estimator, etc., to evaluate performance.
Key subcontractor requirements or competencies may need evaluation. These points must be covered.
The lowest price is not the goal; the price must be in the low quartile. Other considerations are financial capacity, operational capability, past experience, etc. Other possible issues to consider may include project staff expertise, manpower resources. Also, be sure that they meet these requirements.
The performance criteria is identified as critical to the project.
Align subcontractor internal processes with key project requirements.
Identify contractors that are compatible with the owner's operational, quality, and safety values and/or expectations, if any.
If the contractor has worked for the GC/CM before, then their past performance record must be reviewed for performance, responsiveness, cooperation, strengths, and weaknesses, and a determination made as to inviting them to bid or meeting with them for possible corrective action or not asking them the bid on that particular project.
Desired outcomes or expectations
Subcontractors must meet the requirements of that particular project's needs in the five specific areas.
Sample Forms
Prebid Efforts
Participants in the prebid process
Appropriate evaluation team
Key subcontractor capabilities
The subcontractor has the resources and capabilities to meet project requirements.
Strive for the potential for flawless execution.
Align subcontractor's internal processes with GC/CM operational requirements.
Ensure that the contractor is compatible with key project success factors.
Subcontractors must have capable staff and competent workers to assign to the project.
Company management must have a positive track record on project work oversight.
Desired outcome
Establish qualified bidders for the project.
Determine robust financials and establish an effective operational track record.
Align/integrate subcontractor processes and systems.
Hire capable staff and workforce.
Award the Contract
Inform participants in the preparation of the contract terms and conditions.
Hire an appropriate evaluation team
Key elements
Parties review critical project criteria, metrics, expectations, goals, and objectives.
Review key contract terms and conditions.
Ensure appropriate participation at a preaward meeting.
Desired outcome
Maintain a precise understanding of performance criteria.
Maintain a clear understanding of operational expectations, processes, and procedures.
Develop effective contract terms and conditions.
Award the contract.
Preconstruction Meeting (Deploy Expectations)
Participants in the preconstruction kickoff meeting
Appropriate evaluation team.
Key discussion elements
Review project performance requirements.
Review subcontractor's required practices.
Discuss the schedule, and confirm the expected work duration and the start date of fieldwork.
Deal with information, reports, issues, coordination, cooperation, problem resolution, and other pertinent issues.
Desired outcome
Subcontractor management and field staff understand project procedures, practices, and expectations.
The subcontractor's responsibilities are outlined and acknowledged.
The tone of the project is set.
During Construction (Manage Operations)
Participants in key project meetings
Appropriate evaluation team.
Key elements
Review the effective operational planning and risk assessment.
Review work coordination, cooperation, and problem-solving.
Attend weekly meeting with appropriate past week information
Review planned work, any challenges, requests, issues.
Any other issues
Desired outcome
Partner in goal achievement.
Meet or exceed work goals.
Positive behavior and commitment of supervisors and workforce
Low-resulting incidents
Postconstruction
Participants in the performance evaluation process
Appropriate evaluation team
Key elements (success or failure)
Process for feedback on field overall results
Assessment of subcontractor staff and workforce performance
Notable actions or inactions
Desired outcome
Continuous improvement of the contractor pool
Contract procurement improvement
Ensure stellar future performance
Conclusion
The prequalification part of this process is to try to identify the "best" possible subcontractor for the project under consideration. The contract portion ensures that the key elements of the project management procedures and practices are enforceable and enable the GC/CM's superintendent to try to be able to easily secure when needed. The preconstruction element ensures that the subcontractor fields a key person along with someone from their management that clearly understands the "rules of the road" that will govern the management of the project going forward. The construction portion reviews for the GC/CM project staff and informs the subcontractor staff of the things that are important to the success of that particular project and the need for them to follow those procedures. The postconstruction element is key to ensuring that the GC/CM subcontractor performance file contains important, relevant, and up-to-date information on the overall performance of all the subcontractors who have worked for the GC/CM and to provide the latest and "best" information for the next selection process.
The last step also provides the GC/CM management the opportunity to provide feedback to their subcontractors and assist them to improve their performance, which will be beneficial to both parties, and build loyalty in the subcontractor pool.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Most general contractors or construction managers subcontract a large portion, or even all of the project work out. This is done for a variety of reasons, such as risk transfer, avoiding dealing with manpower issues in multiple trades, overseeing and managing a large workforce, or eliminating the oversight of a variety of vendors and suppliers, to name a few.
One of the most important things they need to do is to make sure that the subcontractors they select to do some portion of the work are competent, cooperative, and capable to do the work in accordance with the contract documents as well as the general contractor/construction manager (GC/CM) requirements and expectations. This is especially critical when it comes to quality.
General Industry Practices
Construction is challenging because the projects generally have a lot of "moving parts" and a high dependence on other organizations and their employees delivering on their obligations and promises. There are also many factors over which the parties have limited or no control, such as the weather, transportation, availability of capable tradespersons, cash flow, poor scheduling, etc.
Generally, the GC/CM tries to use subcontractors they have worked with before. But there may be instances when hiring a new company is necessary. This requires a rigorous process for the prequalification of that organization.
The GC/CM Approach to Subcontracting
There are basically two general approaches to subcontracting. First, the GC/CM may assign the project to a project executive (PE) or project manager (PM) to be in charge of pricing, bidding the work, and overseeing the construction of the project. Another way is to have specialized estimating, procurement, cost, and scheduling departments involved in the process of securing the subcontractors to perform the work and get scheduling assistance from the cost/scheduling department. These two methods have advantages as well as disadvantages.
Small projects can take at least 12–48 months to complete. This means that the PE/PM overseeing the complete process may bid on work maybe once every 2 or more years. This leaves few opportunities to become familiar with qualified subcontractors in the particular building or geographical areas. This may negatively affect their ability to develop efficiencies and potentially get "better" pricing. On the positive side, the PE/PM may have a more cooperative and open relationship with the subcontractors used. This can result in an easier time when managing the work, ensuring success, and enhancing their careers.
On the other hand, having specialized departments involved in the process has advantages as well. These departments concentrate on specific (work) specialties and, therefore, become very good at it. They also see dozens or maybe even hundreds of projects a year, so they have a good understanding of the strengths and weaknesses of the subcontractors in their geographic area. Disadvantages of this approach may include the possibility that procurement (a purchasing agent) may select the lower-priced subcontractor rather than a more capable one, realizing that, should that subcontractor fail in some aspect of the work, the field staff would more than likely be blamed—not the purchasing agent!
Details of a Robust Selection and Managing Process
To systematically manage subcontracting activities, the CG/CM must have a defined process to ensure the "best" organization for a specific project is selected. There must be a mechanism to make certain their field staff clearly understands project goals and expectations. They must enhance the performance of the work in accordance with the project expectations as well as document their successes or failures in the quality of that performance by identifying the degree of their responsiveness, cooperation, engagement, problem-solving, and other relevant actions.
The following is an outline of such a comprehensive process.
Postconstruction
The purpose of this activity is for the GC/GM's project staff to review and evaluate every subcontractor's overall performance on the project. Submit to the main office a report covering their performance. The purpose of this is to update every subcontractor's performance, areas of strengths and weaknesses, responsiveness, manpower, staff capabilities, and any other issue of relative importance that occurred on the project.
Each of these five areas above will have three main elements that will be covered during each step of the subcontractor's management evaluation or activities on the project under consideration.
Participating personnel
Each area requires people with different expertise to address the risks associated with that area of performance. The evaluation team members will be designated by senior management, depending on the project nature, scope, complexity, and any requirement deemed especially important to that particular project. A typical list of the possible required evaluation team members follows.
Prebid efforts
Procurement and operations (PE or PM, supervisor, quality, safety, legal, etc.)
Contract activity
Contracting specialist, operations, procurement, legal, possibly safety, quality, etc.
Preconstruction
Project management, superintendent, engineer, cost/scheduling, contract administrator, safety, quality, etc.
Construction oversight and management
Project executive, involved staff (project manager, superintendent, project engineer, cost engineer, scheduling engineer, safety manager, quality control manager, accountant, various assistants, if required), etc. Conduct field tours, weekly oversight meetings, monthly staff meetings, special meetings, unscheduled meetings, one-on-one meetings, etc.
Postconstruction
Involve the project staff, procurement personnel, estimator, etc., to evaluate performance.
Sample Forms
Conclusion
The prequalification part of this process is to try to identify the "best" possible subcontractor for the project under consideration. The contract portion ensures that the key elements of the project management procedures and practices are enforceable and enable the GC/CM's superintendent to try to be able to easily secure when needed. The preconstruction element ensures that the subcontractor fields a key person along with someone from their management that clearly understands the "rules of the road" that will govern the management of the project going forward. The construction portion reviews for the GC/CM project staff and informs the subcontractor staff of the things that are important to the success of that particular project and the need for them to follow those procedures. The postconstruction element is key to ensuring that the GC/CM subcontractor performance file contains important, relevant, and up-to-date information on the overall performance of all the subcontractors who have worked for the GC/CM and to provide the latest and "best" information for the next selection process.
The last step also provides the GC/CM management the opportunity to provide feedback to their subcontractors and assist them to improve their performance, which will be beneficial to both parties, and build loyalty in the subcontractor pool.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.