Subcontractor defaults happen, and when they do, the 20/20 hindsight view typically reveals that there were critical warning signs that could have been addressed to avoid or mitigate the problem. As painful as a sub default can be, finding out that you had a chance to prevent one—but didn't act on it—is even worse.
How can your organization ensure you're doing all you can to avoid this scenario?
It's all well and good to have a strategy around identifying and managing sub performance issues, but, as the saying goes, culture eats strategy for breakfast. In other words, if your culture doesn't support open sharing of subcontractor challenges, there is no hope of getting that information in a meaningful or consistent way—regardless of your strategy.
The first piece of this puzzle is to build a culture where it is OK (and expected) to raise issues.
Clearly communicate that senior management knows things can get challenging and values the lessons that can be learned from those situations. Stress that you want this information surfaced because the entire organization will benefit. It must be clear that senior management is looking to partner with teams to solve issues and are grateful for the information and the lessons that may come from talking about them.
Make it an expectation that teams will actively look for sub performance lessons learned or near misses to share. Many organizations already do this with safety, and we've seen the benefit of that practice. Teams need to feel it is expected and encouraged to escalate issues before they result in serious project impacts, not try to handle them in secrecy until they boil over. This is a challenge! Your project teams wouldn't be in construction if they weren't optimistic problem solvers. They feel that they can deal with problems before they get serious, and they often do, but claims observations support that this won't always be the case. It is not uncommon for issues to become very serious prior to senior management's involvement. Communicate the expectation of collaboration on challenges.
Another hurdle is the perception that the response to sharing an issue will be punitive. Problems are hidden when teams are afraid of outsized repercussions. If there is an identifiable issue with a particular employee or team, address it, but don't make it more painful than is strictly necessary. Treat these events as collaboration and teaching opportunities.
Ensure that your process values all voices. Obviously, the project team has a lot to share. They can supply performance "near misses" as part of a team's weekly reports, on company calls, etc., but don't stop there! Other corners of your organization hear things too. Often accounts payable may be the first to identify issues via the notices or calls from suppliers. They are on the front line. Anyone, in any corner of your organization, should know that they can raise an issue at any time that it seems appropriate and have it taken seriously.
More people paying attention to issues means a higher likelihood of a strong outcome. Experience, collaboration, and brainstorming—these can all be engaged when information is shared freely. It may seem that disclosing an emerging issue is for the benefit of the concerned project team, but other project teams also benefit—whether they are using that particular sub or not—by hearing the warning signs, results, and mitigation practices used. Corporate may be able to identify company-wide trends and address them proactively. Preconstruction and purchasing can make informed decisions about bid lists and awards. Anyone who has any contact with subs may benefit, so make sure they all get the message.
What might you hear through this process that lets you know there's trouble brewing?
Financial Signs of Problems
Performance Signs of Problems
Several considerations should be made immediately upon discovering a sub performance issue; how you act on them will vary, but the conversations need to happen.
Depending on the timing and type of distress the sub is experiencing, decide what steps to take. The following are some examples of potential strategies.
Managing subcontractor performance issues starts with communication across your organization. To empower that communication, build a culture of openness and learning, facilitate communication, collaborate to determine strategies, and enact appropriate actions based on what you hear.
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