Subcontractors play a vital role in the residential building industry by providing a flexible workforce that can expand and contract to suit the market conditions as well as providing opportunities for contractors to run their own business and achieve their goals, whether they be large or small.
However, using subcontractors can also cause numerous problems if they are not managed properly. As a builder, you need to ensure you are dealing with the right contractor, you set out the right expectations, you cover yourself and the contractor with the right legal and legislative parameters, you pay a fair price for the work, and you ensure your contractors are aware of the latest information and requirements.
If as a builder, you thought you could just get a quote from a subbie and put them to work, you are badly mistaken or naïve.
Let me say at the outset that the very good subcontractors are ‘worth their weight in gold’ and will help you to achieve the right outcomes without a lot of work and they should be rewarded and recognised accordingly.
What does a good Contractor Management system look like? It’s not a piece of software that does it all for you, but some software can definitely make the management easier for you, particularly if you deal with numerous subcontractors.
You are not doing the work you are engaging the subcontractor for however, you will need to have systems in place to ensure the subcontractor carries out the work in a manner that complies with relevant legislation, your contracts, your expectations of quality and within a relationship that fosters ongoing goodwill.
The following are what I would consider to be the 10 attributes of a good contractor management system:
1. A process that checks and confirms the contractor holds the required licences, insurances and WHS systems – (they are who they say they are)
2. A WHS management system that makes it easy for the subcontractor to comply and meet their obligations
3. A system or process that defines the proper extent of works required, the quality standards you expect and the environment in which the subcontractors are able to carry out their work
4. Contracting standards that meet current legislation and expectations of the industry
5. A process or system that ensures you are receiving value for money from your subcontractors
6. A process or system that understands the labour market and how the forces within that labour market apply to your business
7. A process or system that ensures subcontractors are as up to date as possible with the latest building codes and standards, manufacturer requirements and work practices
8. Promotion of a culture of ‘continuous improvement’
9. Recognition of consistent, high-quality work and relationships
10. As much as possible, the understanding and application of ‘succession planning’ for the future
Let’s look at the 10 attributes in more detail:
1. Let’s call this the ‘Pre-Qualification’ – checking and confirming the contractor holds the correct licences, insurances and WHS systems they need. It is important that as a builder, you do this very diligently before starting any subcontractor.
I don’t watch ‘The Block’ very much because it sets unrealistic expectations for clients however recently there was an episode where it was discovered that one of the tiling contractors had provided fraudulent workcover paperwork. I was glad to see that even The Block checks this information. I’ve always had a very thorough ‘pre-qualification- process for starting any subcontractors in businesses I have managed or owned, and I’ve found that as much as 50% of the subcontractors that have submitted their ‘paperwork’ have incorrect information;
· Holds an individual licence but trades as a company
· The insurance policy is in a different name to the contracting name
· Bank account name is different to the contracting entity
· Insufficient WHS paperwork
· Using the licence of another contractor
The first three are usually the main ones. What are the consequences of these three inconsistencies?
Firstly, you as a builder would be using an unlicensed business to carry out work – big fine and no comeback if any work is faulty.
Secondly, the insurance company would walk away if anything went wrong on site because the policy is with a different entity.
Thirdly, you could be involved in fraudulent behaviour if payments are made to another entity.
You must be extremely diligent in checking the details of your subcontractors. Many times, I’ve had a subcontractor say to me that they have never been pulled up on the details and they have been working for major builders previously. On the other side, we once didn’t follow up on the licence renewals and ended up using an unlicensed contractor who had forgotten to pay his licence fees.
If you have a large number of subcontractors to manage, consider using HIA Tradepass. This is a management system created by HIA to check on the licence and insurance details and follow up the renewals so that you have peace of mind that this process is being managed diligently.
2. WHS Management System - A WHS management system that makes it easy for the contractor to comply. As the principal contractor or PCBU in charge of the construction sites, it is your WHS management system that applies to the site and the legislation surrounding the workplace health and safety of people on the site.
Don’t rely on your subcontractors to find out what your WHS management involves and how they need to comply with it. Be proactive and prepare all the information in a package that can be sent to every subcontractor, so they are aware of what you expect on-site and how they are to comply.
Having a software system doesn’t remove the need to implement a proper WHS management system. If you don’t know where to start, contact HIA Safety Services and they can help implement the relevant system for you.
Once you have the required documentation, there are many software systems available that can help you manage them – SiteDocs, HazardCo to name a couple. HIA also have a site management system that can help with the inductions and site check-ins for your subcontractors.
3. Scopes of Works - A system or process that defines the proper extent of works required, the quality standards you expect and the environment in which the subcontractors are able to carry out their work
This can be covered by one set of documents, your Scope of Works. A very good ‘Scope of Works’ can define the extent of work for your subcontractors, describe the expected quality standards and codes to comply with and also set out the expectation of how you require the site to be maintained.
Combining this type of document with the ‘Trade Agreement’ enables you to enforce these quality standards and expectations of workmanship onto your subcontractors as part of the legal agreement. While there is a substantial amount of work involved in setting up the ‘scopes of work’ initially, the benefits from using these are extensive as they bring to the surface all the standards, codes and expectations of quality and workmanship that subcontractors are unlikely to know or understand. Using these ‘scopes’ also creates a consistent playing field for all your subcontractors.
4. Contracts- Contracting standards that meet current legislation and expectations of the industry. In Qld, legislation requires a builder to have a written agreement with a subcontractor and the subcontractor, in most cases, will need to be appropriately licensed.
Your contracts or ‘trade agreements’ should reference all the other relevant parts of your contractor management system if you want the documents to have any legal standing – licences, insurances, WHS, scopes of work, purchase orders, indemnities, payments, the performance of the works and how defects will be dealt with.
HIA has a series of ‘trade agreements’ or you can discuss with an experienced construction lawyer to develop an agreement/contract that suits your business but complies with legislation.
5. Procurement - A process or system that ensures you are receiving value for money from your subcontractors
Do you want to screw your subcontractors down to the lowest possible price or do you want value for money from your subbies? Do you look to get quotes for every job, or do you setup agreed rates with your subbies so you have some control over the pricing and reduce the extra costs involved for the subbies when they have to quote every time?
Subcontractors will like working for a builder and continue to work for a builder who is organised and provides the right information to their subbies. But how do you know you are getting the right price and can compare ‘apples for apples’ across various quotes for full jobs or just rates?
Well, this takes me back to the first four attributes: pre-qualification, WHS, Scopes of Work and contracts. Without having these components available and agreed to by your subcontractors, the prices you receive can vary wildly because unless you spell it out, a subcontractor can only quote on what he/she ‘thinks’ should be in the price. So, if you thought you could get away without doing the first four, think again as you will never receive a ‘fair’ price from your subcontractors without letting them know what they are quoting on.
Once you have the ‘true’ prices and quotes, you can then do your comparisons across the same purchase order indexes or cost centres. While one item may be cheaper, it is the total cost of the works that counts. Many estimating systems are able to provide reports that show comparisons across various ‘vendors’ or contractors to compare the pricing correctly.
If you have been using the same contractors for a while, its always a good idea to test the market and ensure you are still receiving the best value for money from your contractors.
6. Market Knowledge - A process or system that understands the labour market and how the forces within that labour market apply to your business
How do you know what is affecting the labour market and labour supply? A good start is to become familiar with the HIA Economics reports that provide commentary on labour market, price pressures, global forces that may affect the supply here in Australia and the outlook for the future.
Keep talking with your subcontractors to get a ‘feel’ for how they see the market and any pressures that are being applied to them.
Talk with other builders about any trends or pressures they are seeing. Obviously, you can’t talk actual pricing as that could be construed as ‘collusion’ however other builders will be a good source of information.
While it is always hard to predict the future, a very good way of establishing how labour market pressures and possible price increases will affect your pricing is to create what I call a CMA Calculator – Cost Movement Allowance. If you take a fairly typical home that you build and break down the costs into all the purchase order indexes or cost centres and set the current pricing against those, you can apply % increases to each component and set the price increase at each month in the next 12 months that you think will occur. This method will give you the ability to aggregate the effect of all proposed and forecast price increases over a six- or 12-month period. This will enable you to factor in a more realistic cost escalation allowance for any new contracts.
7. Contractor Education - A process or system that ensures subcontractors are as up to date as possible with the latest building codes and standards, manufacturer requirements and work practices.
With changes to building codes and standards coming thick and fast, don’t assume your subcontractors will keep up to date with the latest codes.
Put in place a system whereby you pass on relevant information from the industry associations like the HIA to subcontractors, arrange for a get-together of your contractors and invite a representative from an association such as the HIA to come and talk to the group. CPD or Continuous Professional Development is being talked about in most States if not already implemented and this will also help keep contractors up to date with legislation and building standards.
The QBCC publishes the Top Ten building defects regularly so you can focus on these areas as a way of staying ahead of the game by being on top of these areas that regularly cause problems in construction.
Another way to keep on top of the issues is to talk with your contractors regularly and find out where they are experiencing problems.
8. Continuous Improvement - Promotion of a culture of ‘continuous improvement’
If you want to go the whole hog, then consider implementing a rigorous Quality Management System in accordance with ISO 9001. This will introduce a further seven or so principles into the business that will help drive better outcomes with your subcontractors. Implementing such a system will deliver benefits across the whole business, not just for Subcontractor Management.
If you don’t wish to take the full journey to certification, at least implement a system that records errors and issues and has a process in place to correct those issues. An ETS system or recording and monitoring cost overruns and the reasons behind the extras will help improve and fix problems in the business for both the builder and the subcontractors.
Consider bringing your ‘key’ contractors into a meeting every six months to find out what issues are affecting them onsite and how your business can improve and make it easier for them to deliver high quality work consistently. Design, estimating and construction representatives should be involved in these meetings to ensure the messages are being heard and acted upon.
In an upcoming article, I will discuss ‘quality’ in more detail however the use of checklists or software that can make the use of checklists easier will also go a long way to managing your subcontractors and providing them with tangible evidence of your expectations of workmanship and quality.
9. Recognition - Recognition of consistent, high-quality work and relationships
After you have set the bar and put in place all the expectations for your subcontractors, make sure you recognise those who deliver and meet your expectations. Even though they may not be an employee, treat your subcontractors with respect and provide some recognition for their efforts to meet your standards and expectations.
You can do this in many forms; a quarterly get together with formal recognition, end of year trips and fun activities, take them to lunch every now and then, recognise them on social media and on your website, maybe even provide bonuses if certain milestones and criteria are achieved.
After all, it is your subcontractors that are actually doing the work, so acknowledge this.
10. Succession Planning - As much as possible, the understanding and application of ‘succession planning’ for the future.
You like using the subcontract industry as a flexible labour force without the need to employ fulltime staff. The people won’t remain the same forever so you need to consider who will replace these people into the future.
Just as you need to have a succession plan for you own business, you should also consider how new people are introduced into the industry to replace contractors who leave, get injured, retire or how you are going to grow the business.
You should always be on the lookout for replacement subcontractors so that you have a contractor that step in at short notice of needed or to grow with the business.
Favour subcontractors who employ apprentices or employ one or two yourself and place them with your subcontractors. Use group training organisations such the HIA to help find suitable apprentices for you and your subcontractors and take the hassle of the management of the apprentice out of your hands.
You never know, one of the apprentices working on your jobs may one day become a supervisor or even better a GM if they know you have a great system of managing your subcontractors effectively and proactively.
The 3C Mentor Business Resources website has many resources that will assist in helping your subcontractor management and Alpha Edge is able to provide further advice on how to implement a better subcontractor management system in your business.
The whole purpose of The 3C Mentor and Alpha Edge is to help create really great businesses in the residential building industry and delivered by our unique ‘Four Pillars to Your Success’ – Business Coaching, Business Consulting, Business Resources and Construction Software.
For an overview of these four pillars go to Alpha Edge here. To find out more about our Business Coaching or for further information about the services Alpha Edge can provide go directly to Alpha Edge here and to access the many documents and resources you need as a residential builder, go to our Builder’s Business Resource Centre here. For more information on the construction software and how to ‘Be a Better Builder’, click here
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