Projects come in all shapes and sizes, as do contractors. For a contractor to take on a project, they must essentially be willing and able to bring a client’s idea into reality. Sometimes, a contractor possesses all of the knowledge, skill and supplies necessary to complete an entire project on their own. In many other cases, though, the outcome a client is looking for has many parts to it. While a contractor might be willing and able to perform a large portion of the work, the client may be asking for things the contractor just can’t do. The contractor doesn’t walk away at this stage – they hire another contractor to do the work they’re not able to do themselves. This additional contractor is now a subcontractor on the project. Before hiring a subcontractor in a real-world scenario for the first time, we must know the ins and outs of working with a subcontractor. In this article, we’ll be answering the question of: How do you manage subcontractors?
What Is Considered A Subcontractor?
Subcontractors exist across many different disciplines.
In construction, a subcontractor could be an electrician, plumber, engineer or many other specialty contractors that are hired by a General Contractor.
In the technology space, a subcontractor can be a graphic design specialist or manufacturer who play a part in developing a larger end product.
In healthcare, a subcontractor may be a specialist with particular knowledge or a company providing a service to the hospital.
You get the idea.
Regardless of the discipline, a subcontractor is a company or individual who’ve been hired by a contractor to fulfill a portion of their work. Plain and simple!
7 Essential Tips For Managing Subcontractors
Below is our summarized list of 7 essential tips for managing subcontractors!
- The Terms Of Your Contract With The Client Must Be Passed Through To The Subcontractor’s Contract With You.
- Clearly Define The Scope Of Work In The Subcontract Through As Many Mediums As Possible.
- Discuss Timeframes & Due Dates For Each Portion Of Work And Include Them In The Subcontract.
- Ensure That Necessary Permits, Certifications, Licenses & Insurances Are In Hand & Up-To-Date Before Work Starts. Keep Copies Of Each For Your Records.
- Meet Regularly To Review Progress, Schedule, Needs, Next Steps & Issues. At Least Once Per Week Is Ideal. Include Agendas & Minutes As Part Of Each Meeting.
- Clearly Define Terms & Condition Of Payment For Each Portion Of Work Via Schedule Of Values Or Similar.
- Identify All Deliverables Required Before The Subcontract Is Considered Finished, And Track The Status Of Each Regularly.
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Managing Subcontractors Tip No. 1 – Defining The Contract Terms
When it comes to defining a subcontract’s terms and conditions, the key word to remember is “pass-through“.
Whenever a contractor signs an Agreement with a client, this document defines exactly what a contractor owes the client and all of the terms and conditions that go with doing so. This is known as the Prime Contract.
A subcontractor doesn’t sign this Prime Contract along with you. They sign a separate contract between you and them only.
This is where a huge portion of contractor-subcontractor ventures get screwed up.
When all of the relevant Prime Contract terms and conditions have been passed through, it’s as if the subcontract is an extension of the Prime Contract, not a completely separate entity. This allows the contractor and subcontractor to work harmoniously and in stride with one another.
Here are some example terms and conditions that should be passed through:
- Milestone Dates
- Payment Terms
- Performance Specifications & Standards
- Cancellation/Termination Clauses
- Insurance/Qualification/Certification Requirements
- Supplemental Documents & References – Drawings, Samples, Mockups, Photos, Etc.
- Regulations, Safety Requirements, Etc.
Managing Subcontractors Tip No. 2 – Clearly Define The Scope Of Work
When soliciting and hiring a subcontractor, a clearly defined scope of work is key. We recommend defining the scope of work through more than one medium. In fact, it’s best to define a subcontractor’s scope of work through as many mediums as possible. Let me explain…
On a construction project, for example, the scope of work is often defined by drawings & performance specifications (as developed by the client or Owner’s Representative), plus a written scope of work, samples, references and more.
Through every medium that the scope of work is defined by in the Prime Agreement, the subcontract should be written the same way.
Example: If the Prime Agreement on a construction project includes drawings, it’s common to reference all of the specific drawings, details and components in the subcontract document that the subcontractor is responsible for .
The same can be said for written specifications. A subcontract should list all of the performance specifications that the subcontractor must meet.
A subcontractor’s scope of work can be broken into checklists and other formats, too. The more, the merrier…and also more clarity for both parties.
Managing Subcontractors Tip No. 3 – Due Dates & Timelines
A subcontractor could produce a certain product or service better than any other, but what good is it if it’s late? This is why clearly defining the due dates and timeframes expected of a subcontractor is vital.
One major way that projects get derailed is when timeframes and due dates are not understood by all.
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As early on as possible, subcontractors should be made aware of time constraints and restrictions on a project. Ideally, this is done when first requesting a bid from them.
In addition to complying with the project’s necessary milestones, a subcontractor’s knowledge of working times helps contractors develop a complete and accurate project schedule.
It’s also important to state these timeframes from a legal perspective. The grounds for accusing a contractor of being late are based on whatever the contract STATES a delay is. This all comes back to stating the timeframes for each portion of the work within the contract.
Managing Subcontractors Tip No. 4 – Necessary Permits, Certifications, Licenses & Insurances
In project management, documentation is the lifeblood of the project. In most industries, the sheer quantity of documentation associated with a project or contract is higher than ever. Making sure that subcontractors provide all of the necessary documentation up front is best practice.
In a lot of cases, subcontractors can’t even START the project without turning in key information. Across many industries, this can include licenses, permits, insurance, financial information like bonds and credit reports.
Much like item no. 1, these requirements often come as ‘pass-throughs’ from a Prime Agreement first. Other times, a contractor may have an internal policy that dictates all subcontractors meet certain standards.
Collecting and keeping copies of all essential subcontractor documents is vital from compliance, documentation, financial and legal perspectives.
Managing Subcontractors Tip No. 5 – Regular Meetings
If a ship is not steered it will be tossed about in the ocean, drifting whichever way the wind or currents take it. The same can be said for managing subcontractors.
It’s not all up to the subcontractor to get everything exactly right without any guidance along the way, either.
It takes two to tango.
Meeting regularly provides many benefits to both contractors and their subcontractors:
- Everyone knows they’ll be accountable to reach specific goals by a certain time every week/day/etc.
- Meetings give the opportunity to work through issues together.
- Any misunderstandings or drifting from reaching the project objective will be caught early and corrected.
- Written agendas and minutes are great references for both parties, and serve as legal documentation as well.
Simply meeting with subcontractors regularly will mitigate the majority of potential issues.
Managing Subcontractors Tip No. 6 – Payment Terms & Conditions
Money makes the world go around. In the world of contracting, money makes people show up and perform work!
The theme of this entire article might be ‘pass-through’. This is because in the majority of cases, the payment terms outlined in the Prime Agreement are the same payment terms that should be passed through to the subcontract.
Example: If payment terms from the client are ‘net 30‘, this means that the client owes the contractor payment within 30 days of a specific point i.e. bill approval, receipt of invoice, receipt of documents, etc.
The subcontract should include payment terms similar to ‘net 30’ – the subcontractor shall be paid within 30 days of the contractor getting paid.
If there are specific requirements that must be met before a subcontractor can be paid, they should be outlined as well. Here are a few examples:
- Specific documentation such as payroll records.
- Signed waivers and other legal documents.
- Proof of purchases, insurance or supporting information.
It’s important to remember the big picture – this is all to make sure that the subcontractor gets paid fairly, that they don’t disappear without notice, that the subcontractor doesn’t accuse you of nonpayment and so they don’t ‘take the money and run’!
Managing Subcontractors Tip No. 7 – Define All Deliverables
A project deliverable is any form of product or end result that a contractor must produce. The project deliverable is, at the end of the day, exactly the purpose for which the subcontractor has been hired.
It may seem obvious, but listing out all of the project deliverables is a simple yet effective exercise.
A well-written contract or subcontract will define all of the deliverables required to satisfy the contract. Simply put, a project or contract isn’t over for the subcontractor until all deliverables are in hand. As you can imagine, this in turn affects the release of payment too.
In construction, for example, deliverables vary quite a bit. Here are some basic examples of deliverables in construction:
- The building or structure itself, appearing and performing as specified.
- Final surveys, drawings, etc.
- Documents, mockups and samples as required by the client and contract.
- Stamped drawings & calculations performed by a Professional Engineer (hired by the contractor)
- City/State/Local inspections, sign-offs, certificates of approval, etc.
- Warranties, financial paperwork and signed legal documents.
Just as life often comes down to a handful of key moments, a project is successful when a handful of key tasks are complete. Knowing exactly what they are at all times benefits every party involved!
In Summary
Managing subcontractors can go wrong in a variety of ways, causing harm to the project as a whole. It doesn’t need to, though – by following the best practices outlined in this article, you’ll avoid the major risks associated with a subcontractor and keep your project on track. If you came here wondering “How do you manage subcontractors?”, I hope you’ve found this article helpful and informative. Thanks for reading!
