The relationship between the prime contractor and the subcontractor is one of the keys to a successful project. And yet, the agreement between them is often made hastily and taken for granted. Many problems regarding payment and profitability at the end of a job can be traced back to the very beginning, when the prime and the subs signed their contracts.
Most of us know how this ought to be done — carefully and with all information available to all parties before an agreement — a legally binding contract — is signed. But we also know how it’s often done.
The day the prime contract is signed, the clock starts ticking. Calls and promises are made:
- “I’ll get you that contract.”
- “I’ll send you the drawings.”
- “Just give me a ballpark and we’ll work it out.”
- “My guys are pretty familiar with this stuff. We did something similar a while back. I trust those fellas.”
With the best of intentions, the whole job is already in trouble. Construction is a relationship industry. The trick is to make sure those relationships are professional.
How the prime contractor can build strong subcontractor relationships
There are a few simple things a general (prime) contractor can do to make sure that subcontractors fulfill their contract and contribute to the success of the job.
Prequalify your subcontractors
It’s vital to prequalify your subs. Nothing is more expensive than hiring “cheap.” Even when the owner pushes for the cheapest possible price, it shouldn’t be your main priority.
Your profitability hinges on your subs having the manpower, the coordination, and the experience to do what they’re hired to do in the time they’re given. Before you accept a bid, take a few minutes to do your homework. Make sure the sub has a track record. Ask about similar jobs they’ve completed and check references in the industry and even reviews on social media. Minutes spent doing that can save weeks of frustration later on, not to mention money.
When the plumbing crew and the electrical crew get tangled up, it’s often because the general hasn’t properly coordinated their work and they’re in each other’s way. When the floor is lumpy and the concrete sub blames the flooring sub and the flooring sub blames the concrete sub, it may be because the general didn’t coordinate them, establishing that slab was in tolerance before the flooring sub began the installation.
All of these things cost time and money — and they lower morale.
Good coordination isn’t just important for scheduling work, but for payments, too. Keeping payments flowing on time to all subs on the job is critical to keeping them happy and preventing disputes. Coordinating payments requires better tracking of lien waivers and pay applications, as well as clear communication when you expect a delay.
Communication is key in construction. A construction project generates a ton of information: plans, specifications, a construction schedule, a schedule of values, payment schedules, and processes for the exchange of information and for making changes. But none of this does any good if it isn’t shared.
Most prime contracts and subcontracts are clear that information is to be shared between the general and the sub so that everyone is on the same page. Keeping your subs fully informed and up to date will ensure that you can’t be held liable for their mistakes, will allow you to see problems before they develop, and will allow the sub to do the same. Often, a sub has information or expertise that will make your job easier, but they can only help you if they’re fully informed.
Further reading: Flow Down Clauses: What Subcontractors Need to Know (With Examples)
Support your crew
Construction is a variable business, with alliances formed and dissolved on every job. As the general contractor, it’s your role to make all the various subs into one team, working together toward a shared goal. Builders and craftsmen take pride in their work and want to do it well and be paid on time. It’s up to the general to give them what they need to succeed.
Train your subs to meet your expectations
Even an experienced sub who has done this work before hasn’t necessarily done it for you. So, unless it’s a sub you’ve worked with before, you’ll need to train them up about your particular expectations, your job-site culture, and your processes.
This is an investment in a relationship that will carry you through this job and, hopefully, create a trusted partner on future work that will require less guidance, freeing you up to do other things.
It’s tough when you’re behind schedule and costs are getting out of control and the architect is being a pain, but a little patience goes a long way. Your sub’s under the same pressures and only you can alleviate it. Their success is your success. And when they fail, a little patience can keep their failure from being your failure. Often the best solution comes from the guy who made the mistake, who knows exactly where it went wrong and will be the most eager to fix it if given the chance.
How subcontractors can improve the relationship
Though it’s harder to “manage up,” there are things the subcontractor can do to help make sure they work with the general as well as possible and help create a successful and profitable project.
Prequalify the general contractor
Prequalify your prime. We hear more about prequalifying those we hire, but prequalifying those who hire us is every bit as important. As much as we all want to work, it’s pointless if we don’t end up with some money in our pockets when it’s all over. Working for a disorganized, inexperienced, or dishonest general contractor is a sure way to end up frustrated and unpaid.
Do your homework and ask questions. How long have these guys been in business? How much experience do their project managers and superintendents have? Have other subs have had problems with them? Do they have a history of payment disputes? These are all fair questions to ask before you get into a business relationship with anyone.
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Read your contract (and the prime’s contract)
It’s called being a contractor for the simple reason that the whole business is about the contract.
Job #1 is to make yourself familiar with your subcontract and —just as importantly — the prime contract. Understanding the prime contract and the complete contract documents, including the work of the other subs, will go a long way to helping you understand your obligations and rights.
In fact, many provisions of the prime contract apply directly to the subs via flow-down clauses, so all the contracts are ultimately your contract.
Do good work
This might seem obvious, but many are the disputes between the general and the subs over workmanship. It’s a sub responsibility to hire people qualified in their trades and to give them the tools, materials, and time required to do good work. If you commit to doing something, it’s important that you know you can do it right.
Be upfront about your expectations with the general about the work — and especially about payment.
One way to do that is to send preliminary notice, even if it isn’t required in your state. A simple document, a preliminary notice improves communication by making sure all parties know who you are and how to contact you, makes it easy for the general to request partial lien waivers (which you usually need to submit to be paid), and lets everyone know you’re a professional in the business of making money. It’s also the first step in the process of collection should things go wrong.
If your polite phone calls and emails (and even your less-than-polite ones) haven’t done the trick, there may be no choice but to file a mechanics lien. With the preliminary notice, you have set the table and the expectations so that even in a dispute, you can get paid without poisoning the relationships you’ve worked hard to build.
Know the drawings and specs
Often, a sub’s work is similar from job to job. Studs are either 24 or 16 inches on center. Drywall is a half-inch thick. Paint can be applied with a sprayer. But every now and then, the drawings or specifications call out something unconventional — and you will be held to whatever they say.
Make sure you have the complete set of contract documents, not just the single page that shows your work. Designers can hide information anywhere in the contract documents and you will still be held responsible.
Additionally, make sure you have the latest information. Addenda during bidding and updates during construction can change a subcontractor’s work at any time.
Be strict about change orders
If it isn’t in your contract, you won’t be paid for it. So any time conditions require a change to the cost or the duration of your work, you should immediately submit a change order request.
You can use a simple form, but documenting the change is the only way to get paid for it. Plus, it’s what the general needs to include that work in their contract so they can get paid for it, so the more ammo you can give them, the better.
Submit your lien waivers
For every pay application, you need to submit a lien waiver to cover the portion of the work completed to date. Your lien waiver doesn’t just affect your payment, but payment to the general and all the other subs. Sending a conditional waiver along with your pay app lets the GC know that you appreciate their payment challenges.
Nothing frustrates a prime more than having to chase down a lien waiver, so being accurate and prompt with them will go a long way toward building a relationship of trust and profit.
Squad Goals: Build a better prime contractor & subcontractor relationship
Ultimately, the relationship between a prime contractor and a subcontractor is like any other relationship. It works best when there are clear expectations, good communication, respect, teamwork, defined boundaries, and a little understanding and appreciation for what the other one brings to the table.
It may sound silly, but the truth is the general contractor and the subcontractor have what might be thought of as “relationship goals”— continued employment, quality work, reduced frustration, and money.