Subcontractor Hiring Guidelines

Here are a few guidelines to follow when you're seeking a subcontractor.

An essential ingredient is finding subcontractors who can be flexible and innovative. In many cases it's important to do a construction project around an existing building or within an active office or business without disrupting the day-to-day operations. A good subcontractor is willing to work at off-hours or devise another way to circumvent the owner's ongoing work schedule.

Review the subcontractors experience to ensure the firm has done your kind of project before.  Sometimes a high-rise builder may not be a good choice for an upscale retail shopping center.  Likewise, a residential home builder subcontractor may not have the skills to tackle commercial construction work.

GATHERING SUBCONTRACTOR INFORMATION

Name

Name of Subcontractor

Federal or Social Security ID

This information is Optional because many companies or individuals do not welcome giving out this information until they actually have been awarded a contract. It this case, this information should be obtained immediately upon starting the project because it saves time at end of year for tax reporting purposes.

Areas of Expertise of Specialization

Helps define the professionals ‘qualifications for your specific project

State License Type

For license identification purposes                                

License Number

To insure that the contractor is properly licensed

License Expiration Date

To insure that the license is currently active and remains valid for the duration of your project

Phone Number AND Emergency Phone Number

General contact information and during construction in the event of an emergency

HTTP://

This URL is useful for obtaining more information about the company or professional

E-Mail Address

Contact information

Bondable

A contractor is bondable when a rated surety company has given the contractor a written statement of bond ability.  Before issuing such a statement the surety company conducts their own background check on the contractor before they make a commitment to provide a bond to the contractor.  When the surety company is satisfied that the contractor is a good risk the contractor becomes bondable.  Even though you may not require a bond for you project you may want to use this information for qualifying contractors. (See Bonding Rate Below)

Bonding Capacity                                                       

The bonding capacity is the dollar amount the bonding company is willing to guarantee for all bondable and non-bondable work the contractor has on hand based on the experience level and capabilities of the contractor. 

Example:  The bonding company determines that the construction company qualifies for a bonding capacity of $2,000,000.  The contractor has work on hand, contracts totaling $1,000,000 ($500,000 requiring bonds and $500,000 not requiring bonds).  In this example the contractor has a bond surplus of $1,000,000 for any future work requiring a bond and will be granted the bond.

Example:  The bonding company determines that the construction company qualifies for a bonding capacity of $2,000,000.  The contractor has work on hand, contracts totaling $1,000,000 not requiring bonds.  The contractor wants to bid on a new $2,000,000 project requiring a bond, which would increase his work on hand to $3,000,000.  In this example the contractor has a bond deficit of $1,000,000 and will not be granted the bond unless the bonding company reevaluates the contractor’s capabilities and agrees to increase the contractor’s Bonding Capacity.

  Tip!

If you are requiring a bond ask the contractor to invoice you for its direct cost.  You'll save a hefty mark-up because it is not necessary to include the bond cost in the contract schedule of values and incur the contractor’s markup.

Bonding Rate

When the contractor becomes bondable the amount the surety company charges the contractor for the bond is called the bonding rate.  This bonding rate is based on the risk factor the bonding company places on issuing the bond to the contractor. The higher the risks to the bonding company the higher the bonding rate.  And conversely, the lower the risks to the bonding company the lower the bonding rate.

The bonding rate is also a good guide for comparing contractors by looking at their bonding rates you can generally tell if the contractor has a good track record. 

Example: Contractor A has a bonding rate of 1% (one per cent) whereas contractor B has a bonding rate of 3% (three per cent).  Contractor A has a greater experience level and capabilities than contractor B as viewed by the Bonding Company.  Also, contractor A's bond will cost you 2% less than contractor B's bond.  

Work on Hand

This is the total amount of work the contractor currently has under contract. 

REFERENCES

When qualifying Subcontractors it is good practice to obtain at least three references, preferably from former clients and/or vendors or materials suppliers.  Subcontractors who pay bills on time demonstrate dependability and financial stability.

Remember, subcontractor’s can make or break your project so choose your subcontractor(s) carefully.

Tip!

Whenever practical, in your bidding documents, reserve the right to negotiate with any and all contractors because the lowest bidder is not necessarily the right contractor for the project.

Much of this material was taken from the new publication “Construction Like Sushi” ISBN 978-0-9668245-1-3. Download Now

Understanding Budgets, Estimates, Bids, Quotes and Proposals and how and when to use them

 

Budget is how much money one has, expects, and is prepared to spend on the entire project. 

The budget is usually prepared by the Project Owner with assistance from knowledgeable people and/or construction professionals.  Budgets require planning and/or a clear understanding of the scope of work.

Budget (Construction Budget)

1. An itemized summary of estimated or intended expenditures for a given period of time.

2. The total sum of money allocated for a specific project.

The budget usually includes a value for each major line item and contingency depending on the phase of the project when the Budget is prepared.  As the project progresses the actual costs incurred are compared.  This enables the project owner the opportunity to adjust work as allowable by the respective project contract documents.

 Source: https://www.constructionplace.com/Glossary

Here is a fast and easy budget calculator for Leasehold or Tenant improvement projects.

          Source: https://www.constructionplace.com/Proposal to request a copy. 

         Also available for most Residential projects.

An essential part of any budget is to tabulate General Requirements.  Usually General Requirements are included as a percentage of the projected construction costs, but to tabulate these costs is much more accurate.

Here is a fast and easy calculator for any size project:

 Source: https://www.constructionplace.com/Projects

Table 3 is a simple Budget based on Quantity, Unit Cost, Unit Measure;  Table 4 includes a fixed  Budget column and a Forecast column for entering costs as they are incurred that calculates OVER or UNDER amounts; and Table 5 calculates Total Contingency percentage values at various Phases of the work. 

          

Source: Construction Management Made Easy https://www.constructionplace.com/Publications

General Requirement Calculation is available at: https://www.constructionplace.com/Projects

Estimates Are usually prepared with a clear understanding of the ewers' requirements  and are subject to change as new information surfaces. They detail cost expectations and scheduling information that is crucial for project success and a s sound working relationship.

For example: an estimate can get blown when they discover asbestos, old wiring, or even building department special requirements.

Additionally estimates provide a high-level overview and understanding of:

1.   The work necessary to complete the project

2.   The Project scope to broadly explain each known component and service required for the project and what they  entail

3.   The timelines and completion dates to manage project expectations

4.  Inclusions and Exclusions to avoid disputes later

 

TIP! Create an estimate for every new project…Gives real meaning to the information and expectations.

Bids comprise calculated costs and time by taking off information from construction documents prepared by the project owner or prime contractor usually requested by RFPs (Request for proposals) or a clear scope of work. RFP’s can be given to a selected pre-qualified group of bidders or open to the public.

For example: A project owner looking for suitable constrictors to complete a project. They will detail what they need and make these requirements available using an RFP (Request for Proposal).

Here is a very easy and fast way of requesting Bids:

Source: https://www.constructionplace.com/Rfps/CreateOutsideRFPBid

Companies can been on the projects by specifying their bid amount based on the terms of the RFP.  The project owner compares the bids and selects the successful bidder.

Tip!  Include wording in the RFP giving you the right to refuse any or all bids.  Opens the door to negotiate because sometimes the lowest bidder is not necessarily the bid contractor for the project.

Tip! When six or more bids are received delete the high and low bids and calculate the average of the remaining bids.  Gives you a good idea of the market value for the project.

Tip! If you have pre-qualified the Bidder and you are comfortable with his/her capabilities you my want save the cost of the bond.  But it is a good idea to determine if the bidder is Bondable, what his/her Bonding Rate is, and with his/her Bonding Capacity is when qualifying the Bidder.  

Sub-contractors will often submit bids to a prime or general contractor to complete a specific part of the project. And those bids may be included in the Bid to the Owner.

 Here is a very easy and fast way of submitting a Bid:

Source: https://www.constructionplace.com/Rfps/Create 

Quotes offer a fixed price for a project or item subject to acceptance within a specific time frame or expiration date.  For example: “This quote is valid for 30 calendar days from the date issued or this quote expires on [date]”.

Once the client accepts the quote you have to complete the work or delivers the item as detailed in the quote and at the quoted price. Therefore, it is important to compile a quote with a thorough understanding of what you are quoting.

While quotes should always be in writing it is not uncommon get or give quotes over the telephone. Here is a checklist of the most common information collected for a quote.

Source: Construction Management Made Easy https://www.constructionplace.com/Publications

Proposals include information contained in estimates, quotes and bids while showcasing the value that you can offer a prospective client to establish trust. Clients will often provide details of what they expect in the proposal or ask, at your discretion, to offer suggestions, advice and solutions that will help their project succeed. Proposals are put together to win a client’s business at the start of a new relationship often in competition with several others. Therefore, it is essential to construct an excellent proposal and showcase value and include supporting information to establish credibility. More specifically proposals detail scope of work, timelines, deliverables, and costs or investment requirements.

Value such as saving the client money, helping them make more money, or saving them time.

Supporting information

Such as client testimonials, reviews, resumes, professional credentials, and insurance information including examples of past work. 

Tip! Include a protection clause to prevent your hard work from being used if you don’t get the project.

I understand that any proposal documents, forms and/or procedures submitted to me by [your name] shall remain the property of [your name] whether the project or service for which they are made is executed or not, these documents are not to be used by me or any other party on other projects or extensions to this project or service without the express written consent of [your name].

 Source: https://www.constructionplace.com/Worksheets

Comments and Questions Welcome!

Contract Enforcement vs Preserving Future Business Relationships

I recently observed a group meeting to discuss and approve a questionable Change Order Proposal from a  Contractor.

One of the group members and the group’s attorney floated the idea of ignoring the issue and approve the Change Order "as is" to preserve a future business relationship with the contractor.

Here are a few reasons why this eyebrow raising idea is not recommended:

      1.   All contractors should be qualified and selected at the beginning of all projects because all projects have different requirements, contractor ratings and credentials changes.

 2.     Any contractor left off the hook for a bonafide claim or construction document responsivity may loose respect for the owner causing a cavalier relationship during the remainder of the project and, if and when hired again, or with other clients.

 3.     Construction Contracts reference Construction Documents and Construction Documents are prepared by Architects or other Professionals.  Letting the contractor off the hook without the preparers approval could invalidate the construction documents and compromise any project warrantees, guarantees and/or any future discovered deficiency claims.

 Tip! Always keep hired professionals advised and/or involved with any construction document issues or concerns in writing.  Gives real meaning to the issues.

 4.     While the words “fairness” and “reasonable” often come up when discussing construction issues the contract and construction documents should prevail because they protect the interests of all parties. i.e., be guided by the respective Contracts and Construction Documents.

Source: Construction Management Made Easy Glossary

Contract

1. An agreement between two or more parties, especially one that is written and enforceable by law
2. The writing or document containing such an agreement

Construction Documents 

All drawings, specifications and addenda associated with a specific construction project. 

Source: Construction Management Made Easy Glossary

 Issues during the Course of Construction before making final Payment:

1. When a Change Order Proposal is received and is not acceptable immediately REJECT it because this fair, timely, and reasonable notice allowing the contractor the opportunity to revise, discuss and/or resubmit the claim.  But if not mutually resolvable;
2. Attempt to negotiate a settlement to resolve the issue. But if this fails;
3. Be guided by the dispute provisions in the contract and/or construction documents

Issues after Final Payment:

    When an issue is discovered attempt to resolve the issue amicably, but if not possible;

1. Make a written demand to the Contractor to resolve the issue, but if no response or resolution;
2. File a complaint with the prevailing Contractor’s licensing board. But if that fails;
3. Retain legal counsel specializing in Construction Contracts and Construction Documents law.

 Understanding Contractual Relationships and Methods:

 Here is the conventional method of construction through the general contractor.  The Architect may or may be contracted to take on managerial services. Using this method, the owner contracts directly with the general contractor (who is regarded, in law, as an "independent contractor" rather than an "agent").  The general contractor then enters into subcontracts for various aspects of the work. See Figure 1 below:

Source: Construction Management Made Easy

Here are available methods of construction using professionals, as “agents”, such as construction managers and/or architects to take on managerial services. Typically, there is no general contractor, and the owner contracts directly with the several trades’ contractors.  This arrangement can take any one of a number of forms.  See Figure 2 below for four such forms:

Source: Construction Management Made Easy

Possible Issue Remedies:

Regardless of the method used all parties of any project should be guided by and enforce/stand by their respective Contract(s)/Agreement(s) and the Construction Documents and avoid rationalizing and/or ignoring issues to preserve future working relationships.

Tip! Remember that requests for additional or deductive work or time alterations are actually Change Order PROPOSALS and subject to approval that should not be unreasonably withheld. 

Any more ideas how to handle QUESTIONALBLE Change Order Proposals?