Using subcontractors to increase profits
In a recent article we examined the idea of increasing profits through subcontractors. In this article we will look at the pros and cons and some of the cautions of dealing with subcontractors.
One of the obvious advantages includes cost containment. If you know what it will cost when you establish your proposal you will have a better chance of controlling your profits on the job. There will be times when you will want to do it yourself because you want to reap higher profits. Before making that decision ask yourself if sacrificing a little profit will pay off in the long run. Keep in mind that the use of subcontractors can make it possible for you to do more, and as long as the profit is acceptable, you will benefit.
Using the right subcontractor often means that you will have help in managing the jobs in the form of your subcontractor’s project leadership. The more responsibility you can delegate to your subcontractor teams, the more it will free you up for other jobs.
Just like anything, dealing with subcontractors also has its pitfalls. The most obvious may be that since the subcontractor is not employed by you, there will be times when your favorite subcontractor team is not available.
Although your agreements and the responsibilities of each party should be clear, there is always room for misinterpretation of your expectations. The best way to handle this is to make your agreements as clear as possible. If necessary lay out all the elements and be sure that your subcontractor agrees to these. With regard to agreements, make sure your subcontractors follow the same policies and procedures as your in-house crews. If there are rules that you expect your crew to follow and you don’t demand the same from the subcontractors, you will inadvertently generate hostilities between what will become the two factions on your jobs. This unfortunately will end up costing you in lost productivity from your crews and sloppiness from your subcontractors. If you will be mixing subcontractors with crews on your jobs, you must make sure it is very clear to everyone who is in charge.
To protect yourself you must follow certain legal and insurance guidelines. Although regulations vary from state to state and even town to town, there are basics that you must keep in place.
In addition to legal basics you need to establish other procedures for the day to day and week to week relationships with subcontractors. One of the important items to iron out early is payment arrangements.
Negotiating with subcontractors can often be quite a challenge. It ranges from fun and a win for all to aggravation and hostilities. Although it is natural for you to want to get the best pricing, remember that your subcontractors also need to live. I have often seen squeezing of sub to such an extent that contractors have lost their extra labor pool. Also remember if you squeeze too much, your subcontractors will tend to cut corners to make it work. That, unfortunately, hurts everyone.