I received this note from a fellow contractor, asking a question I often hear:
“One of the more difficult things for me for estimating is labor. Not difficult in the sense of wages, taxes etc. But in the time and amount of people needed for big jobs. Because you know. If a job lasts two more weeks than anticipated, that is quite a bit of money.
Now, I came from a company where in-house employees do 80 percent of the job. I am a new contractor. And one of the things I see when you are doing your estimates that you use subs for almost everything. And I actually think that is the best approach to save lots of times and headaches and actually make money.
Now, my big question I have. Subcontract almost all the work, does not increase the price of the project significantly? Framing, for example, the contractor for framing will have employees, also will have his own salary, overhead, profit etc. And the same for the concrete sub, and the flooring. Please I would like to know about this. Thank you.”
The biggest difference between building jobs with subs and building jobs with employees is that subs specialize in what they do. They do the same work every day. They have the specialty tools they need and they use them regularly. Unless you’re a large company and can hire specialized employees who only do framing, or only pour concrete, or only hang drywall, your employees have to be jacks-of-all-trades.
You will seldom find an employee who can match the skill level or the speed of installation of your specialty contractors. Couple that with the fact that you don’t have the specialty tools that your subs have to get the job done and the cost factor for employees goes up.
Let me step aside and clarify a few terms. Specialty contractors are contractors who specialize in their trade, such as electricians, framers, plumbers, drywall installers, landscapers, etc. When they work for another contractor, they are considered subcontractors. It should go without saying, but don’t play games with the subcontractor/employee relationship. A subcontractor is an independent business that works for multiple other contractors. They have their own licenses and insurance, they set their own schedules. In this article, I’m talking about specialty contractors, working as subs.
I’ve taught estimating for over 30 years now, and have been coaching for over 15 years. Combined with my own experience, that is a lot of feedback on estimating, sales, production issues and more. Companies that use specialty contractors to get the work done are more profitable than those that use employees for the same work. Is that true 100% of the time? No, but it is true often enough that it doesn’t make financial sense to do the work in-house.
That said, let me address the most common arguments I hear from contractors who prefer to use employees over specialty contractors.
You have more control over employees when it comes to scheduling jobs.
It’s frustrating when your sub doesn’t get to the job when they are scheduled. However, if you treat them right, you’ll find they will prioritize your jobs over others. Make sure you’ve given them a clear job description along with details on the materials needed (make, model and number) to get the job done. You write the job description and the agreed-upon price on a work order before starting the project. They sign the work order, you sign it and now you have an agreement. Make sure they understand there are no extras on your jobs without prior written approval by you. Now there are no arguments about money or what is or was to be done. It is in writing.
When they do the work, you pay them every week or every two weeks. Don’t make them wait by playing the “I’ll pay you in 30, 60, 90 days” game; pay them quickly without being asked.
Subcontractors don’t do the work correctly, or to your standards.
Do they know your standards, and do they know the job you want done? Use the job description (work order) that we talked about above and have everything spelled out, including how you want it done. Then, if they don’t do the job as agreed, you don’t pay them until it’s fixed.
Owners don’t like subs; they want me or my crew on the job!
That’s a sales issue, and if you properly present your method of getting the job built to the owner during the sales process, it ceases to be an issue. Let them know you hire qualified specialists to do the work. When the owner understands the value of a specialist with your oversight, it won’t be an issue unless you make it an issue.
Let’s return to the subject of estimating. There is an advantage to hiring specialty contractors. Specialty contractors do the same work often enough and in different enough situations that they can more accurately estimate how long a job will take. They’ll create a far more accurate estimate than you can create because they have far more experience than you have. In addition, the price they quote will be the price you pay for the work, reducing your risk of a cost overrun on that part of the job.
In my opinion, if you’re a general remodeler, it’s better to hire specialty contractors, where reasonable, to do what they’re good at. Every business is different, every job is different, you need to do what meets the needs of your business and each project.