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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Finding and Keeping Good Subs

by Michael Stone

We received the following note -

"My biggest challenge as a residential remodeler is obtaining and keeping qualified and experienced sub-contractors willing to do smaller type projects. The construction market here is so robust that selling a job is relatively easy but producing the job seems almost impossible. Talk about some tips to deal with this situation."

Good question.

It should be clear to your subs that if they want the "big jobs", they must be willing to do the little stuff as well. If they aren't willing to come out for a small job, find a new sub for your bigger jobs. When you do call them for small jobs, then you must be willing to pay a minimum trip charge. I was figuring a minimum trip charge of at least $150 twenty years ago. I don't know what the going rate is today.

But how do you attract subs willing to do both the big and the small jobs? Be sure you have an agreement that you use for ALL subcontractors. (Check out ours at our website.) An agreement lays the groundwork for your relationship so you both know what to expect from the other, and it's a commitment that makes both of you more apt to work through the tough times. The agreement must have two parts.

The first part is broad, and covers all potential jobs with the sub. Include what you expect from them such as a firm price quotation for each job, showing up on the agreed upon time, keeping the job site clean, no loud radios, no drugs, smoking, or alcoholic drinks, no talking with the customers, etc.

You must include a statement that it is up to the sub-contractor to provide proof of required licenses, bonds and insurance, and proof of financial competency. Without either, they will not be allowed to set foot on your jobs.

It also states everything that they can expect from you. Include exactly how and when you will pay them, and what will stop you from paying them. For example, if a job is not being kept clean, or if they aren't doing a specific job as agreed. This should also layout what you mean by "being on time" and what is a legitimate reason for them not showing up as agreed.

You must also specify that you do not allow Cost Plus or T & M quotes for work to be done. Fixed figure quotes on all work other than minor changes should be the rule.

Finally, you should specify how written or verbal changes are to be made, how verbal invoices are to be handled and any penalties or bonuses that will be included. Remember, penalties and bonuses must work both ways.

The second part of the agreement is a form you use on each job. Specify exactly what you want done, and have a place for them to quote a price for that work. Now, there are no disagreements over what is or was to be done and by whom. This eliminates the "extras or changes" that can crop up.

You will quickly find that if you agree to pay every two weeks on your jobs, you will attract the best subs. The last thing subs need is a general contractor telling them, "I can't pay you until I have been paid." That approach is not only dishonest, it's dumb as well. Don't do it.

When you pay your subs, it should be by company check only. Never, Never, Never pay any sub or any labor with cash. Company checks have your company name, your business address and a number on that check. No exceptions. Paying subs or labor by cash is just asking for a visit from either the state or federal auditors, and is unethical.

Now, if you ask a sub to do design work of any kind, you should be willing to pay for that service. If you use their designs and don't pay, then go to another sub because they are cheaper, there is something seriously wrong with your way of doing business. Don't do it.

What else can you do? As above, paying on time is a big one. This will go a long way in getting and keeping good subs working for you.

Always be fair. If a situation comes up that is not in your sub-contractor agreement, err on the side of fairness to the sub. Remember, they have families and a business to take care of just like you do. Trying to chisel a sub out of a dime is going to cost you dollars in the long run. Many general contractor's never figure that one out, and wonder why they can't find and keep good subs.

Here is an idea that I used almost from the start of my career in sales in 1969. If I asked a sub to give me a quote on a job, and they did, if I got the job, they got the job. I didn't shop them around; I didn't get three bids on each job. If they helped me put an estimate and proposal together, they got the work. I had many of my subs that went back 5, 10, 15 years and more with me. My roofer went back over 30 years.

Once a job was quoted, I expected the price to hold for that job. But my subs knew me well enough to know that they could come and tell me about price increases at any time. If they needed to quote a higher price for the next job based on a legitimate price increase, that was okay. I never fussed at them over prices. It is a fact of life that if their price goes up, yours goes up. Now if a sub started running the price of their work up for unnecessary reasons, I made sure I knew my numbers well enough that I could call them on it. Running prices up just to try and get more money out of me got them a one-way pass out of the relationship.

Using a subcontractor manual will help to eliminate the bad subs even before they show up as they will know they can't perform and they will just go away.

Comments

Ira Tenenbaum (not verified) /

Make every attempt to provide feedback to my subs on the attitude that my clients have toward them(good or bad). Show your sub how you stand beside them, if the client is being unreasonable. As a result, the sub feels worthy to perform better work - the work is being recognized. Likewise, the client remembers not only the finished work but the likable personalities who performed the work.

I always tell my subs that I will not try to bargain with them on the work that they do. Only they know what is involved in performing a good job, and the price should reflect this. I share this with my clients when they want to know why my sub is more costly than "the other guy" they propose to use. I stand behind and promote my subs whenever possible. They, in turn, cover my "____" when something on the job goes unexpectedly wrong.

How do you keep good subs?? Treat them as if they are your own employee by showing appreciation and understanding; Promote who they are in front of the client and show why they are better than the other guy; Respect their price(unless they are completely outlandish); Respect their time by "filtering" through unworthy clients beforehand who only want to shop and price compare - bring subs into the job once the job becomes more certain, and you have gotten to know the client's personality(s).

Ira:

What a great example of how to run your business and deal with sub-contractors. Thank you for sharing your approach.

Michael

Michael Bird (not verified) /

I agree that it is good business to always pay with a company check, however I question why you'd call cash payments "unethical"? The only reason to not use cash is because of our over intrusive state (and I mean both the federal government and the state government) and the trouble it can cause to our business if it wants to.

There is nothing illegal, immoral or unethical about using cash it's still legal tender in this country, no?

You are right in that it is not illegal.

Immoral? I did not get into that, so that would be your call. Honesty and ethics cover the issues I wrote about in the article.

Using cash to pay subs, suppliers or labor, in my opinion, is unethical because it has an implied attachment that either the contractor, the recipient or both are trying to circumvent the law and not pay the required taxes on the transaction. As an expert witness and a certified arbitrator, I often see this issue. When a state or federal auditor gets involved, almost always, somebody, one side of the transaction or the other, didn't declare the transaction and thus alerted the auditor. Why would anyone want to do any kind of transaction by cash in an industry that is being so closely watched by the government? You may call this intrusive, but it isnt going to go away. There are people all over this country not paying the required taxes on transactions and that is why contractors are watched as close or closer than any other industry. Why set yourself up for a possible audit?

Even if you don't want to use the word unethical, treat cash payments as such and it will keep you out of trouble. I can easily write several pages on issues surrounding cash payments and the end results, which are seldom good for the contractor. Even if you get a clean bill from the auditor, how much time and effort has it cost you? It won't be worth it.

Michael

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