Growing Your Small Construction Business Part 3: Working with Subcontractors

You’re only as good as the work of your subs.

Editor’s note: This is the final installment of a three-part series on growing your small construction business.

In part 1 of our series on growing your small construction business, we discussed managing your costs. Part 2 offered advice on hiring the right people. But many of the people you’ll work with won’t be employees; they’ll be subcontractors, over whom you have more limited control.  

“It’s important to find subs you can rely on,” noted Tom Aldrich, a counselor at the South Palm Beach chapter of SCORE Association, which provides free mentoring to entrepreneurs. In many ways, you’re only as good as the subs working for you. Their workmanship can give you a bad name — or help you land repeat clients.

“If you have guys that work together, you can refer each other, and it helps everybody get a job. When you’re doing that, you’re going to develop teams that can work together well, and that makes for a very good job all around,” said Aldrich.

Finding subs you can trust

Hiring good subcontractors isn’t always easy, but developing relationships with quality subs is essential to your success as a general contractor. Before you hire a sub:

  • Check references. Ask for and check references, just as you would with a potential employee. “You want to make sure that they’re not change order crazy, hitting you with extras as you’re doing the work,” said Aldrich. Talking with references can tell you not only about change order frequency and the quality of the work but also whether the sub left a mess at the end of the project, played loud music that annoyed the neighbors or followed unsafe practices. You may want to visit a current jobsite the sub is working on to see them in action. Checking supplier references is smart, too.
  • Ask to see their license. Electricians, plumbers and other specialty contractors will need permits to do their work, and they can’t get them without a valid license.
  • Research their OSHA 300 and 300A records. “It’s very simple to do online, and you’ll know what their record is over the last x number of years, however far back you want to check,” said Aldrich. “Citations are always documented, and they’re rated on severity of the violation.”
  • Check their insurance certificates. Make sure they’re current. And make sure you’re listed as co-insured at bottom of certificate “so that if one of their employees gets injured, they can’t sue you as well,” said Aldrich.
  • Inspect their financials. The last thing you want is for a sub to go under partway through your project. You’ll want to look at (or have your CPA, CFO or surety bond broker look at) their revenue over the last few years, their working capital, their debt to equity ratio and any history of bankruptcy. You can find prequalification forms online or use a Web-based prequalification tool.
  • Ask about other current and upcoming projects. Make sure the sub will have enough capacity get your project done on time. Some will overreach to generate more revenue but then fall behind.

When you hire a subcontractor, clearly outline the scope of work and also the safety policies you expect them to follow, or make sure they have their own safety procedures in place and that those procedures are adequate. Remember, a safety incident on a jobsite — no matter who’s involved — can cost you big in terms of money and time.

Check prices for every project

Even if you’ve developed relationships with subs you prefer to use, Aldrich recommends getting at least three bids for every type of work you’re going to do — tile, electric, plumbing, etc.

Just remember that cheapest is not always best. Often, you get what you pay for. If someone’s bidding low, they may have missed something in their bid or priced the wrong specs — or they may do shoddy work (which is why it’s important to check references).

Keep in mind that subs may not always give everybody the same price; when bidding on a project with a general contractor they haven’t worked with before, they may hedge their bets with a higher bid.

If a favorite sub has raised their prices, that doesn’t mean you shouldn’t work with them again. “It’s always good to work with loyal people, people you’ve worked with in the past,” said Aldrich. Sit down and have a talk about the price and why they raised it, and see what they can do.

Supervise subs closely

You can’t (or shouldn’t) hire a subcontractor and then sit back and leave them alone to do the job. You’ll want to make sure a loyal employee who knows their scope of work is keeping an eye on them — making sure they’re meeting project specifications, working safety and not cutting corners, for example.

If the specs say cast iron for the drain pipes, make sure they’re not using PVC,” said Aldrich.

Failure to oversee the work of subs can lead to disputes and delays and also allow inferior work to go unnoticed until it’s too late. Aldrich told the story of hiring an electrician who used undersized wire on a project. “We didn’t discover it until we were doing checkout on the HVAC and we kept blowing the circuits. It was a big problem and the guy that was watching it was not experienced enough to be able to spot it.”

Even if you trust your manger to oversee the subs, don’t leave it entirely up to him. “You need to visit the jobs yourself, too, to see what they’re doing,” said Aldrich.

As you grow your construction business and take on more projects, quality subs will become more and more important to your success. Do your homework, set explicit expectations, keep a close eye on the work being performed and communicate clearly and often throughout the project and you’ll develop valuable relationships that will serve you well again and again.

 

Marianne Wait is an editor and writer who creates content for Fortune 500 brands.