How to Write Tight Subcontracts
by Jonathan McGaha | 31 March 2015 12:00 am
Whether you are a general contractor or subcontractor, construction should be simple. Hire excellent, well-qualified, responsible subcontractors or suppliers. Write and execute perfect subcontracts with complete and detailed work scopes. Let your project team build the projects without challenges, errors or mistakes. But we all know this doesn’t happen very often. So how can you impose foolproof methods to eliminate many of the problems and arguments that occur on job sites?
Starting projects with the right subcontractors with as close to perfect subcontracts as possible will help you make more money, finish faster and reduce field issues. Hiring the right subcontractors is not an easy task and takes concentrated effort. It’s easy to gloss over several proposals and hire subcontractors you like or know without doing proper due diligence, scope review or cost estimating analysis. Quick decisions without doing the research leads to disputes, change order requests, late schedules, holes in your budget and unnecessary conflicts. Getting it right only takes a little more time and a few extra steps to make the correct choices and get your subcontracts written tighter, more accurate and totally complete.
Rules to Write Tight Subcontracts
1. Start with successful procurement standards!
The key to selecting the right subcontractor and writing tight contracts is to have a company standard and policy that everyone follows. This includes scope of work spreadsheets, standard contract formats, quote comparison checklists, standardized approval methods, and detailed descriptions of how to work with your company to manage and build your projects. Investing in a standardized procurement system will eliminate many problems that occur on jobs.
2. Execute all subcontracts PRIOR to starting your projects!
The faster you get every subcontract written and executed the better. When all subcontracts are signed, sealed and delivered, you know your team and can get every player in on the project game plan. This eliminates potential problems such as approvals, shop drawings, material deliveries and scheduling.
3. Help those who help you!
When subcontractors help you get awarded the job by offering a low value price, great ideas or value-engineering alternatives, which improve your competitive advantage, you are obligated to award them the contract. By treating every qualified subcontractor fairly, not shopping their bids and awarding subcontracts to the lowest responsible qualified bidder, you’ll maintain a great reputation and build a great team of subcontractors for the future.
4. Always award to the lowest and complete responsible qualified bidder!
Being the low bidder doesn’t guarantee subcontractors the job. They must also meet the threshold of excellence, project experience, safety record, quality workmanship, adequate manpower, trained field crews, professional supervision and project management, financial and bonding capacity, ease of doing business with and ability to meet the schedule. To verify these requirements, call several references and review financials and safety records before awarding them the contract.
To verify the complete scope of work required and decide which subcontractor has the best and complete proposal, use a ‘Quote Comparison Spreadsheet’ to compare the total price for each bidder. Review the total cost for each subcontractor with your supervisor before awarding the contract.
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Quote Comparison Spreadsheet – Building Tilt-Up Concrete Work Description Bidder 1 Bidder 2 Bidder 3 Base Bid: – Building Complete $100,000 $130,000 $135,000 Qualifications: – 6″ Slab / 2″ Sand – Welding $ 8,000 – Rebar Included – Slab Dowels – Add Truck Dock – Crane – Caulking $ 5,000 – Trash Bins & Power $ – Permits & Tests TOTAL $160,000 |
5. Use Contract Scope Checklists to write complete subcontracts!
To make writing complete subcontracts easier, sort all the bids and proposals from subcontractors over the last year or so and make a list of all the inclusions and exclusions submitted for each trade. Compile these lists into ‘Contract Scope Checklists’ to use as templates when writing subcontracts. This will eliminate those items easily forgotten or costly change orders when discovered later.
6. Make sure you have tight clauses!
The problems with most construction disputes are grey areas that weren’t clear in the contract and between the parties. Be sure to write exactly what is expected to perform all contractual obligations in your subcontract agreements. Attach all contract documents to the subcontract, including your standard subcontract provisions, a complete list of all project plans and specifications, the progress payment billing requirements, and the project schedule. Make sure it’s clear the executed subcontract will be the only agreement and all proposals, bids, verbal understandings or promises are not a part of the subcontract unless they are agreed to in writing by both parties.
Other important project requirements should be written into the subcontract including price; change orders; schedule; project meetings; clean up; insurance; authorized signers; shop drawings, samples and project submittals; project close-out; and subcontractor cost breakdown and schedule of values.
7. Meet to review the proposed subcontract!
After you decide which subcontractor you want to award the work to, and have drafted their subcontract and scope of work with inclusions and exclusions, meet in person and review everything required to make the project successful, including:
- Price, scope of work, inclusions and exclusions
- Subcontract terms and conditions versus their proposal
- Alternates, substitutions and value engineering
- Schedule, manpower requirements and liquidated damages
- Safety requirements, job-site rules, permits, tests and inspections
- Change order markup and standard crew rates
- Required shop drawings and submittals
- Required project meetings, supervision and authorized representatives
- Temporary facilities, power, phone, water, clean-up and trash
- Final punch list and project close-out requirements
- Payment and insurance requirements
Having a subcontract system will improve your bottom line and eliminate problems and change orders in the field when you don’t have everything covered.
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George Hedley is a licensed professional business coach, popular professional speaker and author of “Get Your Business to Work!” available at his online bookstore. To learn more, visit www.hardhatpresentations.com[1] or email gh@hardhatpresentations.com[2].
- www.hardhatpresentations.com: http://www.hardhatpresentations.com
- gh@hardhatpresentations.com: mailto:gh@hardhatpresentations.com
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