Subcontractors are critical to the success of construction projects, providing specialized expertise in a wide range of trades, from concrete and drywall to site prep and utilities; from carpentry and flooring to masonry and steel work. “Our members are effectively funding the construction project,” says Richard Bright, CEO of the American Subcontractors Association (ASA). “In many cases, they are buying the supplies and providing the labor, but not getting paid until the job is completed. Additionally, they often must wait for payment.”
With a shortage of labor and a robust construction market, subcontractors can afford to be more selective about who they work with. If you are struggling to secure bids from qualified subcontractors, there could be several root causes.
According to Bright, the subcontractor may simply not have the capacity to take on the work. In other cases, a previous bad experience with billing or hearing about a bad experience from a colleague may deter them. Personnel issues could be another issue. After bidding multiple times without securing a job, subcontractors will often move on to another general contractor (GC) bids they have a better chance of winning.
1. Improve your bidding process
Nothing damages a relationship between a general contractor and subcontractor more than unethical bidding practices. Bid shopping occurs when a low bidder’s price is disclosed to other bidders to obtain an even lower bid. While the practice is not illegal, The Associated General Contractors (AGC), the American Subcontractors Association (ASA), and the Associated Specialty Contractors (ASC) have all renounced bid shopping.
Ray Moya, Treasurer of ASA and Co-Owner of Prime Electric, Inc. says if a general contractor is difficult to work with, it will affect whether they will bid and at what price. “If there is a history of shopping our bid, then we will give them a high price to use when they ‘go fishing’ for a cheaper number.”
Evaluate your invitations to bid. Are they reaching the right people? To improve email deliverability, ask subcontractors to add your company to their “safe sender” list. Review emails that bounce. Bidding software allows organizations to solicit bids for projects while providing a central location for managing and viewing the status of all bids.
Are you allowing subcontractors sufficient time and information to prepare the bids? Review past invitations to bid and identify the factors that result in better responses from subcontractors. Make the process as easy as possible.
2. Offer fair contracts
ConsensusDocs contracts are developed by a coalition of 40+ leading industry associations representing owners, contractors, subcontractors, designers, and sureties. Using ConsensusDocs contracts protect the best interests of the project rather than a singular party, yielding better project results and fewer disputes. Standardized construction contract documents are available for all types of project delivery methods.
“Sometimes contracts are worded so that costs and liability are pushed onto the subcontractor,” says Bright. Contracts that include pay-when-paid provisions, indemnification clauses, and retainage practices fall into this category. “The sub needs to be safe and complete quality work on time. Once they do that, they should get paid and accept the risks they are responsible for, but no additional risks.”
When vetting out-of-state general contractors, Prime Electric will reach out to ASA chapters where they are located for more information. They will also review the GC’s licensure in their home state and ask them to share their subcontract before a bid. “If they are not flexible to some of our terms, then we don’t bother putting a bid together for them,” says Hoya. Their contract language says a great deal about who they are and what they are like to work with.”
One of the benefits of ASA membership is having access to information pertinent to determining risk factors that impact what GCs to bid and on what terms. “Business Practice Interchange (BPI) meetings for subs are one of the best ways to review the GCs in local markets as well as new GCs,” says Bright. ASA has 32 chapters in the United States and Canada.
3. Pay on time and offer fair payment terms
Slow payment is a major factor contributing to cash flow problems of construction contractors and subcontractors. The ASA supports legislation that requires owners to pay their prime contractors within 10 days after receipt of a proper invoice, prime contractors to pay their subcontractors within seven days after receiving payment from the owner, and subcontractors to pay their subcontractors and suppliers within seven days of receipt of payment from the prime contractor. A late payment interest penalty must be paid automatically when payment is late.
The reality of what contractors are experiencing appears to be quite different. In a 2022 Construction Cash Flow and Payment Report from construction software provider Levelset, just 5% of subcontractors reported always being paid on time. Only 25% reported that they received payment within 30 days on average.
In the same survey, subcontractors attributed late payments to project financing (50%), general contractor mismanagement (47%), and poor communication (30%). Nearly half of the firms surveyed (48% of both contractors and subcontractors) reported receiving an upfront deposit before beginning work.
Prime Electric will only agree to terms with a contractor that does NOT use the Pay-if-Paid clause. “If they have that in their contract language, we will make sure they add in a clause that guarantees payment from them at some timeline as determined,” says Moya. “We also site the New Mexico Prompt Payment Act in our Proposals and add it to the contract language. This sets the course for prompt payment and the penalty of late fees as is stated in the laws in New Mexico.” According to Moya, most GCs won’t enforce that same law on owners, as they don’t want to “rock the boat” with the owners. 4
4. Improve project management capabilities
To support subcontractor relationships, it’s important to recruit and develop professional project managers with good communication skills. Subcontractors depend on the project manager to act in their best interest when dealing with the owner and architect. They need to facilitate change order requests to keep the project on schedule. “When scheduling and working with other trades there are lots of things that can go wrong,” says Bright. “Sometimes subs know the project manager (PM) is not effective and don’t want to bid because of that.”
Moya agrees that communication is the key to successful projects. “The PM must allow for schedule input and must realize that we are all on the same team and that we are NOT the enemy,” says Moya. “If a PM is not cooperative, the project can end up in the toilet or even worse, in court. They can help make or break a project.”
5. Get face-to-face with subcontractors
If you are unsure why fewer firms are bidding on your projects, a conversation is an easy way to find out why. From there you can take steps to address any issues. If you are new to an area, local subcontractors may not be familiar with your firm. You can use technology to connect with firms, but meeting with subcontractors at local construction association meetings can help build the groundwork for future working relationships.
In summary, flashy marketing isn’t likely to convince qualified subcontractors to work with your firm. Reputations in this industry are built on performance. Bright sums it up well. “Our members are going to work with quality general contractors that have fair contacts, fair payment terms, and are willing to work in a partnership with the sub before, on the job, and upon closeout of the job.”