GCs and Subs: A Marriage Put to the Test

Ulf Wolf / February 2015

Even in the best of times, the subcontractor’s relationship with the general contractor can be less than pure bliss. Add a prolonged market downturn to the mix and this marriage might head for the rocks.
    
In some cases, that’s exactly what happened during the recent recession. Many GCs began self-performing some, if not all, of the sub’s wall and ceiling work, while others—some say the majority—went into a severe lowest-bidder mode, though in fairness to the GCs, this was often dictated by owners who saw the downturn as a chance to build cheaply.
    
Most subs survived. Some did not. Sifting through the downturn-wreckage, however, we find that this marriage is made of hardy stuff, and while things may not yet be back to business as usual, they are definitely heading in that direction.

Downturn Stress
So, how did the downturn affect the GC/sub relationship? Hindsight is, as they say, 20/20.
    
“Poorly,” says Don Gregory, an Ohio attorney and AWCI’s general counsel. “Declining margins for all sectors, bid shopping, unfair contract language, slow payment and other problems all made for a strained relationship.”
    
A Texas contractor who prefers anonymity on this issue concurs, “Our relations worsened as the GCs’ efforts to cut their margins forced them to use low-cost providers, which meant low-quality, unsafe actors. However, they are now back to paying more for higher performers.”
    
In contrast, Roger Olson, president of Sig Olson & Sons Plastering, Inc. in Minnesota, saw relations improve. “I saw the relationship grow more valuable as customers grew scarce,” he says.
    
Greg Smith, vice president at Mowery-Thomason, Inc. in California has this to say: “We build relationships with people who work for the GC. During the downturn, the GCs laid off many of them and we lost some of those contacts. In some cases, they moved to another GC and we found ourselves with a new client. More often than not, however, the people who remained were no longer ‘our people,’ and so we lost those clients.”
    
Patrick Arrington of Commercial Enterprises Inc. in New Mexico was also fortunate. “Actually,” he says, “the downturn resulted in better relations with GCs, since many of our competitors went out of business and the GCs now needed us to do their work.”
    
Ed Sellers, general manager of OCP Contractors in Ohio, observes, “To cut costs, GCs and CMs reduced their staffs of experienced personnel (higher salaries) while keeping those inexperienced (at lower cost). GCs/CMs also took on projects with very tight margins, which led to contracts with unfavorable payment terms. This made our personal GC relationships all the more important in order to overcome price issues and to make sure value continued to mean something to our clients.”
    
Todd Lawrie of Delta Contracting Service, Inc. in Michigan puts his experience succinctly: “Most GCs turned predatory, or at best, self-absorbed.”
    
Ken Fox, vice president of Delta United Specialties, Inc. in Tennessee, reflects, “Some contractors that we have had long-term relationships with changed their structure to low-bid, not best-bid, and began to bargain hunt, an exercise in which we have no interest.”
    
And this is how Robert Aird, president of Robert A. Aird, Inc. in Maryland, weathered the storm. “When things grew tough and money and schedules tightened,” he explains, “the general contractors bid work with tiny margins/fees. This in turn required them—in order to turn a profit—to go to the lowest bid (not necessarily the lowest qualified bid), which created a situation where they and the subcontractors skimped on quality and safety and even on doing the minimum work required by their contract. As a result, we are now doing remedial work—work to complete these contracts.
    
“Also, today, more often than not, the outfit running the project is not really a GC but a construction manager with no field personnel, only people sitting in office trailers pushing paper.”
    
Tom Long, president of Guy C. Long, Inc. in Pennsylvania, shares this experience: “One of my favorite GCs actually became a competitor. Jobs grew smaller and smaller and as his worked slowed, he began to self-perform them. This, unfortunately, put a wedge between us, and we have only done a couple of projects for him recently.
    
“Other GCs have been very slow with payments. They don’t understand that we’re not ‘Guy C. Loans.’ We’re not here to finance him.”
    
For Bill Thumm, project executive at Hensel Phelps Construction, a Maryland general contractor, the downturn looked like this: “Hensel Phelps was not really affected by the downturn with regard to sub relationships. They fully understood the nature of the times and were even more loyal in trying to give us the best numbers possible to win jobs.
    
“Our view is that the subs constitute 80 percent of our success. Treating them well is just good business, and trying to make money by bid shopping them is a guarantee to a rocky relationship.”
    
A Tennessee contractor who prefers anonymity says, “GC relations went the way of margins—down.”
    
Timothy Rogan, operations manager at Houston Lath & Plaster in Texas, saw that “the downturn did put a strain on most relationships because many GCs would come back for a ‘best and final offer’ for the project even though we were rock bottom the first time around.”
    
A Pennsylvania contractor who also prefers anonymity says, “Tensions grew as money became tighter. Change orders were scarcer and receivables stretched out longer.”
    
Craig Daley, president of Daley’s Drywall & Taping in California, paints a happier picture. “For the most part,” he says, “we were able to continue doing work for the same clients, maintaining good relations. True, some were forced to use lower bids from unknown competitors, but most have now returned to using their favorite short list.”
    
Charles Antone, a consultant at Building Enclosure Science in Rhode Island, says, “It’s simple: In a tight economy, it’s all about money.”
    
Dick Mettler, executive director of Northwest Wall & Ceiling Contractors’ Association in Seattle, saw the same trend. “Margins went down, which strained relationships,” he says. “More was asked for and less paid. The bottom dollar was what landed you the job.”
    
For Eric M. Stark, president of Eric Stark Interiors, Inc. in California, things were better. “It didn’t affect our relations at all,” he says. “We worked as a team and tightened our numbers to make sure we all had work.”
    
Dave Wilmes, vice president of Advanced Drywall Systems, Inc. in Missouri, confirms the self-perform issue. “The downturn did hurt our relations with the GCs as a lot of them self-performed the work that we normally do.”
    
Jerry Reicks, president of Jarco Builders, Ltd. in Iowa, corroborates: “Over the past few years, many GCs have chosen to attempt to self-perform much of the drywall work and some of the framing. In fact, our framing, drywall, acoustical and EIFS combination bids were chopped up and pieced out in our open shop market.”
    
While it is true that some areas turned down less than others—California and New York City fared pretty well throughout—in most areas of the country bidding become a commodities and numbers game, with many GCs self-performing to stay alive. That relations evidently suffered accordingly should come as no surprise.

Preserving Good Relations
Given that a recession will test this marriage, how do you best preserve it in rough times?
    
Don Freas, owner of Freas Plastering in California suggests that you “drop your margins as much as you can without compromising quality.”
    
AWCI’s general counsel suggests giving “better bid numbers to those who treat you right.”
    
George Desis, controller at Elite Woodcraft Installations. Ltd. in New York, concurs, “You have to give them better prices.”
    
Roger Olson, on the other hand, stresses that you must “continue to provide excellent service and maintain open communications.”
    
Dave DeHorn, chief estimator at Brady Company/Los Angeles, Inc. in California, suggests, “Stay true to what you do. Sometimes when a conflict comes up, just take one for the team, get it resolved and move on.”
    
Shares Greg Smith, “Funny, but when the economy went south, nobody would go to lunch anymore. Gone were the golf days and other outings. As GCs were cutting staff, people did not want to leave their office for any reason at all. So we had to change the way we interacted with them. It became a low-bid market, and the best way to keep those relationships was to cut our margins enough and help our friendly GCs land their project. Keep in mind, they were also cutting margins in their bids as their field became overpopulated. If we could help them land a project, they in turn would reciprocate when they could. Our bid number, in some ways, became our marketing. Now, with things loosening up a little, the lunches and dinners are back, and even some golf days.”
    
Gerald Roach, owner of Forks Lath & Plaster, Inc. in North Dakota, says that “in tough times, GCs want the best subs they can get. It makes them look good.”
    
Sellers provides a nice recipe: “Stay close to them. Understand what they really need. Maintain relevancy, they are going through the rough times too.”
    
Aird shares, “We are steering away from GC/CM bid situations. We prefer to work for the owner or property manager or the third-party engineer or architect. In these cases, there is less bid shopping and less need to cut our price to unrealistic levels, as the middle man is eliminated.”
    
Long suggests “personal contact. Deal directly with the principals of the business. Talk to them eye-to-eye, garner mutual respect.”
    
Thumm’s advice is short and sweet: “Be honest and tell them what you’re doing.”
    
A Tennessee contractor suggests, “In a down market, you have to be patient and wait until the GCs realize they have cost themselves money by using cheap subs.”
    
Dailey says that “at times, we decided to take work far too cheaply—just to keep our client from trying new competitors. Once off the short list, it’s hard to find your way back on it.”
    
In Mettler’s view, “That differs from GC to GC. Often it’s about the little extras, what you can do to make it easier on the general without costing you too much. Rearrange your schedule to meet his needs. Do some favors. Smooth the project out. Be of more value.”
    
Stark points out, “We have to understand that we are all in this together. If my GCs don’t find the work, then we don’t, either. Honesty and communication are key.”
    
Wilmes rounds it out with this: “Be on your game, make no mistakes, and do things for them that you wouldn’t ordinarily do.”
    
Realizing that, during a downturn, the GC is also swimming for his life goes a long way to maintain good relations. No relationship can survive “everyone for himself” because by definition, a relationship has to be mutually beneficial.

Restoring GC Relations
Now, if the GC relationship, despite your best efforts, has gone south, how do you patch it up?
    
Desis says you restore the relationship “with meetings and communication.”
    
Olson’s advice is to be an excellent subcontractor. “Generally speaking,” he says, “if my relationship with a GC goes bad, they must have done something rather nasty to lose me as a sub. Given that scenario, I don’t go too far out of my way to retrieve a lost relationship.”
    
A Texas contractor sees it similarly: “It depends on the reason it went south. If the ethics of the GC are not worthy of our business, forget it, I’d let it go. However, if it is a mutual condition that costs both our companies, we consider that as a lesson learned and move on to a more rewarding future with them.”
    
DeHorn also takes a pragmatic view: “I don’t know if you can patch it up. If your relationship has gone south, and the GC is looking at your competition to take your place in a recession, then there is really nothing you can do but move on with other GCs. Here in Southern California, there are too many competitors waiting to take your place.”
    
Says Greg Smith, “It depends on how things went south. If it was a bad project, you may not want to do business again with a GC who runs poorly managed projects. With tight margins, there is no room for mistakes, whether by us or by the other trade partners.
    
“However, if we feel the relationship is worth saving, we sit down with the principals of the GC and discuss lessons learned and how we can move forward. I cannot stress the open communication factor enough in these cases.”
    
Arrington concurs. “I’m of the old school and here only face-to-face meetings work,” he says. “Emails won’t cut it.”
    
Sellers is on the same page: “Face-to-face meetings. Be frank about the facts. Listen, listen and listen, then decide if you can move forward. Remember: You can fire a customer.”
    
Lawrie says, “It depends on the catalyst of the relationship going south. Never resort to harsh words, stick strictly with facts when relaying differences of opinion. It isn’t personal. Do not sacrifice a long-term relationship for the immediate gratification of referring to them in a derogatory manner in a personal attack. Leave amicably so the door is still open for re-entry. If you don’t, you will need to start from square one, eat some crow, and humbly admit that you were in the wrong (whether or not you were).”
    
Thumm gives the GC’s view: “Clear, direct and concise discussion with the sub’s leadership. They can’t fix it if they don’t know about it, and doing it through letters and lawyers won’t fix a relationship.
    
“When you have a relationship of trust, they will pick up the phone and listen to what you are saying, come to the job site to look and, 90 percent of the time, fix the issue before it becomes a problem.”
    
Dailey agrees: “You can only patch up bad relationships face-to-face or, at minimum, over the phone. An email or text simply won’t change a person’s mind. And in-person, you usually discover that the problem is not as big as it seemed over email.”
    
Some relationships, if they have truly gone beyond south, may not be worth the time and effort to pursue. Others, though, can and should be salvaged, and that—there is true consensus here—can only be done person-to-person and with open and honest communication.

What We Love about GCs
Most suggest that love might be too strong a word. Appreciate might be closer to the mark. Or respect.
    
That said, here’s why we love them—when we do.
    
Olson appreciates it when “they watch out for me—as long as I watch out for them. It is definitely a two-way street.”
    
DeHorn says, “Good GCs tend to land really good subcontractors which, in turn, makes the project run really smoothly.”
    
Smith says, “GCs we love pay on time, resolve change requests in a timely manner and pay retention promptly. They are rare, but they do exist.”
    
Arrington makes this point: “I love GCs who have the balls to force mechanical contractors to comply with their contracts and the published schedules for their scope of the work.”
    
Roach loves “those who run a smooth job and pay.”
    
Marc Goldberg of J.A.M. Associates & Consulting, LLC in New Jersey, concurs, “The answer to loving a GC is to be paid on time.”
    
Long, along with Michael Mazzone, president of Statewide General Contracting & Construction, Inc. in Hawaii, says he also likes those who pay fast.
    
But for Fox, he says “it usually comes down to the individual project manager as to whether we can ‘love’ our GCs.”
    
Aird says, “When we do love them, it is because they are professional and ethical and know what they’re doing.”
    
Dailey says, “It’s rewarding to work for GCs who value you as their partner in building a project. Those who don’t treat you with respect don’t stay at the top of our bid calendar.”
    
Reicks has two main reasons for possibly, maybe loving a GC: “Number one is that he pays well and number two is that he has an experienced staff of both project managers and superintendents to manage his job.”
    
Sellers sums it up with this: “I like the ones who understand value. I like the ones who give us work. I like the ones who run a good job. I like the ones who process change orders in a timely fashion. I like the ones who pay promptly. I like the ones who close out the job quickly and get retentions released from the owner. And if, on top of that, I make acceptable margins, maybe I’ll even love them.”
    
For a GC to be liked, or even tolerated, he has to pay on time and not cling to the retention. To be loved, he also has to be professional, efficient, ethical and treat you with the respect with which you treat him.
    
Just like any other marriage, really.

What We Don’t Love about GCs
The answers to this question really add up to the flipside of why we love them. Two answers suffice to paint the picture:
    
Roach says, “The ones we don’t like run bad jobs and hang on to our money.”
    
And Smith says, “Some GCs pay slowly while blaming lost paperwork, etc. This puts the subcontractor in a negative cash flow position and essentially has all of us funding the GC’s project with a zero interest loan.
    
“Also, some take an adversarial role with change requests while at the same time making things tough on site with poor sequencing and no planning. In tough times with slim margins, this creates low- or no-profit jobs and a very negative atmosphere.”

The Marriage Survives—It Has To
As Olson puts it, “I need the GC to survive. The GC needs me to get his work done. We don’t have to be best friends, but, of course, I prefer friendly relations.”
    
Long underscores the same thing: “The GCs are our lifeblood. We live and die by these guys. But for the relationship to work, they need to understand and appreciate the value we bring as well.”
    
As in previous discussions on this topic, elements like trust, appreciation, mutual respect and open and honest communication always take a front seat.
    
Never forget that there is always the other side to any story, and we’ll never understand it unless we ask and are willing to listen. A wise man once said that the most precious thing you can give another human being is your honest attention.
    
That’s how to keep any marriage off the rocks.

California-based Ulf Wolf is the senior writer at Words & Images.