The conventional wisdom these days seems to be that it’s everyone for himself. After all, we have to survive to see another (hopefully better) day.
It does, however, seem that conventional wisdom has it all wrong.
For this article we spoke to many general contractors in various markets across the country not only to get their take on today’s GC/sub relationship, and on whether the subcontractor really listens or appreciates what is needed and wanted from the GC and owner, but also to look at what makes for a great relationship, viewed through GC eyes.
The Financial Climate
First, however, we asked the GCs to what extent, if any, the current financial climate, and the construction downturn, has affected their relationship with their subs.
Andre Grebenstein, director of operations with The Martin Group in New Jersey, says, “If anything, I have a greater respect for the numbers I receive these days. GCs feel that subs in general might be taking too much of a risk in order to keep busy. Therefore, I make sure not to take advantage of the economic situation to lock my trusted guys into bad business deals. That is what is foremost on my mind.”
Bill Thumm, a project executive with Hensel Phelps Construction in Virginia, sees the effect of the economy on a daily basis, “We are seeing subs from outside this market come in and bid work very cheaply, going for the lowest bid. As a result we now require sizeable bonds on most of our bids since many subcontractors are no longer financially stable. Also, since out-of-market subs tend to take liberties with products and job specifications at bid time and don’t always disclose everything, we now do more thorough scope reviews these days.
Jerry Maxcy, vice president of Jesco, Inc. in Mississippi, has similar experiences with his subs, “The Travelers’ bonding group has advised our parent company that the current status of most subs is that the backlog of jobs they accumulated over the past two to three years is now gone, along with any carryover profits they may have seen in those jobs. So now, with cash flow at low tide, most of our subs are in serious jeopardy of default. Due to this, we try to work only with known subs/suppliers, and we are bonding all subs that we don’t have a long-term relationship with.”
Daniel R. Vornhagen, preconstruction manager with Danis Building Construction Company in Ohio, has also noticed the change: “We recognize that the subs who plan for the long-term will not sell the store to get a job. They will not run their jobs at a loss.
“Our sub-relationships are based on trust, and they appreciate that we have to go through a thorough pre-qualification process that not only includes financial but also performance, skill and staffing history. We do not go for the low bidder; we go for the best bidder.
“The subs that keep their future in mind are also keeping our future in mind, and they are the contractors that we do business with. We want to assemble the best team we can to meet the owner’s requirements.”
Chris Zamilski, project manager with Corna-Kokosing Construction Company in Ohio, is aware of the financial straits the subs find themselves in: “Many of the subs we work with have lost their lines of credit and barely have the cash to complete the jobs they take on. That makes working with them very difficult.
“On one job I just visited, a sub ran out of money and could not pay his supplier, which stopped him and others that depended on his progress, in their tracks. As a result, we’ve made it a priority to pay our subs as fast as we can, as they really need the money.”
Dan Nahabedian, a project manager with Suffolk-Roel in Irvine, Calif., has this take on the downturn: “Today, everybody, at all levels, expects everything cheaper. The owner expects the architect to design it for less and the GC to build it for less. The GC, in turn, expects the subs to do it for less, and faster. This puts a lot of pressure on the industry as a whole, and most things wind up hard bid rather than negotiated. In some cases, I’m sure subs take jobs at cost. It is hard to develop, or to maintain, good relationships when everything is hard bid. We are in a market range where we need to qualify all our subs very carefully before we use them, so we don’t often run across people who sell the store to land the job.”
For Russ Magee at McCarthy Construction in Arizona, the lowest-bidder philosophy seems the rule: “We’re all under the gun here. Everybody is selecting the lowest bidder these days, and we’re often required by our owners to take the lowest bid even if it’s not the best team. We do qualify our subs though, and whenever we can, we go with the ones we know will do the better job.”
Sid Carlisle, a senior project superintendent with Kitchell Contractors in Arizona, is keenly aware of the market conditions as well. He says, “It’s become a much harder market for a lot of our subs. Some in our industry thought that the cream of the subcontractor crop would rise to the surface in a downturn, but that’s not really what is happening. In fact, we’re seeing subs stepping out of their comfort zone to perform work they are not used to doing: They may qualify financially, but not performance-wise.
“These days, we don’t necessarily go with the quality subs. Many of our owners specify that we go with the lowest bidder. Price is everything to some, not quality.
“Some subs are giving work away just to keep busy, and this, of course, will see them out of business at some point, which benefits neither them nor us.”
Jim Price, as a project manager for the Rydell Auto Group, which builds auto dealerships throughout the United States, represents an owner’s view on these matters: “Many subs have downsized their crews in order to lower their overhead, but they tend to keep their best people on, or acquire the best people. This means that the GCs normally see better quality work.”
It is clear that the downturn is affecting everyone, not only the subcontractor. Kudos to the GCs who realize that the financial survival of their subs is as important to them as their own survival, and who act accordingly. Such GCs are not the exception.
Needed and Wanted
Financial climate notwithstanding, how well are the subcontractors listening to the GCs, and how well are they supplying what is needed and wanted. What, in other words, are we doing well, and what could we improve on?
The first question we posed to the GCs about this was, “What, if anything, are you asking your subs for that you’re not getting?”
Grebenstein says he is not getting the “respect for the format that we request for the pricing, and respect for the owner’s assets both at a trade and at a personnel level.”
Maxcy says, “Our subs need to pay closer attention to making sure their material orders are placed in time to allow them to fit seamlessly within the tight schedules owners are demanding now.”
Vornhagen says the biggest challenge he sees is “skill, or lack of. Some subs do put A-people on their jobs, others don’t. If the scope is demanding and the labor is not up to par, well, it makes for a challenging project.”
Carlisle says, “Quality, for us, is number one, and we’re not seeing as much of that as we’d like. Subs, due to financial pressures, seem to be in in a hurry to get to their next job rather than properly finishing up the job at hand.”
Mike Comstock, owner of Comstock Construction in North Dakota, has one wish when it comes to his subs: “We want them to pay their suppliers on a timely basis.”
Drilling down to the more specific areas of the GC/sub interaction, we also asked what subs should do differently, if anything, in the areas of bidding, scheduling, performance, change orders and closeout.
Bidding. When it comes to bidding, Grebenstein would like subs to “please respect the bid form and elaborate on the qualifications. Don’t make me guess.”
Maxcy has these requirements for bids: “Get a concise scope in to the GC at least 24 hours in advance that covers all pertinent and related work, and have initial price available at least two hours before the deadline.
“Also have the cost or rate for the payment & performance bond noted on your scope sheet.
“Most of all, I want subs to understand that they do not ‘owe it to the GCs’ to quote everyone the same prices. Subs need to analyze the strength of the team, the GC’s superintendent, project manager, etc., and also need to consider who pays you in a consistent and timely manner. The sub should reward the strong GC teams and those who pay you promptly with their best pricing. This gives the favored GC a better chance to secure the work and for you to build a long lasting working relationship. It also gives you the best chance to make a profit. This is not favoritism. It is good business practice.
Vornhagen says, “When it comes to bidding, the subs must see where they stand financially so that they don’t just buy the job to keep their people busy. That’s the way to run yourself out of business.”
Zamilski says, “The key to a good bid is as much information as possible about what their bid does or does not include. We have to be totally clear on what their scope of work includes.
When the project is out for bid, Carlisle says his subs need to take the time to understand the project totally and to realize all the things that will go into the job, or they won’t be bidding it properly.
He adds, “It seems to me that subs have begun cutting out job PMs and superintendents recently, possibly to save money and to lower the bid. Perhaps they have let their mid-level managers go—I don’t know, but recently I’ve seen unsupervised crews show up at the job. This has sometimes turned the GC’s superintendent into a glorified baby sitter, showing the subs the plans, and precisely what they need to do, finding them unprepared or unqualified for the job.”
“The most important thing for me when it comes to bidding,” Comstock says, “is that the sub is qualified for the job. Nowadays, we get bids from residential contractors who, strictly speaking, are not qualified to do a large commercial or public project.”
Price says, “At bid time, I ask the subs to bid for the best value. Show us how to get the most value for our money. Don’t bid to be the lowest bidder, bid to show best value for money.”
Scheduling. “The sub must work with the GC up front to understand the timing of the various aspects of the job,” Maxcy says. “Also, please participate in all meetings leading up to the time you will have crews on site. By sitting in on progress meetings two to three weeks early, you gain much insight into where things stand at the site before you start work.
Vornhagen says that subs “need a full understanding of all aspects of the job, and how the different aspects dovetail with other trades—a full appreciation of the actual work that needs to be performed.
“Also, things change during a project, and they need to stay in close communication to stay abreast of such changes. So many jobs are pushed for earlier completion, and this again comes down to staying in close communication.”
Zamilski gets frustrated when it comes to scheduling when subcontractors “tell us what they think we want to hear rather than the true state of affairs. They will agree to all schedule milestones for the next week or two, only to then not meet them, which makes our planning near-enough impossible. I would rather know the bad news so that I can plan contingencies for it.”
Carlisle says that subs need to keep in mind that today’s owners want the jobs done much faster. The subs must read the scheduling documents properly. “I don’t think they ever really look at the schedule when they bid,” he says. “Sometimes they miss that a particular job will call for shift work, and they are not prepared for this.
“One of the questions we ask our subs is what their current workload is. We need to establish that they can meet the schedule, but this is something they should address themselves based on the scheduling documents.
“We don’t like to be blindsided, they must make sure they know the schedule and are geared up to do it.”
Performance. Grebenstein looks for “a zero punch list mentality. With change orders, timeliness and accuracy is key. The less I have to surprise my client (the owner), the smoother the ride will be.”
“Performance is, of course, the key to repeat business with most GCs,” Maxcy says. “The subs we prefer not only make sure to do what is required but also try to exceed expectations.”
Vornhagen again aims for subs who pay attention to detail: “The sub needs to take the time to digest the full scope and logistics of the project. They need to be aware of the restraints they will face once on the site, both with regard to space and time.
“Also, in my view, they need to train their employees better, so that every team they supply is a first-class team. Of course, better-trained employees mean better quality work. This is crucial.”
Zamilski is able to see an advantage in the current economic climate. “If there is anything that has been good for us when it comes to the recession,” he says, “it is that a lot of the non-performers seem to have been cut loose. I’d say that work quality has in fact improved since the guys who have been kept on are the top-notch guys.”
Carlisle likes to work with subs who are self-reliant. “The number-one thing about performance is self-check,” he says. “They must self-check their work and not wait for the punch list to see if their work is done or not.”
Change orders. If change orders must be used, timeliness, details and accuracy are important to the GCs we interviewed.
“[Subs] should provide prompt response along with a concise breakdown of costing so that the change orders can be processed through the system with the least amount of disruption,” Maxcy says.
Vornhagen knows that some subs underbid the job to get it and rely on change orders to make up the difference to turn a profit. He advises, “This, of course, makes for bad future relations and should never be done.”
When the change order comes from the owner, Zamilski says they need “as fast (and as detailed) a response as possible. However, if the sub originates the change order, they must follow the contract and notify us in advance, and in a timely manner, about what precisely it’s about, and how not doing it would impact the project.
“I just received a change order request/bill from a plumber who performed some work without letting us know, and the work was done 10 months ago. Now, 10 months later, here’s the change order. That’s just not going to fly, is it?”
Carlisle is seeing a lot of fat built in to change orders to try to make the project turn a profit, and pricing is often lumped or generalized. “We need to see all change orders itemized and priced precisely,” he says. “We want to see drywall, framing, taping, etc., each item.”
Closeout. Grebenstein looks for three things: speed, speed, speed.
Maxcy wants his subs to “anticipate the close-out phase well in advance and start compiling and copying the necessary documents, warranties, shop drawings, etc. that will be required. Do everything possible to meet the GC’s time frame.”
Zamilski says final closeouts “have always been like pulling teeth, but it seems a little better these days, possibly because subs have more time on their hands to handle the paperwork.”
Carlisle suggests that “subs need to realize that the closeout begins on day one. Track and keep the paperwork current to speed it up and job’s end.”
Nahabedian believes that “the final closeout is the last thing anybody wants to work on, it’s not a function that they or we like doing. By this time, most contractors are already onto something new and do not want to deal with paper work. That said, yes, we do receive it eventually, but it takes a bit of teeth-pulling. It’s just one of the things that we have to pry out of them. It would be great if it arrived just as a matter of course.”
The Perfect GC-Sub Relationship
What would improve or strengthen the GC-sub relationship, and how would the perfect relationship look?
“Principal level involvement from start to finish and a commitment to safety,” Grebenstein says. “In a perfect world, there would be a better business understanding of the client, meaning that the sub would invest the time to understand exactly what the owner needs and wants so he can form a partnership with us to deliver that to the client.”
Maxcy thinks “a better relationship calls for better communication. Be a team player, and if you have a problem, share it with the team rather than waiting untilthe last possible moment to deliver bad news.
“In a perfect world, projects are built in a “team first” atmosphere. Everyone does his or her job, the project starts on time and remains on schedule, and every team player makes a profit. In this perfect world everyone wins and wants to work together again.”
Thumm says that “subs need to trust their good general contractors and not support the bad ones that are bid shopping. The subs directly impact their numbers by allowing GCs to shop them. Subcontractors need to stand united against this effort.
“A perfect GC-sub relationship is like a marriage. It’s got some rocky times, but it’s a long-term relationship that is co-dependent. The team survives because everyone shares the common goal.”
To Vornhagen, “the most important principle is up-front communication from the bidding through award, and throughout the entire project. Open communication is the number-one priority and the only way to bring home a successful project.
“My success over the years has been due to addressing and solving all issues up front, before they develop into a crisis. This way, we arrive at coordinated solutions.”
Zamilski says honesty is the key: “Tell us the hard, cold facts, and then we can work with it. Be honest with us.”
Nahabedian says, “We need more face to face, like parking-lot barbecues where we invite the subs to let them know we appreciate their work, just to make sure we build the relationship again. The human factor is priceless.
“Also we’re trying to hang on to trust, honesty and relationship as hard as we can.”
Magee wants more communication but also would like to see more trust and honesty between the GC and sub. “Tell us the truth,” he says, “not what we want to hear. We can work around the problem if we know that we have a problem. Bad news is better than false news.”
Carlisle wants “more partnering at the outset of jobs, understanding and sharing the goals of the job. We have a select list, we know our performers, and we have built relationship with them.”
Comstock says that his company’s “experience with the subs is what strengthens the relationship. The more we work with a given sub, the more we know him and the better we get along.
“In a good relationship everyone works easily with everyone else. There is a lot of cooperation. We wind up with a satisfied owner, which will generate repeat business for us and for the sub.
“At the bottom of all this are the issues of trust and honesty; that is what makes for a good relationship.”
Price says, “A lot more up-front meetings among all the trades and the GC to generate input and to develop the trust. On a good project, it looks like a family. We all work together.”
Coeur d’Alene, Idaho–based Ulf Wolf writes for the construction industry as Words & Images.