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Working With Subcontractors: Pros, Cons…and Cautions
 Before you hire a subcontractor, weigh all the advantages and disadvantages it will bring to your job and business. Then, if you do hire a subcontractor, take the necessary steps to ensure that the relationship works for both of you.
One obvious advantage to hiring a subcontractor is cost containment. If you know what the subcontractor cost is when you put together your bid or job, you will have a better chance of controlling your profits for that job.
There will be times when you will want to do the job yourself because you want to reap higher profits. Before making that decision, however, ask yourself if sacrificing a little profit will pay off in the long run. Keep in mind that using subs can make it possible for you to do more work, and as long as the profit is acceptable, you will benefit.
Another advantage to using the right subcontractor is that, through your subcontractor’s project leadership skills, you will have help managing your jobs. The more responsibility you can delegate to your subcontractor teams, the more it will free you up to take on additional jobs.
But just like anything else, dealing with subcontractors also has its pitfalls. The most obvious may be that because subcontractors are not employees, there will be times when your favorite subcontractor team is not available.
Take Some Precautions
Although your agreement and the responsibilities of each party should be clear, your expectations still can be misinterpreted. The best way to handle this is to make your agreements as precise as possible. If necessary, lay out all the elements of the job responsibilities and be sure that your sub agrees to them.
Also, make sure your subcontractors follow the same policies and procedures as your in-house crews — and include that in your agreement. If there are rules that you expect your crew to follow and you don’t demand the same from your subs, you will inadvertently generate hostilities between what will eventually become the two factions on the job site.
This, unfortunately, will end up costing you ― in lost productivity from your crews and in sloppiness from your subs. If you plan on having your subs and crew work together on your jobs, designate who will be in charge on the job site, and make it very clear to everyone who that person is.
Follow Legal and Insurance Guidelines
Although regulations vary from state to state and even town to town, there are basic legal and insurance guidelines that you should follow. For instance, it is important that your subcontractors are qualified for the job and have all the necessary licenses and insurances. You should know that before you sign agreements with them. You don’t want to find out that something is missing somewhere in the middle of the job or, worse, at the end of the job.
You may not be writing the checks for subcontractor licenses and insurance, but you are in fact paying for them. That is why it seems like you pay more to sub out your work. So, as long as you are absorbing the cost for licensing and insurance, make sure your subs have them. Create and maintain a checklist of the basics subcontractors must have in place for you to hire them and continue working with you.
Establish Business Procedures With Your Subcontractors
Besides the legal basics, you also need to establish day-to-day and week-to-week business procedures with your subcontractors. One important item you should iron out very early is payment.
Even though your sub may want to get paid instantly, that probably is not practical for you. Instead, establish procedures for submitting invoices — with proper verification — and adhere to payment schedules. If you don’t do this, you will have “bill collectors” hounding you on a regular basis and waste too much time dealing with hungry subs.
Remember, a good subcontractor company should be able to invoice you. That is one of the benefits you are paying for when you don’t use your own crew.
Negotiating with subcontractors often can be quite a challenge. The negotiations can be a win for all involved, or they can be aggravating and hostile. Although it is natural for you to want to get the best pricing possible, remember that your subs have to make a profit, too.
I have seen contractors squeeze their subs to such an extent that they have lost their extra labor pool. Remember, too, that if you squeeze too much, your subs have to cut corners to make it work. And that, unfortunately, hurts everyone.
Lorraine Hart is president of Ideal Consulting Services, Inc., a business management consulting firm based in Seaford, N.Y. For more information, e-mail Hart, call her at 516-826-6725, or visit the Ideal Consulting Web site at www.idealconsulting.net.
 NAHB Has More Than 250 Resources to Help You Run Your Business More Profitably
Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 250 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.
Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.
Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.
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 NAHB Technology Solutions Directory Now Online
NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
- Enhanced Listing — Listing includes company name, URL, e-mail address, mailing address, phone number, company/product description, company logo. Click here for more information.
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For more information, e-mail Wil Heslop at NAHB.
The Technology Solutions Directory is solely for educational and informational purposes. Nothing in the directory should be construed as policy, an endorsement, warranty or guaranty by the National Association of Home Builders of the listed software, IT service or the software/IT vendor. The National Association of Home Builders expressly disclaims any responsibility for any damages arising from the use, application or reliance on any information contained in this directory.
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