The Wrong Sub Can Seriously Disrupt Your Job
Terminating a subcontractor in the middle of a job is disruptive and something that home builders should take steps to prevent by thoroughly checking out subs before hiring them, maintaining good communications and even putting up with a little pain, John Wiseman, president of CORE Construction Services Southeast and first vice president of the Florida Home Builders Association, told the Southeast Building Conference in Orlando last month. But if poor performance by a tradesman is compromising the project, then they may just have to go and there are ways of proceeding to minimize the fallout.
“Probably the most agonizing aspect of the construction business is the removal of a subcontractor from the project,” said Wiseman. “Emotionally speaking, it is often highly charged.”
“In all probability,” he said, “removal is at the end of several heated confrontations that have become personal in nature and always have financial consequences for all parties. Poor performance by an individual trade will affect other trades, the budget, quality and schedule of a project and your relationship with your client.”
Before even beginning to select a subcontractor, the builder should become totally familiar with the contract documents, Wiseman advised, including change orders, contract terms, conditions and clarifications, specifications, details on the plans and the overall plans. This will enable the builder to spot conflicts in the documents that can eventually lead to confusion and disputes and disrupt the flow of the job.
Wiseman said to look for such problem areas as “sewer and plumbing not in sync. Will the mechanical engineering and plumbing systems route through a structure without a conflict?” Structural dimensions may not always agree with architectural dimensions, he said. “The architect will send out plans that are 60% complete to the plumber and 85% complete to the structures guy.”
Plan drawings — CAD drawings from an outside person — can be used to ferret out conflicts, he said. Also, it’s a good idea to get the owner involved in the plans and specs because “the subs sometimes don’t know your deal with the owner” and qualifications to the contract that may run contrary to how the job is priced and planned.
Scheduling is critical, Wiseman said, and “should be an important tool for the project from the beginning. Sit down with the subcontractor before going to contract with them” and discuss how they will be managing their resources and scheduling their equipment and manpower. “Get agreement up front,” he said, on what materials, equipment and people they will need for each phase of the job.
Before hiring the subcontractor, the builder should talk to suppliers to see how the sub pays his bills; ensure that the sub can command the financial and material resources that he will need to perform the work; and find out what other projects they are working on. “If you’re working on bad projects elsewhere, that can drag you down,” Wiseman said. “Be as well informed as possible going in.”
“Does he have banking and insurance references? What is his commitment to safety and quality? Is the bid reasonable? If you have four bids within 5% of each other and your low bidder is 20% below the pack,” Wiseman added, “there is a problem. Remember the old adage, if it sounds too good to be true, it probably is.”
The builder should have several expectations for the subcontractor, he said:
- The subcontractor must comply with the schedule.
- They must coordinate their work with other trades. “How well do they play with others?”
- They must follow safety, clean-up and other job-site policies.
- They must follow proper billing procedures. “Trying to get their draws correct can take work.”
- They must attend weekly job site meetings and communicate properly.
- They will perform changes and revisions as directed. (“Know ahead of time how you will negotiate the price for changes.”
- They will service and warrant their work. In the even of plumbing leaks or electrical or air conditioning problems, “how do they provide service?”
The subs also have a reasonable set of expectations from the builder:
- Prompt payment
- Skilled management and leadership
- Good information flow from the owner and designers. “You must provide the information they need when they have a question,” Wiseman said, because “they have people standing around waiting for answers.”
- Good scheduling
- A safe, well-maintained job site
- A professional work environment
- That they will be held to the same standards as everybody else
Meeting each other’s expectations will set the foundation for mutual satisfaction, but “there are no hard and fast rules” and that relationship can deteriorate to the point where there seems to be no good alternative but to fire the subcontractor.
If termination does occur, several other problems are sure to ensue:
- Especially if attorneys are brought into the picture to settle money disputes, “nobody wins,” said Wiseman. “There are big losers and bigger losers.”
- You will get delayed.
- There will be cost overruns stemming from charges from associated subs.
- There will be an impact on your overhead and resolving the matter “will take a lot of your time personally.”
- There will be warranty difficulties, such as “who will warrant AC that’s 90% complete?”
- “The sub will lien and the vendors won’t get paid.”
- There could be litigation.
- The relationship with the client could be damaged.
Before severing the relationship with the sub, “make sure you’ve done everything you can to make it right,” Wiseman recommended. Find out if the sub has a problem and if there is a way you can help him work his way out of it. “Maybe he needs money.” At the same time, “communicate and keep it civil. Keep your personal feelings separate from the business arrangement,” and start documenting everything.
Changing subs will require a thorough review of the job, he said “Know where you’re at at the time of the dispute and the deficiencies — what’s not done and what needs to be redone.”
“If you hire an attorney, tell him the good and the bad stuff,” Wiseman said. “For example, ‘this is where we could be in trouble.’ Give him your case, warts and all.”
The termination should follow an orderly process:
- Give the subcontractor a final opportunity to cure the problem.
- Bring in a third party to assess where you’re at.
- Even before you run into trouble, you should be documenting your position, including recording minutes of meetings; requiring field supervisors to keep a daily log; filing correspondence between the customer and the sub; keeping inspection reports relative to the trade; and taking pictures. “All of our job sites have a digital camera on them, and we have a system for filing them (photographs),” Wiseman said. “A picture might be what saves you the most money.”
- While their memories are still fresh, interview key personnel about incidents that have led up to the termination.
- Create a set of as-built drawings that gradually depict the status of the work and areas that are deficient. Deal with the accounting of the job, including how much you have paid to the sub and how much he’s owned, how much you have to pay vendors and how much it will cost to complete the job. Determine if there are disputes over these amounts.
- If allowed by law, a hold should be placed on future payments to the sub.
- Determine the costs that you expect to incur as a result of the action.
- Obtain an estimate of the price of getting a new sub to complete or redo the work.
- Determine the difference of what you paid for and the work that is actually in place.
- Determine if there is any potential for damages from the owner.
- Find out if there has been damage to other people’s work.
- “You will have to make schedule revisions for the new sub,” he said. “Make sure everybody knows what’s going on."
- Get everything documented up-front for the attorney.
- “Always do a worst-case scenario analysis,” Wiseman advised. “The accounting people need to know.”