De-selecting a sub

San Francisco general contractor Dave Markham of C.M. Peletz Co. has posted a fascinating observation about how he decides which subtrades to use, and which ones to drop.
I don't think he will mind me reproducing the post in full here:

I once attended a forum sponsored by CSI (Construction Specification Institute) where one of the topics was Contractor/Subcontractor relations. There were several executives of large General Contractors in attendance. When prompted on the subject, one of the panel members, Jim Balboni, an executive with Otis Elevator, stood up on his chair and shouted, “Why in the hell do contractors continually use subcontractors that fail them!” In the best humor there is always some truth.

The General Contractor/Subcontractor relationship is, for better or worse, a telltale of project health or for that matter Contractor health. A great subcontractor makes the job of the General less time-consuming and allows him more time to plan and budget and thus makes the General look good. A poor subcontractor bogs all facets relating to his portion of the project down and can make the project and the GC look like a disaster.

In order to truly represent the interests of the client, the subcontractor list must constantly evolve. Great subcontracting companies come and go. So by simultaneously trimming the potential subs-list and adding to it constantly, you are adding extreme value to your relationships with clients. Pricing will be competitive and current. Technique and communication will be modern. Trust will be there.

That is not to say that all subcontractors must go. We have several that we have worked with for more than 20 years and continually stand the reasonableness test.

Disengaging from a subcontractor prior to contracting for a project

As with any relationship, until we have experienced a project together, we really do not know each other. A Subcontractor who violates the basics needs to be let go before they start for

• Improper insurance
• Disagreement with our indemnity language in our subcontract agreement
• Expired license
• Poor or non-existent references
• No office presence where phone calls, (e)mail and faxes are received, messages taken and phone calls, (e)mail and faxes returned.
• A misunderstanding of the management necessary for the very high caliber building process

If a subcontractor fails in any of these or you get the gut feeling that you’ll be let down, pass early and often. Experienced Generals know the feeling.

Eliminating a subcontractor from the proposal list

Now that we have experienced a project together, besides pricing, what makes us know the Subcontractor should not be considered for the next team effort:

• Poor product installation
• Offers no consultation in trade
• Improperly handles client/GC relationship
• Improperly handles architect/GC relationship
• Continuously late, inaccurate billings on improper form
• Does not understands the key rule that additional or extra work will not be paid for unless approved prior to work being completed
• Maintains a slovenly jobsite environment
• Add your own here

There is some give and take with this list. A subcontracting field with a small number of competent competitors might warrant a little leeway on a few of the above items. There might be some give and take for a rock-star that does very fine work. However, if a few of the above are tied together, even the best subcontractor is expendable.

The bottom line is that the GC needs to pull off the project on time and within budget and make the experience for the client worth reliving. If a subcontractor isn't doing his part to contribute to that smile on the Client's face, perhaps their place on the subs-list should be reconsidered.

I've always maintained that the most important aspect of marketing your business is how you handle your actual work, and Markham proves this point with this argument. Of course, not every story is the same and we all know of the classic challenge of general contractors receiving unrealistically low bids from sub trades who may be less than totally qualified.

Do you decline the "low bid" and then not win the final job, or do you accept it, knowing that things are likely to go wrong? This is one problem that isn't going away anytime soon.

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The General Contractor's Question: "What criteria do you use in determining which sub trade to use?" (2)

At the Ontario General Contractors' Association President's Panel last month, someone asked an important question: "What criteria do you use in determining which sub trade to use?"

Only Frank DeCaria, president of Eastern Construction Ltd. of Windsor and Toronto, had the opportunity to answer at the Symposium, but I think the question is important enough for me to see if the other general contractor panelists could provide their own direct answers.

Yesterday, Doug Burnside, president of Dolyn Developments in Ottawa, contributed this answer, which is worthy of careful review if you are a sub trade hoping to find work in the non-residential environment.

Here's my answer for the panel question you re-raised:

When tendering on a project in the traditional way, we General Contractors can certainly become real risk takers. We often receive our quotations very close to the closing time leaving us little or no time to properly evaluate them, read the fine print, or contact the trade firm to discuss it.

In a relatively small town like Ottawa we often know most of the trade firms that are sending us quotes and usually have a good sense of their competence.

The Sub-trades that we value most are those with whom we share mutual trust. They will provide their quote early enough that we can analyze it and discuss it with them, in turn, they can fully expect that their price will not be shopped to other trade firms. Without that trust, the bids come too late to analyze properly and a problem can ensue after closing, when there is a misunderstanding, hidden exclusion, scheduling
problem or a pure "walkaway" from a price.

When a price seems erroneous to us we endeavor to contact that bidder to discuss it, but if it comes 2 minutes before closing there is not much chance of remedy. Now we have to decide if we carry an excessively low quote or not, knowing that in all likelihood one or more of our competition will. If we don't, we will have wasted the time preparing the bid as we will likely now lose, if we do, we may well have a conflict. We truly do often face a "Catch 22" on many occasions.

When we have the luxury of inviting tenders under a Cost Plus or Design - Build methods of procurement, we can clearly spell out what is to be included; offer the opportunity to a bidder to withdraw a bid if it seems flawed; and invite those we know to be well suited to the project and proven and competent. Without conflicts, and better trade firms, we can better serve our clients.

Many of us have had a bad experiences carrying a trade that we do not know at a questionable value, resulting in one of the many possible perils. Alternatively, it is just this way that we sometimes meet those trades who become among our preferred.

....not for the faint of heart.

Subs looking for non-residential work should read this response carefully -- your chance of success is highest if you can put yourself in the mind-space of the general contractors with which you wish to work. Intelligent trust and allowing them some time to review your bid will save aggravation and give you the fairest chance of winning the work.

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The general contractor's question: What criteria do you use in deterining which sub trade to use?

Frank DeCaria, president of Eastern Construction Company Ltd. at the Ontario General Contractors Association Symposium

At the Ontario General Contractors Association symposium president's forum, an audience member asked this rather important question: "What criteria do you use in determining which sub trade to use?"

If you are a sub, obviously, the answer to this question may be one of the most important ones you need to win more opportunities and bids.

Although there were four panelists, only Frank DeCaria, president of Eastern Construction Company Ltd. of Toronto and Windsor, had the opportunity to respond.

"The trades give us most difficulty are the M and E (mechanical and electrical) trades; they can vary from 25 to 40 per cent of the project, DeCaria said. "When people are closing a project, they have 'here's this price, and here's that price,' depending on the spread (between bidders), you make a decision, depending on your risk.

"You know (the low bidder), he can't perform -- no one can take him," but it comes down to our risk matrix, on that scope of work."

"The M and E, and perhaps five critical trades, we make sure they can perform. . . to give you one example, we were doing a project in Toronto . . . the decision was made to carry a former contractor, with a significantly lower bid (than the competition... the sub trade) couldn't perform; he put us in a real bind."

"it's better for us to take care of the extra $100 grand . . . if we don't get the job, its cheaper for us to keep two bodies in the back cleaning stuff, than putting the company at jeopardy."

So, reading between the lines here, if you are a sub trade in a secondary area where the project won't succeed or fail because of your non-performance, your low bid, even if it is way below what it should be, might be accepted, and the general contractor will take a flyer on you -- but if your trade is critical to the project's success, only a sloppy GC will rush to accept your bid.

Of course, readers of this blog know that the conventional sub-trade approach to winning commercial work; pushing forward the lowest bid possible in order to win the work, is hardly the best way to make money. In fact, subs which have built substantial businesses based on marketing principals steer clear of commercial and institutional work where they are in bidding wars to win the general contractors' business.

Nevertheless, I think the question is important enough that I will survey some additional general contractors for their opinions on the topic and report back to you. While I can argue any which way that the best way to grow your business is NOT to fight for bids with the general contractors, you probably don't want to know that if you are a sub; instead, you want to know ho you can really win the job through the bidding process you follow routinely. So I will see what I can do to help find the answer you are seeking, even if it isn't really your best solution.

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The sub trade marketing challenge

So you are marketing your subtrade services and want to find new business.

How do you get through the gatekeepers, and earn the respect for your proposition?

You may think your wisest approach is waiting for the opportunity to bid the job and you simply need to get on a prequalification list, or (worse) wait for the job to be tendered publicly.

Go ahead. Spin your wheels. Lose your money.

You haven't passed stage one of elementary marketing and sales. And you are like a large percentage of the construction industry hoping for business and wondering why you are struggling.

You need to think differently. The key is to recognize the combined power of effective relationship-building and effective marketing. When your brand (roughly equivalent to reputation) is so strong that clients think of using you and no one else, and take it for granted that your sole source quote will be fair and doesn't need to be cross-checked against your competition routinely, then you have achieved success. When you are able to chose which jobs you bid, and you know you will be profitable going in, you have hit the business jackpot.

Can this be done?

Yes, but here is an important observation after seeing some successful sub-trades at work. Two whom I have met personally, Mike Feazel in at Feazel Roofing in Columbus, Ohio and Leonard Meglolia at Bestline Plumbing in Los Angeles, say they stay away from most commercial and virtually all new construction work because they cannot see any margin or opportunity for profit in the bidding-war environment out there. (They will do some commercial projects, presumably where they can be sole-sourced.)

Surely, however, subtrades and suppliers find a way to make some money dealing with builders, developers, and owners on commercial projects. They succeed, I think because their business is at the scale where they can achieve incredible operating efficiencies and their relationships with their clients are strong enough that they can squeeze just a little more margin through scope of work or other arrangements than the neophytes trying to win bids through public competitions.

If you aren't at that level yet, consider smaller scale residential and limited-scope commercial projects where you can provide direct services to your clients; and develop your own advertising and marketing strategy to achieve this business.

Or if you wish to work within the conventional space, remember that a little energy spent learning how to market effectively will pay you really big dividends, especially if you an escape the rat race of "low bid wins the job" (and loses a fortune in the process).

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