Contractors and subcontractors play an important part in the success or failure of construction projects. It’s therefore vital to ensure that not only is care taken to select the right contractor, but also to ensure that the contractor is managed correctly.
Unfortunately often contractors are selected only on the basis of price – the contractor with the lowest price is awarded the project.
Failure to select the right contractor for the project and only considering the contractor’s price is often a recipe for disaster which can result in delays, additional costs, disputes, poor quality and even accidents. Choosing the wrong contractor can lead to regret long after the project is complete.
Questions to ask your contractor or subcontractor
- Are you experienced with providing the services and carrying out the tasks required under the project contract?
- Have you worked on similar construction projects? (For instance, many subcontractors may be able to deliver a similar job on a commercial building project in the city, but have no experience on working on remote mining or oil and gas projects which have specific requirements and require more onerous safety standards.)
- Do you have the resources – sufficient people with the required skills, as well as the right equipment in the quantities required – to carry out the construction work?
- What other projects are you currently working on? Will these projects impact this project – maybe take resources from your project?
- What is your safety record? Can you produce the safety statistics for the last few years? You don’t want to employ a contractor with a poor safety record. Accidents delay projects and result in poor publicity. Anyway I’m sure you wouldn’t want someone injured or killed on your project!
- Do you have the financial means to carry out the work? Will you be able to sustain the cash flow? Contractors who can’t manage their cash flow may cause delays to the project if they don’t pay their subcontractors and suppliers on time.
- Are you financially secure? Do you have outstanding claims or disputes with other clients or contractors which could negatively impact you financially should you lose? You don’t want your contractor going bankrupt part way through the project because this will result in delays and additional costs.
- Can you meet the required quality requirements and standards? Will you get the quality project you’re expecting? Will you have to fix issues after the project is finished – such as leaks?
- Do you understand the project requirements? Failure to understand the project could mean that the contractor misprices items, or provides a construction schedule which is too short and doesn’t allow for all the items and complexities of the project.
Of course it’s no good just asking questions and accepting answers. It pays to do further research. Ask to see their financial statements, contact their previous clients, and even carrying out a Google search may turn up problems.
The more that can be discovered about the contractor before they are awarded the work the better. Not only can the capabilities of the contractor be researched, but it may be possible to discover their strengths and weaknesses which will enable them to be better managed on the project.
Past performance, however, is not always indicative of how a contractor will perform on a construction project and I have, on occasion, had good subcontractors that have performed poorly, due to them being overcommitted on other projects, which meant they had insufficient and poor quality resources for my project.
Adjudicating subcontractor and contractor quotes
Sometimes contractors prices aren’t correctly checked and adjudicated. When comparing quotes are you comparing ‘apples with apples’? A price may appear cheap, but when all the factors are taken into account the total price may be more expensive than the other contractors’ prices.
When adjudicating quotes and prices check that the supplier, contractor or subcontractor has:
- Priced everything included in the request for price or request for quotation.
- Conformed to the construction schedule, meeting the completion dates and starting work when information and access is available.
- Included all taxes and duties.
- Adequate insurance in place.
- Not included unsuitable or unacceptable terms and conditions with their price. Maybe requiring more frequent payments or an inappropriate deposit or upfront payment.
- Allowed for providing the stipulated warranties.
- Allowed for providing the design and drawings where required.
- Priced for equipment and materials which will conform to the project requirements and that they are comparable, or better than what the other contractors have undertaken to provide – including long term performance and their maintenance requirements.
- Agreed with the terms and conditions in the contract document.
- Not expected you to provide items which other contractors are providing in their price.
- Not made arithmetic mistakes with their quote. Possibly forgetting to add items into the final price, or applying the taxes incorrectly.
In addition, check that you will not incur any additional costs to manage the subcontractor. For instance you may incur additional travel costs to check the quality of materials and equipment before it’s shipped interstate.
Compare the price with prices received from other contractors. A price substantially lower than the others should set off alarm bells and it’s worth investigating why the price is so low. Sometimes contractors are desperate for work and submit a low price – this however comes with risks and a contractor whose price is too low may be tempted to take short cuts to make money – using inferior materials and skimping on resources. A contractor whose price is too low may also become bankrupt part way through the project which will void warranties and cause delays and additional costs to the project while a replacement contractor is appointed.
Of course there’s nothing wrong with awarding the work to the contractor with the lowest price (even if their price is much lower than other prices), providing that you have ensured that they’re the right contractor for the project, that there are no hidden extra costs which will be incurred later, and that the contractor can deliver the project for their quoted price.
It’s important that the contract documentation included with the request to price (request to tender) is complete and includes the terms and conditions for the construction project, as well as the full scope of works, the project conditions, and the obligations of both parties. Construction projects often incur additional costs and even sometimes lengthy contractual disputes because of poor contract documentation which is incomplete or ambiguous. (I will discuss contract documentation in a future article.)
Conclusion – select the right contractor for your construction project
Selecting the right contractor, adjudicating their price thoroughly and appointing them using an enforceable contract which is complete with all the project’s terms and conditions can usually avoid delays, additional costs, extra management time and disputes later. Don’t simply select the cheapest contractor – it may be a very expensive mistake!
Have you selected the cheapest contractor only to find they weren’t so cheap after all? How much did it cost your company?
What do you look for when you select your contractors and subcontractors?
Paul Netscher has written several acclaimed easy to read construction management books for owners, contractors, construction managers, construction supervisors and foremen. This article is adapted from his books ‘Successful Construction Management: The Practical Guide’, and ‘Building a Successful Construction Company: The Practical Guide’, and ‘Construction Management: From Project Concept to Completion’. The books are available in paper and ebook from most online stores including Amazon. Paul Netscher is also available to help your construction project or company. Visit www.pn-projectmanagement.com for more info.
© 2020 This article is not to be reproduced for commercial purposes without written permission from the author.