With the right management of subcontractors in construction, you will be able to strike the right balance between cost and quality.

 

‘Penny wise, pound foolish’ is an adage that most certainly applies to the ongoing debate among everyone tasked with managing subcontractors in the construction industry.

The dilemma is clear to see; if margins remain tight, then monitoring all outgoings is absolutely critical.

As always, the largest variable cost in construction is labour, so it can be tempting to take on newcomers to the sector, rather than pay more for experienced electricians, carpenters and painters.

Subcontractor rates keep on rising

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The challenge clearly isn’t a temporary phenomenon.

The always watched Markit/CIPS Construction Managers Purchasing Index revealed that May 2015 had seen the third fastest rise in subcontractor rates since that survey began in 1997. Even worse, the only months in which greater increases had been noted were March and April.

“Acute subcontractor shortages, especially across the house building sector, are driving up operating costs and hampering productivity gains at construction firms,” said Markit’s Senior Economist, Tim Moore.

Such issues are impacting the entire industry, as even the major house builders struggle to overcome skills challenges across the trades, caused largely by massive labour cutbacks during recession which saw many experienced individuals find new careers.

Subcontractors can offer acute, thus expensive, skills

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Redrow Chief Executive, John Tutte also identifies other influences:

“We have an ageing workforce, and a lack of broad investment in education and vocational training, as well as a cultural hangover”.

Managing cheaper and less experienced subcontractors in construction is an option to some, especially for SMEs who are reluctant to invest more money in bidding for the right skills, but that inevitably brings the potential for mistakes during construction. It also introduces a greater risk of defects and even the potential for on-site accidents because of communication breakdowns.

Subcontractors are becoming unavailable

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These issues were debated at a webinar organised by Building Magazine and insurer Zurich, when an audience poll revealed that 45% of companies had been forced to work with new subcontractors, because those in their existing supply chain were too busy.

Cynics might suggest that insurance companies talk up the potential downsides of employing cheaper and inexperienced trades to promote their own services – but similar fears are being expressed by employers.

Glenigan’s report is typical; highlighting the dangers of recruiting the wrong personnel in commercially sensitive roles, such as quantity surveyors, leading to errors and increased costs. To anyone managing subcontractors in construction it’s a nightmare scenario, as savings in labour costs would very rapidly be reversed if poor workmanship and project delays mean expensive remedial work.

Government efforts to improve subcontractor management

The government is clearly aware of the issue. In March 2015, its Technology Strategy Board offered up to £2 million in grants for feasibility studies, to explore ways of improving supply chain integration in construction, and helping subcontractors work more effectively with clients.

What can SMEs do in the short term?

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Reassuring existing subcontractors in your supply chain that they are valued and building long-term relationships with them is crucial. Alongside such reassurances, it’s equally vital to ensure that subcontractors are always paid in full and on time, so ensuring your HR systems are accurate is important. You should ensure that you are able to track your invoices and have visibility of what has or hasn’t been paid.

It’s also important to always see the cost of hiring experienced trades as an investment in quality and higher standards, not as a cost which needs controlling. Effectively managing subcontractors in construction comes down to achieving the best quality, for the best price.

Takeaways:

  • Ensure you are building strong relationships with your subcontractors
  • Don’t mistake investment for large overheads as cheap subcontractors won’t provide the best quality
  • Gain full visibility of your invoices and subcontractor payments

Assess the strengths of your subcontractor management by downloading: Construction Cost Checklist: Assess your financial management of subcontractors

Construction Cost Checklist: Assess Your Financial Management of Subcontractors