Subcontracting
Construction Engineering 380
Subcontracts
• Owner doesn’t “recognize” subcontractors
• They are representatives of the contractor
• Prime usually uses flow-down clauses
• Contractor must be confident they can perform
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Reputation
Financial strength
Labor force
Job history
Strength and skill of PM
Past work with team
Estimating ability
Subcontracts
• Increasing the number of subcontractors on the
job reduces financial risk to GC but increases
communication complexity and cash flow
problems for the project team (30-30 problem)
• Decision to subcontract versus self-perform is a
risk/return optimization problem
• Self-perform work has potential for greater
reward, but carries more risk
• Self-perform is less risky when you have longterm trades people and well-understood market
Subcontracts
• Subcontracting passes risk on to
subcontractor in return for certain cost
• Subcontracting can shorten schedule and
improve quality/efficiency if subcontractor
has access to superior technology or
resources (knowledge)
• Subcontracting can also reduce schedule
flexibility because of contractual constraint
Subcontracts
• Must bind subcontractor to a cost and
schedule consistent with overall project
parameters
• Contractor serves as conduit for changes
and claims on behalf of the subcontractor
• Major subcontractors sometime included
in partnering team, working with
government agencies and field
coordination
Subcontracts
• Need to have hoisting, clean-up, workhours, lock-out, freight and unloading, and
labor relations issued spelled out in the
subcontract
• AGC has several standard subcontract
types
– Contractor/subcontractor share risk of
payment
– Subcontractor takes risk of payment
– Design-build subcontract
Subcontracts
• Subcontracts can be negotiated or
competitively bid- usually determined in
part by the owner
• Subcontractors can be asked to do value
engineering, but must be careful about bid
comparison and bid shopping
• Usually pre-qualify subcontractorsfinancial strength, certifications, bonding
Contract Time and Claims
• Many states have moved toward statutory
protection
– Mechanic’s liens
– Stop notice (subcontractor can stop payment)
– Trust fund protection (treat prime like a
trustee, making it a criminal not civil case)
– Mandated bonding levels