Chapter 13 Pricing Subcontractors’ Work Objectives • Upon completion of this chapter, you will be able to: – Describe how subtrade work is usually estimated and explain the role of the contractor’s estimator in this process – Identify potential problems with subcontractors on a project Objectives (cont’d.) – Explain how the competency of subtrades can be evaluated and list what should be considered in this evaluation – Explain how surety bonds can be used to help manage subtrades – Describe subtrade pre-bid proposals and explain their use with subcontractor bids – Describe how subtrade bids are evaluated Objectives (cont’d.) – Describe the main features of bid depositories and explain their use with subcontractor bids Introduction • Subcontractors – Building construction projects • Often perform 80% or more of the work – Contractor has to rely on subtrades • • • • Good relationships Mutual trust Two-way communications Common goals Potential Problems • Possible reasons: – Unreliability of some subcontractors – Errors in subtrade bids – Overlap or underlap in scope of work – Conditional bids from subcontractors – Bid closing congestion – Compliance with government positive action requirements regarding minorities Managing Subcontract Pricing Procedures • Effective management practices – Required throughout estimating process • Control problems – Well-organized system of dealing with subtrades • Identify subtrade needs • Ensure subtrade capabilities List of Subtrades • Complied after bid drawings and specifications are obtained – Used to determine trades to be contacted • Subtrades should be notified early in estimating process – Design questions and problems are resolved Contacting Subcontractors • Most contractors maintain a directory of subtrades – Checklist on computer spreadsheet • • • • Estimator checks off or adds trades required Checklist is compiled Copy is e-mailed to subtrades Subcontractors return checklist with name against trades they are prepared to submit prices Unknown Subcontractors • Can be stressful – Sometimes necessary • Nominated subcontractors – Deal made before bids • Clause is inserted in bid documents • Unsolicited subtrade bids – Low price is received from unknown company Evaluating Subcontractors • Main concerns: – Is the subtrade capable of meeting the quality and schedule requirements? – Does the subtrade have the financial capability required? Evaluating Subcontractors (cont’d.) • Factors to investigate: – General company reputation – Quality of previous work performed – Quality of company’s management – Company’s disposition • General cooperativeness • Ease of dealing with site and personnel – Financial status of company Bonding of Subtrades • Bonds are obtained to guarantee work performance – Surety bonds: manage construction risk – Bid bonds: give prime contractor the right to damages from bonding company • If subtrade fails to execute the subcontract after bid has been accepted Pre-Bid Subtrade Proposals • Methods of submitting bids: – Fax and e-mail • Provides a hard copy • Received quickly • Pre-bid proposals: – Copy of subtrade’s bid without prices • Complete in all other details Figure 13.2 Pre-Bid Proposal (Delmar/Cengage Learning) Analyzing Subtrade Bids • Subtrade bids – Ensure all work required is included – List inclusions detailing all the work • Excluded items should be listed on the subtrade’s proposal • Estimator has to lookout for items excluded from the work and not priced – Complicated by multiple trade bids and discounts Figure 13.3 Subtrade Analysis Spreadsheet (Delmar/Cengage Learning) Bid Depositories • “Bid shopping” or “bid peddling” – Disclosing prices to obtain an equal or better price • Not illegal, but unethical • Bid depositories – Assemble bids from subtrades – Distribute them to prime contractors Scope of Work • Trade scope definitions – Useful guide to what is accepted locally as the definitions of subtrades’ scope of work • Enables overlap and underlap investigation • Examples: – Masonry scope of work – Windows scope of work – Glass and glazing scope of work Summary • Subcontractors on building construction projects – Often perform 80% or more of the work – Several problems occur with subtrade bids • Effective management practices – Required to deal with subcontractors in the estimating process