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Hire Reliable, Well-Schooled Subcontractors to Reduce Risk

The commercial construction industry entered 2017 building on a steady stream of growth over the past years. Earlier this year, ConstructConnect predicted a 6.3 percent increase in total construction for 2017 with another 7.2 percent increase in spending for 2018.

Most recently, these expectations were amended slightly when ConstructConnect announced U.S. construction starts were expected to grow by 4.5 percent in 2017 and about 6 percent in 2018. In comparison, the AIA Consensus Construction Forecast projected 3.5 to 4.0 percent of growth for the remainder of 2017 and 2018.

These changes were based on several factors ranging from a slowing commercial/industrial marketplace to the shortage of qualified building professionals. Unfortunately, the recent recession had many dire effects including the loss of approximately two million skilled laborers, who left the industry to find work elsewhere and have yet to return. This trend has also combined with an aging workforce and the entry of fewer young tradesmen into the field to replenish the project pool for seasoned workers ranging from electricians, plumbers and welders to masons, roofers and carpenters.

Few general contractors can successfully complete projects on time and within budget without the help of reliable and well-schooled subcontractors. The problem is finding reliable help. Although price is always a consideration, it should never be the main requisite for hiring subcontracting support. Always be wary of the lowest bid. Sometimes cheap means little else, especially when it accompanies subpar skill sets and a lack of precision and timeliness.

Another challenge involves the influence of owners, who have been known to “strongly suggest” the hiring of associates, former colleagues and even friends and relatives. Due diligence should never be forsaken or undetermined to win a bid or gain favor. The ultimate decision for subcontracting help should be left to those with the responsibility for the final outcome unless the contract is otherwise worded. Never dismiss the costliness of errors and omissions. They can make all the difference between profitability and years of delays and litigation.

No Surprises

It is also important to take a good, hard look at the talent and experience of subcontractors before the work begins. This is a highly competitive era, where far too many professionals are bidding on projects beyond their expertise. Before taking on extra help, it is imperative to check references and learn more about the work they perform. Areas of concern should be cited and addressed. The jobsite is no place for surprises.

In addition, subcontracting is a business like any other. Integrity in operations can also say a lot about dependability and loyalty. Are they solvent financially or involved in any form of litigation? Are they positioned to become a future competitor? What is their workload? Will they see a project through to its completion or disappear somewhere before its end? Even if they have worked with a contractor in the past, are they the same organization capable of delivering on the general contractor’s behalf?

On the contractual side, are they willing to live up to the contractual undertakings agreed to by the firm? Few situations are worse than the special dispensation of services that do not match obligations.

Furthermore, make sure the proper insurance is in place and adequately worded to meet the needs of the job. Risk management is not a luxury. It is a necessity. Contractors Professional Liability (CPrL) can be written with a broadened and/or clarified definition of covered professional services to insure against the errors or omissions of subcontractors. This includes Contractors Protective Indemnity (CPI) coverage terms, which is designed to protect general contractors from the damages caused by subcontracted design and construction professionals as well as the damages that sit in excess of the design professional’s own liability insurance policy limits.

The same holds true for owners who would like to expand their coverages with Protective Professional Indemnity, Protective Contractor’s Pollution and Third-Party Claim Defense and Indemnity terms to cover the challenges caused by vendors hired by the contracted general contractor.

Going forward, never underestimate the potential harm and disruptions posed by under-skilled, unreliable and under-insured subcontracting help. A general contractor’s reputation and bottom line can be at risk with each job. Owners have the right to expect quality and diligence along with the service clearly outlined in mutually agreed upon contracts. So, always remember that reputation and profit margin are on the line with each new hiring decision.

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