1. Subcontracting Construction Engineering 380

2. 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 –Reputation –Financial strength –Labor force –Job history –Strength and skill of PM –Past work with team –Estimating ability

3. 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 long- term trades people and well-understood market

4. 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

5. 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

6. Subcontracts Need to have hoisting, clean-up, work- hours, 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

7. 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 subcontractors- financial strength, certifications, bonding

8. 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