Subcontracts Part 1

March 20, 2003

Most, if not all, specialty contractors subcontract portions of their scope of work to other contractors. The decisions made in selecting subcontractors can impact the contractor’s profitability and reputation, and should be made with careful consideration. Delivering quality materials, equipment, labor, and installed systems on time and at the expected costs forms the difference between a profitable and an unprofitable job.

The process for obtaining quotations, negotiating terms, and entering into contractual relationships with subcontractors includes obtaining fixed pricing, confirming all agreements in writing, and negotiating and executing a subcontract prior to allowing the subcontractor on the project.

Obtain fixed pricing.
To prevent material or equipment prices from growing out of control, contractors should obtain from subcontractors fixed prices that comply with the contract specifications and the construction schedule.

Confirm all agreements in writing.
Reaching an oral agreement over the telephone is an acceptable manner for a contractor to begin contractual relations with a subcontractor. However, the contractor who does not properly follow-up an oral agreement in writing treads on thin ice.

After negotiating an oral subcontract, send a letter or confirmation to the subcontractor. Include your Standard Subcontract specifying the price and other necessary information.

Negotiate and execute a subcontract prior to allowing the subcontractor on the project.
It is imperative to execute Subcontract agreements at the early stages of a project as well as prior to starting construction to ensure a smooth project. Prior to providing a Subcontract, however, negotiate with your subcontractors. In today’s design, there are always gaps in the construction documents. This is especially true for the controls and electrical subcontracts.

For plan and specification projects, take two sets of drawings and mark them with highlighters clearly identifying your subcontractor’s responsibilities. Make this addenda set part of your Subcontract. Keep one set for your records and attach the second set to the Subcontract.
For design build projects, ensure that all items are identified on the design drawings. Normally, providing a list of items to the subcontractor that are not clearly identified in the specifications or the plans will prevent future headaches. Meet with your subcontractor to discuss these gaps and negotiate prior to signing the contract. These gaps would be the items which your subcontractor most likely did not include in the price at bid time.

This information is brought to you by the
PHCC Educational Foundation .


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