What You Need To Know Before You Hire Subcontractors
Managing Subcontractors – When you should bring in the cavalry
5 MIN. READ
As an HVAC contractor, you will encounter situations that require you to hire subcontractors to complete your projects. This guide will help you make the best of the process and efficiently streamline every part of managing subcontractors and delegating your tasks.
Here are some examples of when you might need to bring in the cavalry:
- You win a number of large projects and your internal labor force is not large enough to meet the manpower demands.
- The timeline for a project is accelerated, and you need more manpower to complete it on schedule.
- A project requires specialized knowledge and skills that you do not have on the payroll, so you must go outside to get the job done. For example, a job with extensive electrical work may require subcontracting with an electrical contractor.
- You might prefer to keep your ongoing labor costs variable and hire subcontractors project by project as needed.
What you need to know about managing subcontractors
Done correctly, subcontracting is a great way to leverage your manpower to deliver on your contracts and grow your business. However, it also carries a number of risks you need to understand going in.
Firstly, subcontracting, by nature, causes a loss of control. While you have direct power over your own employees, your control is indirect with subcontractors based on the terms of the subcontract.
Despite this, you are still responsible for the subcontractor. That means that if they fail to perform adequately, you are to blame, and you must answer to your customer. This applies even if the subcontractor is at fault. Here are a few subcontractor risks that proper management must monitor for:
- Failure to stay within project budget or completion time. If a subcontractor exceeds the contracted sum or schedule, you will likely find yourself in a contract dispute at the worst possible time, near the end of the project. Such disputes can be costly, aggravating and embarrassing. Attorneys step in and costs rise, both in time and money. Your reputation also suffers.
- Failure to meet quality standards. The customer may refuse to pay and demand that you address the quality problem promptly. They will not care if the subcontractor is at fault. After all, you are contractually liable to the customer. Again, disputes, lawyers, time and added costs could ensue.
- Failure to purchase and maintain insurance requirements. If your subcontractors do not have insurance, you are liable for any losses, injuries or even deaths on the project. Just like above, you will have to defend lawsuits even if the subcontractor is responsible.
- Failure to comply with all federal, state and local requirements for licensing, job safety and site training. If the subcontractor fails here, you are responsible and may be subject to substantial fines and even site shut-downs that can result in delays and customer dissatisfaction and claims.
Take control of your subcontracting
By now, you can see that subcontracting has many advantages, but it also carries substantial risks. Thus, effectively managing subcontractors is the key.
To begin, make sure that your subcontract document is complete and concise. Work closely with your attorney to clearly define:
- The scope of work.
- The specifications for components.
- System performance and acceptance standards.
- The cost of the work.
- The required completion date, indemnifications and insurance requirements.
- Metrics to define success or failure.
- Safety and risk management standards.
- Licensing requirements.
- Tax responsibilities.
Even with these items though, the best subcontract documents are useless unless you track subcontractor performance against them. But there is a tremendous amount of detail to track, and the more projects you have, the more you need to track. So, how can you manage this?
Paper records and Excel spreadsheets are no way to do business. You will soon find yourself lost in a sea of information that may be out of date or incorrect. Costs in time and money then rapidly escalate.
Instead, enabling technology is crucial to managing subcontractors with information that is complete, readily available and current. Without it, you are forced to rely on subjective opinions and personal preferences. Ethical issues may arise as subcontractors are hired based on personal relationships.
How Raiven helps master your subcontractor management process
Raiven’s contractor management platform is a cloud-based, centralized system that makes managing subcontractors simple. Everything you need to select and manage subcontractors is on one user-friendly dashboard.
Here is how it works:
You issue an electronic request for bids through the platform, that includes all of the key contract requirements (mentioned above) as well as your performance metrics. The bidding subcontractors submit their bids using the platform. They input their own information on licensing, background checks, I-9 status, insurance, safety training, and other key contractual requirements.
After the bid submission process, the Raiven contractor management platform uses a validated algorithm to track the status of subcontractor management requirements and flags missing information on the dashboard. You no longer have to search through Excel or paper records. Real-time, transparent information is at your fingertips!
Raiven also helps you track subcontractor performance over time. The contractor platform enables you to use your specific performance metrics to score subcontractor performance based on facts, not perceptions, over time.
Key metrics include:
- Budget performance.
- On-time completion.
- Compliance with insurance, safety and other requirements.
- Compliance with the scope of work.
- Customer feedback.
Raiven gathers subcontractor Quality Contribution Index (QCI), from 0 to 1,000, giving you complete visibility into the best and worst performers at all times. This helps you stay aware of expectations going in, eliminating misunderstandings.
On an ongoing basis, Raiven also fosters competition among subcontractors. They see their scores, and since they know that winning business depends on their scores, they will strive to get the best ratings. It also gives subcontractors the assurance that they will be evaluated objectively and fairly.
One final advantage available is Raiven Marketplace, which gives you access to discounts ranging from 7-25% on parts, materials and supplies through our alliance with Avendra. You may consider requiring your subcontractors to use this feature.
Get control of managing subcontractors with Raiven’s contractor management platform. To learn more, contact us today!