Feeling squeezed by the tight labor market, general contractors scramble to hire qualified subcontractors.
General contractors face an uphill battle to find and retain good subcontractors - and they aren't likely to win that battle anytime soon.
A robust economy coupled with a tight labor market has created a shortage of good subcontractors. "The biggest problem we're seeing is that subs are so busy that they're spread too thin," says Stacey Berthon, vice president and head of retailat Birmingham, Ala.-based Hoar Construction LLC.
The overwhelming demand for subcontractors has negatively affected depth in bidding from subcontractors. In the past, Hoar Construction typically saw six to seven subcontractors bidding for contracts on its major projects. "Now we're lucky to get three or four who will give good, competitive bids," Berthon says.
Maintaining quality The biggest problem is not finding subcontractors - it's finding subs that can deliver quality work, adhere to the schedule, and keep costs competitive, Berthon adds.
"The availability of resources has become very difficult," agrees Jeff Dun, a vice president at Newport Beach, Calif.-based Koll Construction LP.
Subcontractors are having a hard time finding and keeping good workers as firms compete for what appears to be a dwindling pool of tradespeople.
The high demand for subcontractors is compounded by the fact that some firms have a difficult time growing their businesses to meet the increased demand.
"Many subcontractors for a variety of reasons don't have the flexibility to expand, contract and expand some more with the needs of the marketplace," says Jeffrey M. Brown, CEO of Jeffrey M. Brown Associates Inc. JMB has offices in Philadelphia and New York, and the company works along the east coast in 14 states.
One factor that prevents subcontractors from expanding to meet the demand is the scarcity of labor and supervisors. Some firms simply don't have the administrative capacity to run additional projects. Others can't take on more work because they can't afford additionalrequirements such as increased payroll or equipment costs. "All of those factors play a role in a subcontractor's ability to handle more work in the marketplace," Brown says.
Battling shortages The tight job market has made it difficult to find qualified workers. Nationally, the unemployment rate has been hovering around 4% for the past several years, and some areas of the country are experiencing extreme lows in the 2% to 2.5% range.
"The industry has made a real interesting shift. There are lot of managers, and not as many people wanting to do the work," says Scott Thomas, president of Williamsburg, Va.-based Scott Thomas Construction Inc.
Everyone wants to work for Bill Gates, while few people want to start a career as a plumber or a carpenter, Thomas says. "It makes for an interesting and difficult situation because it's harder to control the process," he adds.
From carpenters and electricians to sheet metal workers and masons, it's tough to find workers in many of the major trades.
"On the East Coast right now, we have pretty much full employment amongst all of the trades," Brown says. "In the union sector, programs are constantly being carried out to train new workers and add them to the union ranks, but that takes time to accomplish."
In the mid-Atlantic region, masons are almost impossible to find, and rain has put them even further behind schedule, Thomas notes. Meanwhile, electricians are in very high demand, and working in terrazzo or stucco is becoming a lost art because fewer people are entering the trade.
"Everyone is trying to make end-of-year deadlines so the crunch seems to be getting a lot worse," Thomas says.
Cultivating relationships The shortage of subcontractors has prompted general contractors to step up efforts to retain and attract quality firms. "You can't strong-arm subs any more. You have to treat everyone fairly," Berthon says. "You can't always dangle a carrot out there, and say, `Do it now and we'll take care of you on the next job.' We need them more than they need us."
Building and maintaining strong relationships is one key to keeping subcontractors on board. "It comes down to personal relationships with a company, maintaining ethical and honest practices, and paying them on time," Dun says. One way Koll strengthens its relationships is to host a subcontractor appreciation day each year that features a picnic or sporting event with subcontractors and their families.
"We have to market to subs like we market to our clients," Dun says. In the past, subcontractors were the ones pursuing general contractors. But these days, general contractors are making the pitch to convince subs to come and work for them, he says.
As a national contractor, Hoar Construction may build a project in a city such as San Diego or Denver, and then leave that area and not return for years. "So we have to rely on going into these cities and forging good relationships, and also building up relationships with subcontractors that travel with us," Berthon says.
Hoar Construction actually takes some of its subcontractors on the road when the company travels to different projects around the country. For example, Hoar Construction works a number of mall projects, which offer a significant amount of floor tile, skylight and roofing work. The magnitude of the work can make it profitable for a tile contractor or mason to travel with the general contractor, Berthon notes. In addition, the proficiency of those subs to tackle the large jobs and get the work done allows them to be competitive with local subcontractors, he adds.
Team effort Improved communication is another means of solidifying subcontractor relationships. "They want feedback on their bids just as we want feedback on our bids," Thomas says. "We have found that if you really talk to them, they feel like they've joined the team a lot sooner."
JMB nurtures its subcontractor relationships by keeping subs informed of upcoming projects. On occasion, JMB even asks a subcontractor to review preliminary plans and make recommendations on building schematics before it even goes out for bid. That input not only assists general contractors, but it can assist subs in doing better planning, such as allocating adequate time to do a job.
However, some contractors are wary of relying too heavily on a particular subcontractor or group of subcontractors. "We do not use the same subs repeatedly, although we try to use a nucleus of subs on an ongoing basis," Brown says. "You can't count on them every time. A subcontractor can get burned on a job that has nothing to do with us, and suddenly somebody that was terrific and reliable yesterday is not as good today."
Perhaps the biggest concern general contractors face is that the shortage of subcontractors may only intensify as the struggle to attract new workers continues. "We have gone so far as to consider going back to having labor in house and running training programs," Thomas says. "There is a lot of expense involved in that, but in the long term, we as an industry have to figure out what we're going to do."
General contractors are scrutinizing subcontractor qualifications in order to land firms that can deliver quality work, on schedule and on budget. But a low bid still carries the most weight in selecting subcontractors.
"You're looking for competitive numbers, and it's real hard to pay much of a premium," says Scott Thomas, president of Williamsburg, Va.-based Scott Thomas Construction Inc. Nonetheless, a host of other criteria can sway a contractor's final decision.
Questions related to work experience, past performance and crew size are standard fare. Contractors often pre-qualify subs to ensure that they are financially stable and have a proven track record.
These days, another critical question relates to manpower ability. "We want to know if they are going to do the majority of work or sub it out to someone else," says Jeffrey M. Brown, CEO of Jeffrey M. Brown Associates Inc., based in New York.
"Although that happens effectively from time to time, more often than not it becomes a weakness," Brown says.
"For example, a job might require 25 electricians and they only have six electricians available. The more outside electricians a subcontractor has to bring in means the more people they either don't know, or don't control," Brown adds.
Working with subcontractors that can deliver in a certain time frame is an essential requirement, especially for contractors involved in fast-track construction. Some subs have a great aptitude for fast-track construction and some do not, Brown notes.
Therefore, it's essential to do everything possible to discover the true character of the subcontractor one chooses to do business with.
"When we're selecting subcontractors, it is important - for us and our clients - for the subcontractors to have that same philosophy and spirit and ability to strategize to get a project done," he says.
JMB also conducts a performance analysis after a subcontractor completes a job. "We have discussions amongst project managers to talk about the good and not so good performers," Brown says.
One warning sign is a high volume of added costs. Extra costs certainly come up on jobs all the time. But some subs are experts at finding claims out of nowhere to enhance their cost. "If far-fetched, that can go along way to destroying our relationship with them," Brown says.
Existing relationships are another contributing factor. "We try to work with subcontractors that we do have a past relationship with," says Jeff Dun, a vice president at Newport Beach, Calif.-based Koll Construction LP.
Past relationships allow general contractors to gauge the quality of work, as well as to judge how well the companies work together overall, Dun notes.
Other qualifications require a slightly more subjective viewpoint. Two to three bids may come back very close in price, and a general contractor might have to rely on "gut instinct", Thomas says. "Was the subcontractor asking good questions?" he says. "I think that is as important as track record and personnel."