By: Mike Frech
We have witnessed an increase in the use of subcontractors on NYC exterior restoration projects. A prime contractor paying a subcontractor for the labor on a project is the traditional arrangement. Some prime contractors simply act as “labor brokers” for subcontractors, while some subcontractors work exclusively for a single prime contactor, and are an extension of that prime contactor. Prime contractors, building ownership and design professionals often have very different opinions concerning the use of subcontractors at the building restoration projects they are involved with. Let’s consider these various perspectives.
Utilizing subcontractors allows prime contractors to fix the cost of labor on a project. A prime contractor estimates the costs involved with performing a project’s scope and establishes a budget. However, while the material costs are fixed, the labor costs can vary. Using a subcontractor mitigates the risk of weather delays, unforeseen conditions, or other factors that affect the construction schedule, wreaking havoc on the prime contractor’s bottom line. Regardless of any complications, the prime contractor is only obligated to pay the subcontractor the agreed upon fixed labor cost. The subcontractor is responsible for any necessary increases in labor related expenses.
Using subcontractors is an effective way for prime contractors to handle manpower shortages. Project start dates and completion dates can be delayed or accelerated by the permitting process, funding issues, and of course, weather. The DOB, LPC, DOT and other municipal agencies’ requirements can also impact scheduling. Hiring a subcontractor allows the prime contractor to better allocate manpower. Additional work crews can help alleviate work overload; however, this additional manpower does not pose an issue when the prime contractor experiences work gaps or lean times.
The insurance relief associated with using subcontractors is the benefit most often referenced by prime contractors. Insurance rates and premiums are based on the number of employees on the payroll. Prime contractors who use subcontractors can reduce their number of employees while still producing the same revenue. Prime contractors often claim that the current NY state insurance rates and regulations make using subcontractors one of the only ways they can afford to carry the proper insurance while still providing competitive proposals.
Some owners believe they will spend less if subcontractors perform some or most of the work. Others worry about quality control and inferior workmanship. An owner’s biggest concern should be whether the subcontractor is carrying the proper insurance coverage. If proper insurance is not in place, the owner is at great risk should any accidents or injuries occur.
To successfully work together, design professionals must become familiar with subcontractors, establish effective methods of communication, and clearly understand and define authoritative rolls. Subcontractors create an additional level of management. Design consultants expect change order proposals, revised details, and requested changes in methods be addressed or executed immediately. Any lag in communication between the subcontractor and the prime contractor can delay these important aspects of a project. This can result in schedule delays, incorrect proposals and improper installation. Additionally, the field personnel answer to an offsite third party rather than the prime contractor, on site representative and the design professional. This prevents collaborative problem solving to address unforeseen issues and real time sequence changes to accommodate building residents or tenants. Lastly, if the subcontractor is not authorized to approve additional costs onsite, work can come to a standstill as information is relayed from the on-site personnel to the subcontractor project manager to the prime contractor project manager. And as in a game of “Telephone,” this information is often incorrect or incomplete.
Successful subcontracting experiences rely on all involved parties understanding the arrangement at the start of the project. Owners ensure that the proper insurance certificates are in place, and that they are legally protected. Design professional establish effective communication methods with the prime contractors and subcontractors, and are aware of whom to contact regarding issues in the field. Taking these steps at a project’s onset can lead to changes being quickly approved, quality control issues being addressed in the moment, and schedule dates being consistently met.