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Subcontracting

Subcontracting. Construction Engineering 380. 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

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Subcontracting

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  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

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