As a general contractor, it’s likely that you’ll use subcontractors at some point. Subcontractors can be an efficient way to outsource work. As specialists, they’ll often do a better job than a generalist and their smaller size means they can work quicker and leaner.
However, the construction job is your responsibility. The performance of the subcontractor will reflect on you. To complete the job properly and satisfy your customer, you need to make sure your subcontractors will produce quality work in a timely manner.
Before you officially hire any subcontractors, protect your business and your customer by taking these steps to vet the subcontractor.
1. Examine their past and current performance
Request information from the potential customer about their licenses, accreditations, history, and references. Look for any public data on lawsuits, disputes, complaints, or bankruptcies. Ask for the contact information of previous contractors they worked for. Then, search for references independently (without the subcontractor’s involvement) to get some unbiased and unfiltered information.
2. Look at their queue of work
It’s smart to make sure potential subcontractors can actually complete the work you need, so you’ll want to examine their log of previous, current, and future work. If the subcontractor seems too busy for their size, your job might overextend them.
3. Ask about their safety practices
Unsafe operations can leave you exposed to liability and force an inspector to close the job site, so make sure any subcontractors have clean or reasonable safety histories. They should also have ample safety protocols in place and a crew who is coached to prioritize safety.
4. Investigate the subcontractor’s employees
Ask the subcontractor about their team. Are they temporary workers, or do they work full time? Have they worked in construction before, or are they new? Does the subcontractor have the proper number of licensed professionals for the site? Do the workers have the right tools and reasonable workloads? Do any have serious felonies or drug problems that might make them unreliable? Answers to these questions will determine whether the subcontractor is right for your job.
5. Validate bonding and insurance
In most states, contractors are required to have bonding. In all states, they must be insured, including worker’s compensation insurance. If the subcontractor doesn’t have these protections in place, you could be held liable if there’s a problem. If the subcontractor doesn’t have these, reject them as candidates.
6. Investigate the subcontractor’s financial health
If your job is large, you’ll want to make sure the subcontractor’s financials are healthy enough to commit. You don’t want their employees to walk off the site one day due to lack of payment, or an inability to purchase materials. Request their annual contractor volume, two years of financial statements, and their total sales and net worth (you might have to sign a confidentiality agreement). Look for signs of poor health, like poor cash flow, a mountain of debt, or declining income.
7. Ask about their quality control process
In order to avoid rework and warranty work, you want your subcontractors to certify the quality of their materials and finished work. Every professional business should have a procedure in place to guarantee quality assurance. This procedure is rarely complex, but a successful business will have an answer to your questions.
8. Demand a written contract
It is shocking how many people work without a written agreement. As a contractor who is purchasing labor, you need to protect your investment. Every deal should be bound by a contract that clearly describes your expectations, including the scope of work, timeframe, and payment arrangements. Describe what you will provide and what the subcontractor will provide in terms of materials, warranties, and cleanup.
Hiring a subcontractor is like hiring an employee: You want someone who will represent your business well without adding drama, stress, or financial burden. If you follow the steps listed above, you’ll find the right candidate and build a lasting relationship.
Jonathan Belek
Risk Management Consultant
jbelek@srfm.com
