Unfortunately often subcontractors are selected only on the basis of price – the subcontractor with the lowest price is awarded the project.
This is often the same problem when clients, owners and developers select the General Contractor or Main Contractor where the cheapest price is often the deciding factor. Failure to select the right contractor for the project and only considering the contractor’s price is often a recipe for disaster which can result in delays, additional costs, disputes, poor quality and even accidents. Choosing the wrong contractor can lead to regret long after the project is complete.
Questions to ask your contractor or subcontractor
- Are you experienced with providing the services and carrying out the tasks required under this contract?
- Have you worked on similar projects and for similar clients? (For instance, many subcontractors may be able to deliver a similar job on a commercial building project in the city, but have no experience on working on remote mining or oil and gas projects which have specific requirements and require more onerous safety standards.)
- Do you have the resources – sufficient people with the required skills as well as the right equipment in the quantities required – to carry out the work?
- What other projects are you currently working on? Will these projects impact this project?
- What is your safety record? Can you produce the safety statistics for the last few years?
- Do you have the financial means to carry out the work? Will you be able to sustain the cash flow?
- Are you financially secure? Do you have outstanding claims or disputes with other clients or contractors which could negatively impact you financially should you lose?
- Can you meet the required quality requirements and standards?
- Do you understand the project requirements?
The more that can be discovered about the contractor before they are awarded the work the better. Not only can the capabilities of the contractor be researched, but it may be possible to discover their strengths and weaknesses which will, in turn, enable them to be better managed on the project.
Past performance, however, is not always indicative of how a contractor will perform on a project and I have, on occasion, had good subcontractors that have performed poorly, due to them being over-committed on other projects, which meant they had insufficient and poor quality resources for my project.
Adjudicating subcontractor and contractor quotes
Sometimes contractors don’t adjudicate their subcontractor’s prices correctly. When comparing quotes are you comparing ‘apples with apples’? A price may appear cheap but when all the factors are taken into account the total price may be more expensive than the other prices.
When adjudicating prices check that the supplier, contractor or subcontractor has:
- Priced everything included in the request for price or request for quotation.
- Conformed to the construction schedule meeting the completion dates and starting work when information and access is available.
- Included all taxes and duties.
- Adequate insurance in place.
- Not included unsuitable or unacceptable terms and conditions with their price.
- Allowed for providing the stipulated warranties.
- Allowed for providing the design and drawings where required.
- Priced for equipment and materials which will conform to the project requirements and that they are comparable, or better than what the other contractors have undertaken to provide – including long term performance and their maintenance requirements.
- Agreed with the terms and conditions in the contract document.
Compare the price with prices received from other contractors. A price substantially lower than the others should set off alarm bells and it is worth investigating why the price is so low. Sometimes contractors are desperate for work and submit a low price – this however comes with risks and a contractor whose price is too low may be tempted to take short cuts to make money – using inferior materials and skimping on resources. A contractor whose price is too low may also become bankrupt part way through the project which will void warranties and cause delays and additional costs to the project while a replacement contractor is appointed.
Of course there is nothing wrong with awarding the work to the contractor with the lowest price (even if their price is much lower than other prices), providing that you have ensured that they are the right contractor for the project, that there are no hidden extra costs which will be incurred later and that the contractor can deliver the project for their quoted price.
It is important that the documentation included with the request to price (request to tender) is complete and includes the terms and conditions for the project as well as the full scope of works, the project conditions and the obligations of both parties. Projects often incur additional costs and even sometimes lengthy contractual disputes because of poor contract documentation which is incomplete or ambiguous. (I will discuss subcontractor documentation in a future article.)
Selecting the right contractor, adjudicating their price thoroughly and appointing them using an enforceable contract which is complete with all the project’s terms and conditions can usually avoid delays, additional costs, extra management time and disputes later. Don’t simply select the cheapest contractor – it may be a very expensive mistake!
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