When a Builder collapses it usually take subbies by surprise for 2 reasons;
- 1- the builder is using them for credit and keeps it in the dark
- 2- builder believes they can survive the cash flow crisis and return to normal trading.
Subcontractors need to keep tabs of warning signs by monitoring productivity of the builder’s projects, being prudent with their payment terms and examining fluctuations in the cost.
The key warning signs that a builder is in distress:
• Turnover of Project management staff.
• Longer delay in payments- usually with the builder’s excuse they are expecting “a large payment at the end of next month”.
• Slow projects falling well behind construction programs and head contract obligations.
• Dissatisfied project clients.
• No clear answer forms the builder for payment queries.
So given the rate of Building company failures, what can subbies do to avoid going down the same path.
Don’t double specialize:
1. Ask for help.
Too often, Subcontractors stubbornly cling to the notion that they have all the answers and that the competition is their enemy. The best way for Subcontractors to find answers to improve their business is to become actively involved in their local and national Subcontractors associations. Some of the benefits of include advocacy, education, networking and joint marketing resources. Forums like the subcontractor’s alliance provides a huge network of building industry professionals, which means the ability to tap into shared knowledge is immense.
2. De-risk the contract.
The purpose of builder’s contracts is to deliver the works at any cost, and Subcontractors are being penny wise and pound foolish when they try to work around them and avoid the commission fee because Realtors will often bypass the builder’s properties when showing prospective clients homes to sell. It is wise to use Realtors because they are professional at marketing and sales, provide better access to pre-qualified clients and can help to manage client expectations.
3. Set realistic expectations.
To remedy this, subbies must make it clear to their builders that they are in charge of the project. The customer must make selections on time, be able to afford what they want, and must not attempt to supervise subcontractors or suppliers. The builder must communicate to the client that changes to the job require time and money, that delays during construction are common and that workers will not necessarily be on the job eight hours every day. Let the client know there could be bumps in the road but that they will be happy in their home when they move in.
4. Don’t ignore customer service.
Those who ignore this item because there is no money in it, or because they are too busy, do so at their own peril. Good customer service is essential, and the best way to provide it is to see issues from the customer’s perspective. Subcontractors who have a willingness to exceed customer expectations and to do what is promised often reap great rewards through word-of-mouth referrals.
5. Price for profit.
Subcontractors often fail to price their projects properly due to competition, market conditions, inaccurate estimating and pressure from builders. As a result, their cash flow becomes critical and they try to compensate by increasing volume. To fix this problem, Subcontractors should better manage their employees and suppliers, tighten financial controls and reporting, and develop a pricing approach based not just on cost but also on location.
6. The business of Sub Contracting…. WTF?
Question: Why are you in business?
Answer: for wages or profit?
It may sound trivial, but many subbies I know turnover $3m to $5m but only make wages from their business. That is a lot of risk for little reward.
but If you don’t put a plan in writing it can guarantee you won’t reach your goals. Subcontractors should update their business plans on an annual basis.
7. Manage conflict effectively.
Too often, Subcontractors do not recognise the pressures on the project management during construction and are not committed to the milestones with them. Most builder/subby conflicts arise from disagreements about what was promised and what was delivered. Clear and concise wording of the contract; a complete set of plans and specifications; and good documentation of all communication are essential.
8. Don’t take on the Builder from hell.
A true builder from hell often displays wild mood swings; obsesses over minor details; invites conflict; demands perfection but is not willing to pay for it; creates problems for subcontractors; berates, belittles and badmouths the everyone onsite; refuses to pay until sued; and is never happy. To avoid this situation, Subcontractors should go with their gut feeling when the do a ost tender/ pre award interview with the builder, evaluate their personalities and traits, take note of their past performance and observe who will be project manager and project team – which can be a warning sign.
9. Deeds of Release – Don’t buy into the verbal arguments.
Often when builders are finalising the last payment to subcontracts, the builders will demand the subcontractor sign a deed of release for less than the final claim.
The conversation will go:
“we have reviewed the subcontract agreement and believe that you delay us by 2 weeks, under clause 31.1 we are deducting the final payment of $xxxx, because of you delaying the project.. You need to sign the Deed of Release today- telling us you agree, otherwise we are in dispute and you can fight us in court.”
the ability for a builder to charge for LD’s is more difficult the it appears, much of the case law in this area indicates LD’s are not chargeable unless the builder was charged LD’s by the client, even then the builder has to apportion the correct amount to your specific work.
