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Overcoming the Risks of Subs Who Subcontract

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The world of contracting often has many layers that really help highly complex projects that require a wide range of specialized skills. But, when subcontractors start hiring subcontractors of their own, complexity ramps up.  

There are many ways your project can go sideways when subcontractors start involving their own subs. But, many general contractors mistakenly assume that bid lists, contract language, bonding, and insurance will handle all the issues that might arise from having sub “subbies” on the project. In short, you’re putting a lot of faith in your subcontractors to act in your best interest, and to do it timely.

Many owners require a list of subcontractors at bid time along with the names, addresses, and project role of any sub subbies. It’s always best to know who’s performing on your projects, but these lists by themselves do little for the contractor beyond that. You still need to qualify subbies so you know that they can do the work, and they won’t be bringing unnecessary risk to your project. 

Here are some of the issues you may face: 

Violating Contract Requirements

If there is a contract, and whether sub subcontractors are mentioned or not, everyone on the project poses contract violation risks to you. For example, court cases have found general contractors in violation of contracts for failing to properly select and supervise subcontractors.

Violating Labor Rules and Regulations

This area is becoming increasingly complex. Recent rulings and court findings have elevated general contractor responsibilities for hiring, classifying, and paying labor. The issues of immigration and the evolving views on classifying people as independent contractors also bring new complexity to this area.

Losing Control of the Schedule

Delays, clashes between subcontractors, and excessive time on activities are just a few of the issues that multiply when sub subbies work the job. Lack of authority over the sub subcontractor often amplifies the problem. Without clear contractual terms and project management practices that reinforce the general contractor’s role, it’s not unusual for the sub subbie to end up driving the schedule when their work must precede other work. 

Losing Control of Safety

One accident is one too many. Sub subbies arrive at the job with varying degrees of experience. It’s often the case that they are new to a construction jobsite with all of its moving parts and dangerous scenarios. An accident at their level reverberates up the chain. If they are not up to speed on safety aspects that are particular to the jobsite and to their roles, safety risks rise quickly.

Losing Control of Quality

Sub subbies usually work on very detailed portions of projects. These detailed portions sit at the bottom of a long list of work that happens once the sub subbie finishes up. Their would could be a ticking time bomb that might not go off until layers of other work are completed.

But it’s in the Contract

If you are running a project where American Institute of Architect documents prevail, there are very specific clauses that apply to sub subcontractors. While these clauses provide some peace of mind, you should remember that contract protections will lag events. The contract clauses won’t protect you from the negative actions of sub subbies. They just provide a course for legal remedy after the damages have already happened. 

The legal recourse offered to you on contracts using contractual wording from sources other than the AIA, varies wildly. Some “form” contracts might only lightly touch on sub subbie aspects while others might not mention them at all. 

The rule of thumb applies: Read and understand the contracts you’re signing, and if you don’t understand them, get legal counsel. Remember though, no matter the source of the contract wording, there is no protection in them from negative events happening, just the opportunity for legal recourse when they do. This holds true for insurance and bonds. By themselves, they aren’t going to prevent the issues brought to the job by sub subbies. 

If you work on small projects with little to no documentation, and no written contracts, then the sky’s the limit on the damages you might experience from sub subcontractors. Even worse, you will have questionable ability to do anything legally to recoup your losses. With a contract though, at least everyone has responsibilities to adhere to.

Ideas for Preventing Sub Subbie Problems

At the outset of any project, it’s important to have very clear roles and responsibilities laid out. During the bid stage, when you specify your requirements regarding sub subbies, make your intentions known. Getting a list of all sub subcontractors at bid time gives you a chance to qualify them so you not only know who is working on the project, but also their qualifications, experience, and track record.

A contract that addresses sub subbies by assigning responsibilities will help set the framework needed to minimize disputes and streamline interactions among the various project participants. Taking on any project with just a handshake where you rely on others to fulfill portions of the work is front-loading your portion of the project with extra risk.

Double check the schedule for sub subbie involvement and note the resources assigned. Are they realistic and complete for the workload? If this type of information is missing from the schedule, there’s a good possibility the sub subbie’s role hasn’t been thoroughly figured out by the supervising subcontractor.

While you’re at it, check your list of quality control inspections and at least initially make sure you’re checking on sub subbie work. You aren’t expected to give them direction, but you should be aware of how they are performing. When you see issues, bring them up to the responsible subcontractor and require answers to your questions. Once you are comfortable with performance, you can take a more hands-off approach and check on things only at critical junctures. 

If you are running a job and sub subbies start showing up unexpectedly, find out why. If the subbie isn’t listed, your subcontractor is exposing you to risks that you didn’t sign up for. If you’re on a small job with no contracts, then you’re flying by the seat of your pants. Most likely though, you already know that and don’t mind the risks. But, you can check the work regularly, institute safety requirements, hold off on payments until work is in place, and put the subcontractor on notice that you’ll consider their subbie’s work when you judge their performance. You could also try to put contracts in place for the remaining work. 

Sub subbies fill a vital role and they bring much needed extra skills to complex projects. Just make sure you take steps to reduce potential risks.

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