Nearly 460,000 subcontractors operate in the US construction industry, generating almost $875 billion in annual revenues. In fact, electrical power installation and service contracting contribute around 14% of revenue to the US subcontractor industry.
Construction projects take a lot of time and expertise, sometimes exceeding the capacity of a single commercial general contractor. This is when engaging multiple subcontractors for specific tasks becomes necessary.
In this blog, we will explore the various types of subcontractors and their specializations, the hiring process, and the top pre-qualification criteria. Additionally, we will discuss the key elements to include in a subcontractor contract.
What is a Subcontractor and Why is it Essential?
A construction subcontractor, or specialty contractor as dubbed by others, is an individual or team hired by a general contractor to perform specific work or tasks, especially in larger building projects.
Contractors contract out tradesmen to work in specialized fields such as electrical, plumbing, carpentering, or more advanced areas like smart wiring or energy-efficient insulation. A subcontractor works under and reports to the main contractor, providing their specialized skill set in exchange for a contractual fee.
According to studies, around 75-80% of a general contractor’s expenses come from subcontractors’ and suppliers’ services and materials.
What are the Benefits of Hiring Subcontractors?
Subcontracting is essential in commercial construction for various reasons. Hiring subcontractors with specific expertise allows general contractors to handle larger project aspects beyond their skills or manpower, without long-term commitments.
Being specialists in their niche works, subcontractors accelerate project timelines and free the general contractor to focus on core responsibilities, thus boosting overall productivity.
Furthermore, hiring independent subcontractors is less expensive than hiring employees as the general contractor is not accountable for workers’ compensation insurance, general liability insurance, full-time salaries, and taxes.
There are several types of commercial subcontractors who specialize in different trades and play their part in a construction project:
Types of Subcontractors in Construction
Excavators – They dig, fill, and move the earth so that general contractors and their teams can pour the foundation.
Plumbers – Plumbing subcontractors install, maintain, and oversee effective plumbing systems such as drainage systems, sewers, water connections, and water pumps.
HVAC – Heating, Ventilation, Air Conditioning, and Cooling (HVAC) subcontractors handle the installation and maintenance of climate control systems for commercial and residential buildings.
Electricians – Electrical subcontractors perform wiring, lighting, and repair work of various electrical appliances and systems.
Carpenters and Flooring Subcontractors – Carpenters are specialized in building and installing wooden cabinets, doors, framing, and other decorative woodwork. Flooring subcontractors install various types of flooring materials, such as hardwood, tile, carpet, vinyl, and sheet installation.
Masons – Tradesmen whose work includes bricklaying, concrete block laying, chimney construction, marble work, and other stonework.
Concrete Subcontractors – The concrete subcontractor’s responsibilities in a construction project include concrete pouring, mixing, giving instructed finishes, and repairing damaged concrete structures.
Painters – Painting subcontractors apply paint, coatings, and finishes to various surfaces like walls, ceilings, floors, and exteriors to enhance the aesthetics of a space. While paper-hanging subcontractors install wallpapers on interiors.
Roofers – Roofing subcontractors or specialists assist a general contractor with the installation and application of skylights, ductwork, and sheet metal work. They prepare the roof surface by creating the underlay and then installing the roof material on top.
Landscaping Subcontractors – They give a finishing touch to a construction site by installing gardens, walkways, and repairing damage caused by heavy equipment.
In addition to these essential specialty contractors, there are tradesmen specializing in drywall, siding, glass and glazing, steel structure installation, and fire protection systems.
Where to Find Quality Subcontractors for Your Projects?
Whether your trusted subcontractor is unavailable or you need to hire new talent, here are some effective strategies to help you find subcontractors.
Leverage Industry Contacts
Start by reaching out to friends and contacts within the construction industry. These construction professionals can recommend good subcontractors with proven track records and help you compare different candidates.
Consult Wholesalers and Specialty Suppliers
For specific tasks, ask wholesalers or specialty suppliers for recommendations as subcontractors frequently purchase from them. For example, an electrical supply company can recommend skilled electricians for your project.
Engage Local Trade Schools
Local trade schools and vocational institutions maintain networks of subcontractors who mentor students. They keep a list of trusted subcontractors who have a history of quality work.
Utilize Social Media and Online Forums
Join construction-related social media groups and online forums to find subcontractors. Platforms like Facebook and LinkedIn have communities where you can post inquiries about local subcontractors’ availability and receive valuable insights from other professionals.
Network at Industry Events
Attend industry conferences, trade shows, and networking events to find good subcontractors for your project. Events like the International Builders’ Show, CONEXPO-CON/AGG, and World of Concrete are where commercial contractors can establish a working relationship with subcontractors.
Direct Approaches and On-Site Referrals
When you see subcontractors at work nearby, approach them directly, introduce yourself, discuss your project, and exchange contact info. Also, ask your current or past subcontractor for referrals.
Explore Online Directories
Websites like Angi, Yelp, and various job boards (Monster, Indeed) list subcontractors along with reviews and ratings from previous clients, helping you assess the subcontractor’s work quality.
Solicit Bids and Evaluate Candidates
Soliciting bids is a great strategy to find the right subcontractor. Invite proposals from subcontractors and evaluate candidates based on qualifications, experience, and bid details to ensure you hire a subcontractor best fit for your project.
By exploring different sources and thoroughly evaluating candidates, contractors can build a tailored team of subcontractors for a construction project.
Pre-Qualification Process for Hiring Subcontractors
Hiring subcontractors depends on nature, need, and situation wherein they need to fulfill the demand of a portion. Specialty contractors are important to any construction, but how do you select the best out of all those who offer the same services in the industry?
Here are key qualities to consider during the pre-qualification process to select great subcontractors for your construction projects:
1. Ample Staffing Resource
For a subcontracting business to qualify, ensure that subcontractors are well-staffed. They should be able to provide pertinent information such as members along with their resume that highlights the scope of their experience. Specialty contractors must have a clear organizational chart presenting the contact persons or administrators whom you can contact when a need arises.
Ensuring the construction subcontractor’s staff are reliable and qualified for the job is necessary before hiring them.
2. Licenses, Contracts, and Insurance
Checking the legal documents of a subcontractor is the most important step of the hiring process. Most construction companies can perform smoother and faster commercial projects once the legalities are in place. Ask the subcontractor for their licenses and sample contracts to review how well they consider the terms and delineate the scope of their work. They also must have updated licenses to avoid legal troubles during or after the project is complete.
Construction companies may have insurance, but it would not hurt if the construction subcontractor had insurance of their own. Subcontractor insurance protects not only their staff but also you, by extension, since their work performance and safety are guarded against any untoward incidents. Being insured guarantees a specialty contractor’s occupational safety and shows they care for their workforce.
3. Reliable Safety Plan
A good subcontractor should have a reliable safety officer who secures their company’s safety during construction work. You can ask for a safety review of their past projects and gauge whether they have excellent safety performance.
Check the credentials, past work experience of this construction subcontractor, and inspect their safety plan (which they definitely should have). Their safety program should cover their people and have environmental checks in place to answer any spills and emergencies that may hurt nature.
4. Steady Financials
Industrial general contractors are known to be stable financially because this is how they proceed with a construction project with minimal hiccups, but what of subcontractors? There is always a positive when construction subcontractors have the financial capabilities and ample resource materials to use.
Most subcontracting companies would hesitate to disclose their financials. Ask for validated proof (i.e., bank statements, bonding capabilities) of their financial capacity to determine whether a bidder has the competence to do the job.
5. Equipment Availability
Specialty contractors with their own set of equipment and tools are basically more ready to perform specialized tasks for your project. Check whether their proposal includes the list of equipment available at their disposal, also including a maintenance or repair plan for when they break down unexpectedly. The subcontractor must be responsible for the equipment’s fuelling and maintenance costs.
6. Relevant Experience
Subcontractors who have proven experience and expertise in commercial projects similar to yours will be more capable of handling them. They will better understand your business demands and may offer valuable suggestions on quality control of your construction or cost saving. Know about their volume of work and average job size in order to match the subcontractors’ capabilities to your project’s requirements.
7. Client References
The number of positive reviews and recommendations will usually determine the subcontractor’s qualifications for the job. As in any service, getting references from credible commercial construction contractors looks good on a subcontractor’s resume. It is your responsibility as an owner to determine this; make a few calls and interviews with past clients about the subcontractor’s performance in the past project.
Ask their previous clients the following questions during the subcontractor hiring process:
- How was their quality of work and are you satisfied with it?
- Did they complete your project in a timely manner and within a predetermined budget?
- Were they adequately responsive to your questions?
- How did they tackle unexpected challenges?
- Would you prefer to work with them again?
8. Past Projects
A specialty contractor must present a list of past projects with details such as the project scope, budget, schedule, work hours spent, and any special modifications. This is to review previous experiences and to get a general idea of how they perform in the workplace.
Also, you can ask the subcontractor for details about any concurrent projects to determine whether this can affect the resources needed for your own project.
9. Pricing
Practically, it would be beneficial for your finances to award the lowest bidder, but this isn’t ideal. Unless you can be sure that the potential subcontractors will provide quality work despite offering a lesser price, do not consider cost when selecting a subcontractor. Inspect the payment terms in their proposal.
Choose a subcontracting group that does not ask for a large down payment—a red flag in subcontracting. Arrange for a payment schedule that both the general contractor and subcontractor agree on and consider the amount of work, the quality of services, and the materials they can offer.
10. Communication and Collaboration
Transparency and responsiveness in communication are prerequisites to a smooth construction process. Hence, ensure the potential subcontractor communicates and shares progress reports, feedback, and regular updates on their work. The subcontractor you will hire should be ready to collaborate with other project stakeholders.
Establish channels of communication (email, phone calls, or subcontractor software) so that all team members can share updates and resolve potential issues. It’s also expected from you to foster a collaborative relationship with the subcontractors and treat them as partners rather than vendors.
Key Elements of a Written Subcontractor Agreement
A subcontractor agreement between a commercial general contractor and a subcontractor includes certain elements to ensure both parties understand their responsibilities. Key elements of subcontractor agreements are:
- Names and contact details of the general contractor and subcontractor, along with project specifics.
- Detailed scope of work, including specifications, materials, and equipment provided.
- Project start and end dates, milestones, and work hours.
- Payment terms including contract price, schedule for the subcontractor’s pay, and conditions for invoicing.
- Procedures for handling change order scope changes, including documentation and approval.
- Required insurance and bonding.
- Performance and safety standards, inspection, and testing procedures.
- Warranties and guarantees for workmanship and materials.
- Indemnification clauses outlining liability and claims coverage.
- Methods for resolving disputes, including mediation, arbitration, or litigation.
- Authorized signatures of representatives’ signatures with dates.
Understanding W-9 Form
When hiring a subcontractor for a commercial construction project, handling W-9s is crucial for tax obligations. The W-9 form collects the subcontractor’s Taxpayer Identification Number (TIN) for accurate tax reporting. Request a completed W-9 from each subcontractor before they start work. Key information includes the subcontractor’s name, business name, TIN (SSN or EIN), and address.
Issuing 1099-NEC Form to the Subcontractor
The 1099-NEC form reports payments made to subcontractors to the IRS. Issue a 1099-NEC to subcontractors who are paid $600 or more during the tax year. Key information in this form includes the subcontractor’s name, address, TIN, and total amount paid.
Properly managing W-9s and 1099s ensures IRS compliance, keeps financial records organized, and prevents fines.
Checklist for Subcontractor Hiring Process
Hiring a subcontractor for a construction project involves several key steps to ensure you select the right professional and comply with legal requirements. Below is a checklist for the subcontractor hiring process:
Determine Your Requirements: First, evaluate if hiring a subcontractor is necessary or if the task can be managed internally. For example, if a worker has the required landscaping skills, assign them the landscaping work; otherwise, hire a subcontractor to avoid project delays.
Source Candidates: Network through other contractors or suppliers for referrals. Alternatively, solicit bids by putting out a request for proposals.
Evaluate Candidates: Start the pre-qualification process by requesting licensing documentation. See if the subcontractor is qualified, experienced in similar projects, and has positive client reviews.
Obtain and Compare Bids: Once candidates are assessed, request bids and compare them to ensure a fair price and high-quality work, not just the lowest cost.
Draft a Written Agreement: Use a template for subcontractor agreements or have a lawyer draft a written agreement. Clearly outline expectations, deliverables, and consequences for unmet standards in these subcontractor agreements.
Finish Paperwork: Ensure all W-9 and 1099 forms are completed. Review financial statements, insurance, and bonds to finalize the hiring process.
By thoroughly following these steps, hiring a subcontractor will ensure your project gets quality work and complies with legal requirements.
Conclusion
To hire the right subcontractor, create a selection criteria list outlining your preferred qualities. If the potential subcontractors meet all criteria, arrange a meeting to discuss project details. Commercial general contractors and subcontractors should work harmoniously to ensure the building project smoothly proceeds and with minimum risk for all the parties involved.
Partner With Us
If you are searching for a qualified and reliable commercial general contractor and subcontractor, look no further than Constructive Solutions, Inc. With several years of industry experience and expertise, our team of specialty contractors is dedicated to providing exceptional commercial construction services in the San Francisco and San Jose regions.
Contact us today to discuss your requirements.
FAQs
What is a subcontractor agreement?
A subcontractor agreement is a written document you need to sign before the subcontractor starts working. You can use a standard form created by one of these three associations as a subcontractor contract: American Subcontractors Association (ASA), Associated General Contractors of America (AGC), and Associated Specialty Contractors Association (ASC).
How are subcontractors in a construction project paid?
Subcontractors are typically paid based on a contract agreement, which can be structured as a lump sum, unit price, or time and materials. Payments to subcontractors are often made in installments as project milestones are completed.
Should I hire subcontractors or employees?
Hire subcontractors for specialized tasks or short-term projects to save on benefits and payroll taxes. Hire employees for long-term, ongoing work where you need more control and consistency.
Relevant Resources:
- General Contractor Can Be Cited For Subcontractor Violations : U.S. Appeals Court
- How to manage your clients and sub-contractors so they don’t bypass your business
Constructive Solutions, Inc. is a full-service commercial construction company serving San Francisco and Bay Area.
Whatever your vision, we have the resources, experience, and insight to make your concept a reality, and a space where your business can flourish.
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I liked how you mentioned that you should always ask for licenses to review before hiring a subcontractor for a construction project. My wife and I are wanting to renovate our backyard and we were wondering who we should hire to redo the concrete patio. I’ll be sure to tell her that we should ask for licenses when looking for a concrete subcontractor.