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Why subcontractors fail and what to do about it

Why subcontractors fail and what you can do about it

Contract, Facilities, and Procurement managers will know the gut-wrenching feeling when the phone rings from a subcontractor reporting an incident or delay to the project! Some instances cannot be avoided, but you are in a position to negate as many problems as possible by understanding just why some subcontractors fail.

Speaking on leading construction website, For Construction Pros, expert Gary Goldman shared his experiences of three reasons why subcontractors fail. With 20 years’ experience in the landscaping industry, Gary has come across common subcontractor problems that are synonymous throughout all sectors and industries.

Financial barriers

As well as the problems that bad subcontractor cash flow can bring, Gary was quick to talk about the risk of undercapitalisation:

“Money’s not only the root of all evil; it might well be the leading cause of business failures among subcontractors.”

“Far too many underestimate how much money they are going to need, not merely to get the business up and running but also to sustain it as it struggles to gain a commercial foothold. Once you start out undercapitalized, that can start a downward spiral from which you can never catch up.”

Projects and ongoing work require your subcontractors to deliver when you need them. While subcontractors may be eager to cut their costs significantly to win the work from you, you need to ask yourself whether they are risking their own financial health by doing this, potentially leaving you in a bad situation when they fall into administration.

To negate this situation, you should be conducting thorough assessment checks on any new subcontractors. In The Contractor’s Guide to Managing Subcontractor Compliance, the Altius expert team talk about why it’s important to not “shy away” from asking for the financial details of subcontractors to protect you and your client.

Inadequate planning

“Not surprisingly, this is the reason problems like capitalisation and bad cash flow happen in the first place.”

Inadequate planning both in the subcontractor’s business and the projects they work on, can lead to problems. As part of your management procedures, you should be first outlining policies and rules that subcontractors should abide by, before making sure they acknowledge the contracts, controls and restraints the job comes with.

“If you don’t plan and still move ahead, you might end up with heartache and thousands of dollars down the drain.”

Ignoring “the next steps”

While some subcontractors may complete the job successfully first time around, making sure they stay to the same standard on other projects can prove to be an issue too. As a best practice guide, and something that is highlighted further in the new Altius subcontractor guide, you should be using monitoring techniques to keep the quality of workmanship high.

“All members of your staff need to be focused on operating in a proactive manner. This mindset often gets lost in the hustle and bustle of your day-to-day activities. However, it is essential for the growth and continued success of your business.”

Read more about how monitoring behaviour, carrying out on-site and off-site audits, and using KPIs can help achieve greater performance scores from your subcontractors here.

Download the contractor's guide to: managing subcontractor compliance

Best practice guide to supply chain compliance now available as a free download.