Chapter 13 Pricing Subcontractors’ Work. Objectives Upon completion of this chapter, you will be...

Chapter 13

Pricing Subcontractors’ Work

Objectives• Upon completion of this chapter,

you will be able to:– Describe how subtrade work is usually

estimated and explain the role of the contractor’s estimator in this process

– Identify potential problems with subcontractors on a project

Objectives (cont’d.)– Explain how the competency of subtrades

can be evaluated and list what should be considered in this evaluation

– Explain how surety bonds can be used to help manage subtrades

– Describe subtrade pre-bid proposals and explain their use with subcontractor bids

– Describe how subtrade bids are evaluated

Objectives (cont’d.)– Describe the main features of bid

depositories and explain their use with subcontractor bids

Introduction• Subcontractors

– Building construction projects• Often perform 80% or more of the work

– Contractor has to rely on subtrades• Good relationships • Mutual trust• Two-way communications• Common goals

Potential Problems• Possible reasons:

– Unreliability of some subcontractors– Errors in subtrade bids– Overlap or underlap in scope of work – Conditional bids from subcontractors– Bid closing congestion– Compliance with government positive

action requirements regarding minorities

Managing Subcontract Pricing Procedures

• Effective management practices– Required throughout estimating

process• Control problems

– Well-organized system of dealing with subtrades• Identify subtrade needs• Ensure subtrade capabilities

List of Subtrades• Complied after bid drawings and

specifications are obtained– Used to determine trades to be

contacted

• Subtrades should be notified early in estimating process– Design questions and problems are

resolved

Contacting Subcontractors• Most contractors maintain a

directory of subtrades– Checklist on computer spreadsheet

• Estimator checks off or adds trades required• Checklist is compiled• Copy is e-mailed to subtrades• Subcontractors return checklist with name

against trades they are prepared to submit prices

Unknown Subcontractors• Can be stressful

– Sometimes necessary

• Nominated subcontractors– Deal made before bids

• Clause is inserted in bid documents

• Unsolicited subtrade bids– Low price is received from unknown

company

Evaluating Subcontractors• Main concerns:

– Is the subtrade capable of meeting the quality and schedule requirements?

– Does the subtrade have the financial capability required?

Evaluating Subcontractors (cont’d.)

• Factors to investigate:– General company reputation– Quality of previous work performed– Quality of company’s management– Company’s disposition

• General cooperativeness • Ease of dealing with site and personnel

– Financial status of company

Bonding of Subtrades• Bonds are obtained to guarantee

work performance– Surety bonds: manage construction

risk– Bid bonds: give prime contractor the

right to damages from bonding company • If subtrade fails to execute the

subcontract after bid has been accepted

Pre-Bid Subtrade Proposals• Methods of submitting bids:

– Fax and e-mail• Provides a hard copy• Received quickly

• Pre-bid proposals: – Copy of subtrade’s bid without prices

• Complete in all other details

Figure 13.2 Pre-Bid Proposal (Delmar/Cengage Learning)

Analyzing Subtrade Bids• Subtrade bids

– Ensure all work required is included– List inclusions detailing all the work

• Excluded items should be listed on the subtrade’s proposal

• Estimator has to lookout for items excluded from the work and not priced

– Complicated by multiple trade bids and discounts

Figure 13.3 Subtrade Analysis Spreadsheet (Delmar/Cengage Learning)

Bid Depositories• “Bid shopping” or “bid peddling”

– Disclosing prices to obtain an equal or better price• Not illegal, but unethical

• Bid depositories – Assemble bids from subtrades – Distribute them to prime contractors

Scope of Work• Trade scope definitions

– Useful guide to what is accepted locally as the definitions of subtrades’ scope of work• Enables overlap and underlap investigation

• Examples:– Masonry scope of work– Windows scope of work– Glass and glazing scope of work

Summary• Subcontractors on building

construction projects– Often perform 80% or more of the

work – Several problems occur with subtrade

bids

• Effective management practices – Required to deal with subcontractors in

the estimating process