Subcontractors or Employees?

A note we received last week included a question about using subcontractors or employees to build a job:

“I recently bought your markup and profit book and have been finding it very helpful and insightful. I have a quick question about subcontracting. I had a preliminary meeting with a potential client about a rather large remodeling job . . . She expressed some anxiety about having subcontractors on the job and wanted to know if I could do the whole thing myself (there are only 3 guys in my company). I was just wondering if you have any pointers as to how I can quiet her fears about having subcontractors on the job and also how to sell the “lump sum” contract idea in case she asks for a T&M setup. Thank you in advance!”

There are two issues in that question, and if you’ve been on very many sales calls you’ve heard them both. How you deal with them can mean the difference between selling the job or having the owner go elsewhere because they don’t understand how the construction world works.

Let’s deal with the T & M issue first. It’s easy. Just say no, you won’t do Time and Materials on any job over $2,500. Why? Well, jobs that grow larger than $2,500 – $3,000 often get complaints from the client about how long the job is taking. They are paying for your time, and the longer you take, the more they pay. So when/if the job takes longer than you estimated, they’ll be unhappy and the fight starts. It won’t make any difference how much actual time you have in the job, you just took too long.

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The building owner is protected with a fixed price quote supported by a detailed contract (see Fast Track Proposal Writer). The fixed price means they know what the job will cost, and the detailed contract tells them exactly what you are doing for that price. And a contractor working on a fixed price contract has an incentive to get the job done, not just hang around and run up the clock.

Now to subcontractors. If you’re running your business like a business, and doing a good job of managing both your company and the jobs you are building, you’ll get far better results and a higher profit margin by using subcontractors on your jobs. It’s better for you, and it’s better for your client.

Subcontractors are trained to do their job and are much more efficient than jack-of-all-trades. For example, anyone with some strength can hang drywall, but a drywall contractor knows how to stock and hang the boards more efficiently than anyone else. They can look at an area and decide the best way to cut the boards, and the tapers (or mudders) will do better finish work than someone who tapes only when needed.

For specialties like plumbing and electrical, most apprenticeship programs are 3 or 4 years in length and when someone graduates from those programs, they know their trade inside and out. That makes them better equipped to deal with any situation, and it makes them faster at getting their particular discipline done.

They have the specialty tools they need to get the job done right the first time. An example would be a plumber, carrying specialty tools like snaps, flaring tools, spud and hoodie wrenches. A good pair of snaps can run $500 to $600 and if you want cast iron pipe broken at a certain spot, there is no other way to get the job done. How many guys working for you carry snaps on the job?

Drywall guys have stilts, bazookas and various knives to get the job done quickly and correctly. Electricians carry amp and volt meters, various stripping tools, offset cutters and such. The list goes on and on.

The specialists also know what materials they’ll need before the job starts and so will be able to get the job done faster with less down time to chase parts or materials.

I don’t know where you are operating, but if your state requires licensed plumbers to do plumbing work, you’d better operate within the law. And trying to do electrical work yourself, assuming you don’t have an electrical license, will probably get you in trouble with the state and the insurance company, especially if there is a fire in that building anytime in the future. If they find out electrical work was done by someone unlicensed, it could void the home or building owner’s policy.

Now, hiring subcontractors will often cost you less to get the job done than using crews that aren’t trained for specialty work. That might or might not translate to a lower cost to her, because you still need to markup your subs to protect yourself (see last week’s newsletter). So you might or might not want to mention the cost impact, but you should definitely mention the quality impact. And the time savings.

If your potential client doesn’t understand that principle, then you need to educate her. If she won’t get off that dime, you should probably walk away. There’s a good chance she’ll have a lot of other “suggestions” on how you should build your jobs and run your business after the job has started.

One more comment. I’ve heard it said several times over the years that a contractor doesn’t have as much control over their subs as they do their own employees. Therefore, by using their own employees, they can get the job done better with higher quality, etc. Sorry, I don’t buy the argument.

If you have a sub who doesn’t perform well, you don’t have to pay them until the job is done right. And you’ll find another sub for the next job. Guess what happens when you try to fire an employee who doesn’t perform well? Or decide to withhold their pay until the job is done right?

Business relationships go two ways, and if you don’t treat your subs right, you won’t find any who are willing to build your jobs. Likewise, if a sub doesn’t treat you right, it’s an easy relationship to end.

“If at first you don’t succeed, try, try again. Then quit. There’s no point in being a damn fool about it.” — W. C. Fields