Subcontracting: The Road Ahead

Alternative public works projects change the role of subcontractors.

For most of my working life in the construction field, I have been familiar with only one kind of subcontracting.

It was simple: We put a fixed price on our work and hoped our bid would be the lowest. If we bid low, we received a subcontract from a general contractor to perform a specific scope of the work based on the plans and specifications.

If a discrepancy in the plans occurred or if we received a new direction from the owner, architect or engineer, we dutifully priced and submitted a change order request, which the general contractor almost always cheerfully marked up as his contract allowed and then encouraged the owner to grant this.

In other words, the subcontractors and general contractor worked as a team on one side of the equation, with the owner and designers on the other side.

But now, modern subcontracting has shifted the subcontracting landscape dramatically. For major subcontracts in private works, the old sealed bidding method has been replaced by negotiated subcontracts, in which major subs start projects early and provide constructability and budget input long before the project begins.

These subcontracts redefine value because of the additional assistance subs can provide, which saves time and money on projects.

Changes to Public Works

The biggest subcontracting changes have been reserved for public works. And despite intentions to have those changes mirror the successful private model, they have not produced the same kind of fruit for subcontractors.

Instead, the adoption of new alternative public works procurement methods has often strained the standard relationships between subs, general contractors and owners. The rise of design-build and GC/CM (general contractor/construction manager also known as Construction Manager At-Risk) public works methods have changed the original model to be nearly unrecognizable.

GC/CM Method

Much has been written about the subcontract community’s concerns with GC/CM contracting.  Subcontractors say that GC/CM moves the general contractor too far to the owner’s side of the equation, leaving the subs without a strong advocate.

With no contractual influence over other subcontractors, subs often complain that GC/CM projects are not well coordinated, with the major subs left to be their own general contractors.

Integrated Project Delivery

The integrated project delivery (IPD) and performance contracting methods have established modern subcontracting models that will change subcontracting permanently.

Successful IPD depends on full transparency, and all parties (including the owner) must recognize their respective risks in the project.

To promote teamwork and avoid conflict, IPD establishes that the whole team must earn project rewards based on superior planning, cooperation and execution. IPD seems well-suited for technically complicated projects, such as hospital projects with high design and coordination risks.

IPD appears to work well in its infancy, but it will be interesting to see how public owners adapt to IPD since they generally need to know precise costs for funding purposes, and IPD cannot always precisely provide this cost information.

The Road Ahead

When negotiation and design-build began to rise in the 1980s, those of us who were young in the construction industry witnessed some of the first real changes.

The new contracting methods will continue to evolve, and the generations to follow will need to adapt to these changes, making the new paradigms more easily understood, fair and user-friendly.