CONSTRUCTION SUBCONTRACTING AS AN EDUCATIONAL TOPIC

As construction educators, there are four specific questions to be answered in regard to Construction Subcontracting as an Educational Topic.

First: Is subcontracting a significant factor in the building industry?

Second: Do management techniques and decision processes in speciality subcontracting differ from those applied in general contracting?

Third: How do General Contractor - Subcontractor relations influence the success of bid proposals, project time and quality, and the associated project risks?

Fourth: Are these topics given adequate attention in the current curriculum and courses?

The intent of this paper is to provide a summary statement to facilitate the reader's answers to the first three questions and to suggest opportunities to develop an appropriate curriculum response to the fourth.

EVOLUTION OF SUBCONTRACTING

A review of the evolution of speciality subcontracting sheds light on many current issues. If there was an original impetus to subcontracting, it was the movement from generalized to specialized construction craft trades. With the anticipated improvement in worker skill, productivity, and product quality came the complex question of effective and cost efficient utilization of these speciality skilled craftsmen.

Given the apparent and actual improbability that a General Contractor would sustain an adequate amount of specific skilled craft work (eg., painting, masonry) on a year-round basis, the more skilled workmen found better opportunities with companies that specialized in their specific work area. The trend toward more subcontracted work accelerated as the technical development of building materials and methods escalated the requirement for craft skill and knowledge. Quality control and labor management problems on construction projects became less complicated for general contractors utilizing specialty trade subcontractors in lieu fo furnishing all craft labor themselves.

A cause and effect of this evolution has been a redistribution of the project risk. Utilizing a subcontract bid and resulting contract, the General Contractor fixes the cost of an in-place segment of work at the time of the project buy-out with the specialty subcontractor responsible for cost overruns.

One indication of the influence of subcontracting is to look at the cost breakdown of typical building projects. While some Construction Management and General Construction firms do subcontract 100% of the technical trade work, the subcontracted amount seldom decreases below 50%. Depending on the type and complexity of the project and the capability of the General Contractor, the subcontracted portion of the total contract (including general conditions and contractors fee) is typically 65% to 80%. The size and volume of these firms has also increased. They now rank with the largest building contractors (Figure 1.) and as a segment of the industry, they have larger volumes and numbers of employee than many of the "General" catagories. (Table 1.)

PROFILE OF SPECIALTY CONTRACTORS:

As a general rule, students view their future role in the construction industry as that of General Contractor or Construction Manager. This perception is , of course, fostered by the predominance of General Contracting firms involved in on-campus employment recruiting, the slant of many of the text and course reference materials, the support of particular industry associations, and the prior experience of many faculty.

A potential conclusion could be that many students do not recognize the significant role of speciality contractors nor the the explicit differences in managerial style and application required of those subcontractors. In many instances, they are also unaware of the tremendous opportunities that exist for graduate constructors in specialty construction areas.

The management of resources and project coordination efforts for most specialty subcontractors are significantly different than the comparable tasks in a General Contractor's operation. Many specialty contractors will contract directly with Owner on a single contract basis or as one of a number of multiple prime contractors on a given project. These relationships result in different methods of project coordination and interface. The specialty contractor must respond to these differences engaging in a role that combines the managerial characteristics of the typical General Contractor and the typical Subcontractor.

Manpower utilization and distribution over a number of projects is a dynamic problem for specialty subcontractor managers. Their potential for solutions differ greatly from the resource management alternatives available to a General Contractor. A well prepared Specialty Subcontractor's project manager will anticipate problems and potential conflicts and supply appropriate managerial and technical experience in a pro-active manner to assure the performance of others upon whom he or she relies. As an example advanced analysis of the actual project status/project progress provides the forward looking specialty contractor, multi-project manager with a reliable source of information for company wide resource planning, allocation and control.

The Subcontractor's procurement and management of material and equipment involves the collection and preparation of a number of submittals that must be processed through the General Contractor and Architect/Engineer's organizations prior to order. The contractual relationship may inhibit the Specialty Subcontractor's leverage in this process. Attentive, well educated subcontractor project managers will enhance their firm's managerial position by requesting, receiving, and documenting submittal procedure process and approval time commitments at the pre-construction conference. A missed opportunity can have detrimental results impacting the Subcontractor's project schedule and profitability.

It might be beneficial to consider some of the project coordination issues facing a mechanical project manager. Often, their work includes second tier subcontractors (eg., ductwork, controls); writing and managing of specific performance contracts is essential. Crews are often cycle on then off the project. As an example, the plumber will complete the under-slab and site piping later returning for the above slab rough-in and finally returning to install fixtures and trim out. Of course, demands on other projects often necessitate that the individual phases will be accomplished by different crews resulting in increased coordination problems including completion of as-built drawings. Labor leveling is complex if achievable.

Code issues and inspection requirements are other areas of concern for the subcontractor's project manager. The performance specification often establishes acceptance as operational success which is not determined until the final days of the project. Problems are frequent and response time limited. Prior planning and appropriate resource allocation are essential to satisfactory project completion.

Equipment procurement involves a number of suppliers relying on a multitude of submittals. Given that crews work mostly with small pieces and small tools, the handling and setting of major equipment is complex in that it is short in duration with a . significant resource demand.

The Subcontractor's typical source of work is the General Contractors that assume responsibility for complete construction of the project. At any point in time, the subcontractor is providing specialty construction services to a number of General Contractors with varying expertise in subcontract development, subcontractor management and relations; project management, coordination, and control; and project cash-flow reliability. Additionally, a regional Subcontractor will repeatedly, and often on simultaneous projects, contract with the same General Contractor. Decisions on individual projects are often influenced by the objective of sustaining an on-going relationship. Both the short-term (project) and long-term (future contracts) relationships with the General Contractors are essential to the success of all specialty subcontractors.

It could be observed that the Specialty Subcontractor has less control of his/her own destiny than does the General Contractor, but that need not be true. These and a large number of other issues occurring on a number of simultaneous projects with fluctuating schedules and various managerial approaches is a complex arena in which the prepared Subcontract project manager achieve success and the ill-prepared struggle to survive.

GENERAL CONTRACTOR-SUBCONTRACTOR RELATIONS

Construction Claims Monthly states "No issues are of broader concern to the construction industry than the issues arising out the relationship between prime contractors and their subcontractors." [1]

In education, we include significant depth and breadth of coverage of the General Contractor-Owner relationship, Architect-General Contractor relationship, labor relations, and organizational behavior with less than complete address of the significant issues in General Contractor-Subcontractor Relations. As General Contractors, our alumni are dependent upon their subcontractors for the successful completion of their projects. It is a certainty that the project personnel have far more involvement with, and their success will be more dependent upon, the Specialty Subcontractors that with the Owner, Architect, or labor groups.

Negotiations between the General Contractor and Subcontractor are ongoing throughout the duration of the project. Issues include job staffing, sequence of work, quality and quantity of work in place, interface with other work, schedules and progress projections, progress payments, and change management. Successful negotiators are knowledgeable and ever aware of the other sides' needs, desires, requirements, and position. The General Contractor who understands the technical and managerial problems of the Specialty Contractor is in a position to motivate as well as respond to the true needs of the subcontractor resulting in an increased probability of meeting the critical responsibility of delivering a quality project on time.

Major specialty contractor associations identify prompt payment, actually lack thereof, as the principle problem faced by subcontractors. Bid shopping and ineffective change management resulting in non-compensatable extra work are also major concerns. The managerial opportunities and ethical issues involved in these critical General Contractor-Subcontractor relationship factors should not be ignored in the education and training of the future industry leaders.

"Unless the subcontract states otherwise, the prime contractor has a duty to schedule work so that subcontractors will no be delayed in the performance of their work or forced to perform work out of sequence" [2] Delay and disruption claims by subcontractors are increasing and courts, experienced through contractor's delay claims against owners are validating the specialty contractors claims.

Many specialty contractors (eg. finishing trades ) continually find themselves in an acceleration mode on a number of their projects. The cost (overtime) impact and/or quality issues (larger crews with less skilled craftsman) of acceleration can be damaging to both reputation and profitability. While it is not always possible to bid the anticipated overtime or acceleration and be competitive, it is possible for subcontractors to favor general contractors with better managed projects when bidding. This consideration is recognized by specialty and general contractors alike.

The student or graduate who perceives the answer to technical and managerial questions to be "we'll subcontract that", has not been adequately prepared. Subcontracting work without understanding the technical aspects and coordination implications places ones destiny in the hands of others. In technical and managerial courses, the potential problems and anticipated position(s) of the subcontractor can and should be included as a foundation for the future success of the student(s).

SUBCONTRACTING TOPICS IN EXISTING COURSES

Well established collegiate construction programs often experience difficulty in attempting to incorporate additional course work in the curriculum. Given general education requirements, the limited number of elective courses, and the breadth of construction topics considered essential, the consideration to add a new course must answer the question: what can/will be eliminated?

The authors of this paper anticipate that curriculum planners and construction educators will find it more expedient and potentially more effective to expand current course coverage to include subcontract issues in lieu of concentrating that information into a single new course. It is recommended that a subcontract topic outline be developed and compared to existing course content. The topics can then be assigned on a programmatic basis expanding the student's preparation to engage in the complexity of Subcontractor -General Contractor relations.

The following suggestions are based on topical rather than course breakdown in an attempt to facilitate curriculum planning and

development given the individual construction programs course strategy.

Technical Courses:

Given that many of the technical areas of project execution are typically subcontracted, courses that address those topics can easily and appropriately include subcontract issues. Most construction curriculum separate the building systems, including Plumbing, H.V.A.C., and Electrical, into a course series. The courses are often classified as technical emphasizing design and operational topics while ignoring the subcontractor's project coordination issues and installation methods. The courses should include a focus on the materials, methods, sequence, and technical interface phase.

These systems and other (i.e. , curtainwall, roofing) subcontracted items have a substantial impact on the initial and life-cycle cost of the project. Value engineering applications and constructability studies that are technically based and economically derived can be included; the students will develop a relevant decision process that will serve their professional needs as a negotiating conduit between the Owner's Architect/Engineer and the Specialty Subcontractor.

The technical execution of the specialty work will always interface with other work performed by both the General Contractor and other Subcontractors. The discussion of required methods provides an ideal opportunity to address schedule interface from a sequence, duration, and resource allocation standpoint.

Projects developed in each course should be expanded beyond the typical technical design-operation questions to include cost and resources estimates, schedules with crew durations identifying potential pre-assembly work, and scope of work (for contracts) statements.

Project Management Courses

The management of building construction projects includes the management of subcontracted work by the General Contractor and the management of individual areas of work by the Specialty Subcontractor. The managerial success of the project is, to a large degree, dependent on the interface and abilities of a multitude of managerial decisions executed by and influencing a number of managers. Coordination of these effort are key elements to be considered in construction education.

Simulations and case studies are often included in project management courses. These educational methods provide a prime opportunity to include subcontract management problems. Role playing on both sides allow the students to experience some of the complexity the actual relationship that exists between the subcontractor and the general contractor.

Change management and the impact of Owner-Contractor and Contractor-Subcontractor contract terms and conditions are important considerations in project management. Likewise the progress payments application and payment distribution process is critical to a successful General Contractor-Subcontractor relationship.

In subcontracting, resource allocation and scheduling is usually a multi-project task. Likewise, many project managers in General Contracting and Construction Management firms are involved in multiple projects. Problems developed for single project application (eg. schedule crashing) can and should be expanded in scope and complexity address the a specialty subcontractors position on a multiple project basis. The role of the specialty contractor's project manager should be one focus of the project management course.

A well-rounded student will realize the interdisciplinary nature of the industry and recognize the benefit of a comprehensive understanding of the skills, abilities and perception required to succeed in speciality subcontracting. It is valid and valuable to include Specialty Subcontractor project and multi-project management topic in addition to coverage of the General Contractor's management of Specialty Subcontractors. Understanding the concerns and methods of the Subcontractor's project manager will enhance the success of all future builders.

Scheduling Courses

An examination of the content of a scheduling course might reveal that the subcontract activities are viewed as a given. Other than mention of the subcontractor's participation in the development of the schedule and the necessity for crashing subcontract activities, the scheduling and time management issues regarding subcontracting are often ignored.

A review of a realistic construction schedule will reveal both critical and low-float subcontract activities. There is no doubt that the subcontractors will influence the project time management. Likewise, the schedule creates certain obligations on the part of the General Contractor to the Subcontractor. This topic should receive adequate attention. "The prime contractor has a duty to schedule work so that the subcontractors will not be delayed in the performance of their work or forced to perform work out of sequence." [3]

The scheduling of subcontracted work is essential in establishing an accurate, accomplishable schedule. While the sequence of the activities may appear obvious, there are often many factors in specialty contracted work that substantially impact the project that are not obvious to the casual observer. The duration estimates for subcontracted activities are critical. The scope of the work and manpower requirements must be clear and the subcontractor must commit to furnish the resources when required if the project schedule is to succeed.

In many circumstances, the Prime Subcontractor's work is scheduled as a single activity. Many bar chart show no indication of the impact of key subcontract work items on other activities or project milestones. Schedule slippage analysis and/or acceleration decisions must address the total impact on the time and cost parameters of the project; incomplete planning information will result in incomplete decisions.

A schedule that includes the true relationship of subcontract work item activities to other project activities will facilitate project decisions that will be both timely and accurate. Required tests and inspections, including subcontracted work, should be milestones in schedule development. Schedule analysis exercises should include subcontract activity evaluation.

An exercise in multi-project labor leveling will provide the students with a firsthand experience of the resource problems faced by a Specialty Subcontractor. Material management of long lead items usually involve subcontractors and can be included in the labor leveling problems to increase the complexity. In any event, actual manhour requirements for key subcontract activities and standard crew sizes should be used in duration estimate exercises.

Scheduling courses that utilize computer applications can easily accommodate the proposed exercises. As the computer has become the standard and very useful tool in the scheduling process, it has also implied a standard for resolution of disputes. "The widespread use of computerized scheduling techniques has provided new opportunities in project management and claims analysis including claims of delay and/or disruptions by the specialty subcontractors." [4]

"Slow performance by a subcontractor will not excuse the prime's late completion of a project". [5] Project time management education must provide a comprehensive address of the coordination of subcontract activities.

Quantity takeoff and Cost estimating Courses

It may or may not be feasible to include all specialty contractor work items in the quantity determination process of the estimating courses. Most courses ordinarily include the take-off of some items that are typically the responsibility of a Specialty Subcontractor. The technical courses provide an excellent opportunity to quantify the work prepared in design assignments that have typically been intended to demonstrate technical competence.

The solicitation, receiving, and follow-up of subcontract bids should be a topic of all cost estimating classes. From the decision to subcontract through the write up of the scope of work, the student estimator must understand both sides of the Subcontractor-General Contractor pre-contract phase. The doctrine of "promissory estoppel" and reasonable reliance to the conflicts resulting from "bid shopping" should be included in this estimating education.

It is, however, most beneficial to have students "price" a (given) quantity of specialty work to develop a concept of the value of various components of the project. One method might be to have individual students responsible for the pricing of different trades resulting in this "bid" to themselves and other student-general contractors on a competitive basis against the other student(s) assigned the same trade.

As a result of the evolution toward subcontracting, the General Contractor's subcontract bid evaluation and analysis process has an impact on the potential for project success. An underfunded and/or overloaded subcontractor may not be able to adequately staff the project with skilled workmen and essential resources to provide the quality expected nor to meet the time requirements.

Contracts Courses

While most construction curriculums contain substantial coverage of the forms and legal implication of Owner-General Contractor contracts and General Conditions, the writing of appropriate terms and conditions for General Contractor-Subcontractor contracts are not addressed in the same depth. The inclusion of the issues surrounding the subcontracts in courses including legal and contractual obligation topics is appropriate.

A contract issued by a General Contractor imposes an legal obligation upon the contractor to avoid ambiguity and to provide a clear description of the obligations of the contractor. To often, students perceive that the 16 Divisions of CSI facilitate the division of work to the specialty contractors. "It is well established that project owners have no obligation to arrange their specifications in such a way as to facilitate subcontracting. The prime contractor has sole responsibility for dividing the work among its subs. Therefore, there is no substitute for a prime contractor's careful evaluation of the entire set of plans and specifications prior to allocating work among subcontractors. If there are any gaps or omissions, it will be the prime's responsibility to take care of them." [6]

Contract clauses addressing the, General Contractor's obligation regarding the relationship of payment to subcontractors to payment by the owner are critical. "Condition precedent" payment clauses must be understood by both parties to the General Contractor-Subcontractor agreements.

Changes and claims are other sensitive issues. The contractor often develops a "flow down" clause that includes rights and recovery dependent on the contractor's subsequent claim against the Owner. Recognizing the importance of the Owner-Contractor relationship, a potential conflict of interest in supporting the claim can be detrimental to the subcontractor.

From the subcontractors position, a clear understanding of all contract terms, wording and potential for negotiations of conditions including hold harmless and indemnity, flow-down clauses, payment and retention terms, warranties and call backs, schedule of work, delays and liquidated damages, lien and bond rights, and of course scope of work including any contingent or pre-conditioned bids. The American Subcontractors Association's manual "Winning the Battle of Subcontract Forms" is an excellent reference for educators in need of in depth information.

Negotiation and coordination for changes in the project (change management), schedule/delay/acceleration, and termination are important to both general and specialty subcontractors. Education exercises that provide application of decision principles will benefit the student as either future contractors or subcontractor.

Learning Needs and Opportunities

All students entering the building industry will be involved in specialty subcontractor relationships either as a General Contractor or as a Specialty Subcontractor. In many circumstances, their initial and possible long range success will depend upon their ability to handle the situations arising out of those relationships.

The number of Speciality Subcontractors far exceeds the number of General Contractor and Construction Management firms. The graduates of ASC member schools have typically been employed by the general construction sector while the specialty contractor group has had to develop managerial staff either through the trades or from engineering, or non-technical college graduates. One conclusion might be that the ASC graduate may find a better long-range employment opportunity in a specialty contracting firm.

CONCLUSION

Project Management in the building industry is, to a large degree, subcontract management. A review of text and reference materials provides little, if any, address of subcontract issues. Given that the success of the project relies on the performance of subcontractors, then certainly the critical issues in General Contractor-Subcontractor relationships and potential conflicts merit course coverage.

There are two distinct issues in evaluating the education requirement regarding subcontract management. The first is the management of subcontractors and subcontracted work by the General Contractor. The second is the managerial techniques applied and problems incurred by the Subcontractor in the execution of the contracted work.

The Authors suggest that coverage of the role and requirements of the Subcontractor from both the technical and managerial perspectives are essential responses to both issues. The impact of subcontractor decisions and performance will influence the success of all graduates entering the construction industry. Future general and specialty contractors will benefit from a comprehensive education.

It is imperative that educators take advantage of the opportunities that are available in existing courses to provide an adequate understanding of subcontracting issues from the Specialty Contractor's position. It is easy to overlook the fact that the pertinent issues in General Contractor-Subcontractor relations are viewed and approached differently from each side of the relationship. Expanding coverage of these perspectives and approaches will better prepare the student to enter the building industry.

REFERENCES