De-selecting a sub

San Francisco general contractor Dave Markham of C.M. Peletz Co. has posted a fascinating observation about how he decides which subtrades to use, and which ones to drop.
I don't think he will mind me reproducing the post in full here:

I once attended a forum sponsored by CSI (Construction Specification Institute) where one of the topics was Contractor/Subcontractor relations. There were several executives of large General Contractors in attendance. When prompted on the subject, one of the panel members, Jim Balboni, an executive with Otis Elevator, stood up on his chair and shouted, “Why in the hell do contractors continually use subcontractors that fail them!” In the best humor there is always some truth.

The General Contractor/Subcontractor relationship is, for better or worse, a telltale of project health or for that matter Contractor health. A great subcontractor makes the job of the General less time-consuming and allows him more time to plan and budget and thus makes the General look good. A poor subcontractor bogs all facets relating to his portion of the project down and can make the project and the GC look like a disaster.

In order to truly represent the interests of the client, the subcontractor list must constantly evolve. Great subcontracting companies come and go. So by simultaneously trimming the potential subs-list and adding to it constantly, you are adding extreme value to your relationships with clients. Pricing will be competitive and current. Technique and communication will be modern. Trust will be there.

That is not to say that all subcontractors must go. We have several that we have worked with for more than 20 years and continually stand the reasonableness test.

Disengaging from a subcontractor prior to contracting for a project

As with any relationship, until we have experienced a project together, we really do not know each other. A Subcontractor who violates the basics needs to be let go before they start for

• Improper insurance
• Disagreement with our indemnity language in our subcontract agreement
• Expired license
• Poor or non-existent references
• No office presence where phone calls, (e)mail and faxes are received, messages taken and phone calls, (e)mail and faxes returned.
• A misunderstanding of the management necessary for the very high caliber building process

If a subcontractor fails in any of these or you get the gut feeling that you’ll be let down, pass early and often. Experienced Generals know the feeling.

Eliminating a subcontractor from the proposal list

Now that we have experienced a project together, besides pricing, what makes us know the Subcontractor should not be considered for the next team effort:

• Poor product installation
• Offers no consultation in trade
• Improperly handles client/GC relationship
• Improperly handles architect/GC relationship
• Continuously late, inaccurate billings on improper form
• Does not understands the key rule that additional or extra work will not be paid for unless approved prior to work being completed
• Maintains a slovenly jobsite environment
• Add your own here

There is some give and take with this list. A subcontracting field with a small number of competent competitors might warrant a little leeway on a few of the above items. There might be some give and take for a rock-star that does very fine work. However, if a few of the above are tied together, even the best subcontractor is expendable.

The bottom line is that the GC needs to pull off the project on time and within budget and make the experience for the client worth reliving. If a subcontractor isn't doing his part to contribute to that smile on the Client's face, perhaps their place on the subs-list should be reconsidered.

I've always maintained that the most important aspect of marketing your business is how you handle your actual work, and Markham proves this point with this argument. Of course, not every story is the same and we all know of the classic challenge of general contractors receiving unrealistically low bids from sub trades who may be less than totally qualified.

Do you decline the "low bid" and then not win the final job, or do you accept it, knowing that things are likely to go wrong? This is one problem that isn't going away anytime soon.

The General Contractor's Question: "What criteria do you use in determining which sub trade to use?" (2)

At the Ontario General Contractors' Association President's Panel last month, someone asked an important question: "What criteria do you use in determining which sub trade to use?"

Only Frank DeCaria, president of Eastern Construction Ltd. of Windsor and Toronto, had the opportunity to answer at the Symposium, but I think the question is important enough for me to see if the other general contractor panelists could provide their own direct answers.

Yesterday, Doug Burnside, president of Dolyn Developments in Ottawa, contributed this answer, which is worthy of careful review if you are a sub trade hoping to find work in the non-residential environment.

Here's my answer for the panel question you re-raised:

When tendering on a project in the traditional way, we General Contractors can certainly become real risk takers. We often receive our quotations very close to the closing time leaving us little or no time to properly evaluate them, read the fine print, or contact the trade firm to discuss it.

In a relatively small town like Ottawa we often know most of the trade firms that are sending us quotes and usually have a good sense of their competence.

The Sub-trades that we value most are those with whom we share mutual trust. They will provide their quote early enough that we can analyze it and discuss it with them, in turn, they can fully expect that their price will not be shopped to other trade firms. Without that trust, the bids come too late to analyze properly and a problem can ensue after closing, when there is a misunderstanding, hidden exclusion, scheduling
problem or a pure "walkaway" from a price.

When a price seems erroneous to us we endeavor to contact that bidder to discuss it, but if it comes 2 minutes before closing there is not much chance of remedy. Now we have to decide if we carry an excessively low quote or not, knowing that in all likelihood one or more of our competition will. If we don't, we will have wasted the time preparing the bid as we will likely now lose, if we do, we may well have a conflict. We truly do often face a "Catch 22" on many occasions.

When we have the luxury of inviting tenders under a Cost Plus or Design - Build methods of procurement, we can clearly spell out what is to be included; offer the opportunity to a bidder to withdraw a bid if it seems flawed; and invite those we know to be well suited to the project and proven and competent. Without conflicts, and better trade firms, we can better serve our clients.

Many of us have had a bad experiences carrying a trade that we do not know at a questionable value, resulting in one of the many possible perils. Alternatively, it is just this way that we sometimes meet those trades who become among our preferred.

....not for the faint of heart.

Subs looking for non-residential work should read this response carefully -- your chance of success is highest if you can put yourself in the mind-space of the general contractors with which you wish to work. Intelligent trust and allowing them some time to review your bid will save aggravation and give you the fairest chance of winning the work.

The general contractor's question: What criteria do you use in deterining which sub trade to use?

Frank DeCaria, president of Eastern Construction Company Ltd. at the Ontario General Contractors Association Symposium

At the Ontario General Contractors Association symposium president's forum, an audience member asked this rather important question: "What criteria do you use in determining which sub trade to use?"

If you are a sub, obviously, the answer to this question may be one of the most important ones you need to win more opportunities and bids.

Although there were four panelists, only Frank DeCaria, president of Eastern Construction Company Ltd. of Toronto and Windsor, had the opportunity to respond.

"The trades give us most difficulty are the M and E (mechanical and electrical) trades; they can vary from 25 to 40 per cent of the project, DeCaria said. "When people are closing a project, they have 'here's this price, and here's that price,' depending on the spread (between bidders), you make a decision, depending on your risk.

"You know (the low bidder), he can't perform -- no one can take him," but it comes down to our risk matrix, on that scope of work."

"The M and E, and perhaps five critical trades, we make sure they can perform. . . to give you one example, we were doing a project in Toronto . . . the decision was made to carry a former contractor, with a significantly lower bid (than the competition... the sub trade) couldn't perform; he put us in a real bind."

"it's better for us to take care of the extra $100 grand . . . if we don't get the job, its cheaper for us to keep two bodies in the back cleaning stuff, than putting the company at jeopardy."

So, reading between the lines here, if you are a sub trade in a secondary area where the project won't succeed or fail because of your non-performance, your low bid, even if it is way below what it should be, might be accepted, and the general contractor will take a flyer on you -- but if your trade is critical to the project's success, only a sloppy GC will rush to accept your bid.

Of course, readers of this blog know that the conventional sub-trade approach to winning commercial work; pushing forward the lowest bid possible in order to win the work, is hardly the best way to make money. In fact, subs which have built substantial businesses based on marketing principals steer clear of commercial and institutional work where they are in bidding wars to win the general contractors' business.

Nevertheless, I think the question is important enough that I will survey some additional general contractors for their opinions on the topic and report back to you. While I can argue any which way that the best way to grow your business is NOT to fight for bids with the general contractors, you probably don't want to know that if you are a sub; instead, you want to know ho you can really win the job through the bidding process you follow routinely. So I will see what I can do to help find the answer you are seeking, even if it isn't really your best solution.

The sub trade marketing challenge

So you are marketing your subtrade services and want to find new business.

How do you get through the gatekeepers, and earn the respect for your proposition?

You may think your wisest approach is waiting for the opportunity to bid the job and you simply need to get on a prequalification list, or (worse) wait for the job to be tendered publicly.

Go ahead. Spin your wheels. Lose your money.

You haven't passed stage one of elementary marketing and sales. And you are like a large percentage of the construction industry hoping for business and wondering why you are struggling.

You need to think differently. The key is to recognize the combined power of effective relationship-building and effective marketing. When your brand (roughly equivalent to reputation) is so strong that clients think of using you and no one else, and take it for granted that your sole source quote will be fair and doesn't need to be cross-checked against your competition routinely, then you have achieved success. When you are able to chose which jobs you bid, and you know you will be profitable going in, you have hit the business jackpot.

Can this be done?

Yes, but here is an important observation after seeing some successful sub-trades at work. Two whom I have met personally, Mike Feazel in at Feazel Roofing in Columbus, Ohio and Leonard Meglolia at Bestline Plumbing in Los Angeles, say they stay away from most commercial and virtually all new construction work because they cannot see any margin or opportunity for profit in the bidding-war environment out there. (They will do some commercial projects, presumably where they can be sole-sourced.)

Surely, however, subtrades and suppliers find a way to make some money dealing with builders, developers, and owners on commercial projects. They succeed, I think because their business is at the scale where they can achieve incredible operating efficiencies and their relationships with their clients are strong enough that they can squeeze just a little more margin through scope of work or other arrangements than the neophytes trying to win bids through public competitions.

If you aren't at that level yet, consider smaller scale residential and limited-scope commercial projects where you can provide direct services to your clients; and develop your own advertising and marketing strategy to achieve this business.

Or if you wish to work within the conventional space, remember that a little energy spent learning how to market effectively will pay you really big dividends, especially if you an escape the rat race of "low bid wins the job" (and loses a fortune in the process).

The real Washington

At the D.C. Metropolitan Subcontractors Association (DCMSA) meeting Casino Night, from left, Kevin Glass, Early, Cassidy and Shilling, Inc. (insurance and surety bonds), Bob Houston, director of estimating at Shapiro & Duncan Mechanical, and William A. Hicks, controller, with John Rhee, Project Manager, from PowerMax Inc. Mechanical Contractor.
At right below: Barbi Carter, member services co-ordinator, with Barbara Sanders, director of education and meetings for the DCMSA.

No time wasted yesterday, as I and North Carolina publisher Bob Kruhm spent the day in Washington D.C.'s North Virginia and Maryland suburbs connecting with local construction associations and interviewing potential publishers for Washington Construction News.

The Washington D.C. area, of course, is much more than government -- of course real people with real jobs, challenges, and aspirations live in this community.

Undoubtedly the recession has hit this area -- staff at the Maryland-National Capital Building Industry Association (representing home builders in the District of Columbia and its Maryland have been laid off and builders are struggling to survive. Other contractors in the commercial side are challenged as well by intense competition, project delays and financing challenges.

Yet, undoubtedly, the powerful presence of the federal government here allays some of the market challenges. This region is a wonderful place to work; combining diversity, history and opportunity.

Yesterday evening, we visited a casino night event organized by the D.C. Metropolitan Subcontractors Association (DCMSA). Under association rules, we could not attend the business meeting -- where, under a lawyer's guidance, members share information about the business practices of general contractors.

Strict rules are observed to prevent any violation of anti-competition or Combines laws, while allowing the sub contractors the necessary information about payment and business practices of general contractors and developers; giving them the tools to know if there are warning signs about potential slow or non-payment of their invoices.

Not surprisingly, this type of information is vital in a recession, and DCMSA staff say membership has increased significantly in recent months.

At the Casino Night, I won and lost a pile of funny money, but we all ended the game ahead, knowing the importance of relationships, association participation, and industry support.

Getting it right

This posting from TSJHD1 on the JLC Onine site is worth reviewing, carefully, if you are a subtrade or supplier. It gives simple, essential pointers to success, including:
Loyalty, cleanliness, help with job management, and looking out for ways to save the client money.

"I placed myself above my competition by looking out for the builder's needs. I didn't compromise my own, however. And really this stuff paid off. I could charge a little more (not a lot), got paid very promptly even when others had to wait, and I got steady work, not peaks and valleys, which makes running your business a whole lot easier. I could grow, and I didn't have to look for work."

Read the entire posting here, and think carefully. I haven't seen sounder advice for subtrades in recent memory.

The importance of branding

So what do I find when I key in "Construction Sub Trade Branding" on Google? Not much. But I did come across this reference to Vicano Construction in Brantford -- and their page inviting subtrades to log in and apply to be suppliers. Obviously this is NOT branding for the subtrades -- but is great branding for Vicano! (And may lead to some jobs for subs not wishing to 'worry' about branding -- who just want to bid for the work.)

Sonny Lykos has sent me much useful information about branding. I am still going through his binder of material, his reference books, and other resources. Today, however, I connected the mental dots (sometimes it takes me a while) and realized that "Branding" is the answer for the struggling sub-trade; the victim of abuse and frustration; of bid-shopping and manipulation, and simply of being the low person on the totem pole in this industry.

Yet, for a very simple reason, I confidently will say that 99 per cent of the subs out there won't get it.

They won't because they see themselves as doing their trade, not as selling a brand.

Heck, they won't see it because I couldn't see it until Sonny laid on the materials and information to me. And I am in the marketing and publishing business, and read a lot, and, well, should know this stuff.

How can we expect someone who has built a business as a masonry contractor, a drywaller, or a mechanical contractor to understand branding? Heck, the company that excavates foundations doesn't think of itself as Coca-Cola or Dell Computers. "Branding" seems to be an arcane and absurd concept when your business is laying sod or stringing wire.

But if you are in any of these businesses; any of the subtrades "just doing your job", you will want to find a few minutes to figure some things out about branding, and then set to establish your brand and marketing plan.

"Huh," I'm sure you'll say. If you are a typical sub trade, you'll probably have a modest roster of regular clients, you know who they are, and you bid their jobs in accordance with your usual practices. If you are competitive, you win. Maybe you like some of your clients better than others; know who treats you well, and who tries to squeeze every cent out of you; and for the ones that are reasonable, you sharpen your pencil and give a bit better price. You get by. Marketing is for sissies. You have work to do.

But what if you could increase your prices by 20 per cent or more -- without investing in expensive equipment? And either diversify or improve your client base -- so you are less at the mercy of one or two organizations? Alternatively, you may decide you don't really want to grow -- to get too big for yourself -- but you would like to find a little more profit from your existing business. Again, carefully thought and planned branding strategies (correlated primarily with simple client service and relationship initiatives) may produce huge results.

So, the next step, is how do you get started? I'm going to assume for now that you are not the biggest reader -- and all the gobbledygook out there anyways doesn't really relate to your own business. So while it will be helpful to read some of the useful books on Branding, here are some other ideas:

• If you have ever purchased advertising in one of our publications, feel free to call me. I'll listen to your situation, and suggest options. (I promise not to try to sell you more advertising -- only a tiny portion of the branding process -- you may buy some, but that is because I've succeeded in practicing what I preach about branding.)
• If you aren't a member of your relevant trade association, or in the U.S., a chapter of the American Subcontractors Association, join. Then call and ask for support and resources relating to marketing and branding.
• You can hire a consultant. The challenge is getting the right consultant, not the BS and phony stuff that some consultants spout -- at overpriced fees. I can recommend Sonny Lykos (if he is available) and Michael Stone. Locally, you may find someone who works well with you (I use Bill Caswell in Ottawa).

Most likely, when you enter into this branding and marketing space, you will make some mistakes and possibly encounter some false starts. But it is worthwhile. Ask Sonny Lykos. He has avoided the commodity pricing trap and makes money, because he knows how to brand his business.