Guide to Subcontractor Management

Key Takeaways

• Thoughtful subcontractor management is key to ensuring a successful project grounded in clear communication as well as fostering long-lasting business partnerships. 
• When soliciting subcontractor bids, be mindful of the level of detail included in the bids and the amount of consideration they provide for aspects of the project beyond price.
• Subcontractor bid management software can help general contractors send ITBs more quickly, sort through submitted bids, match with qualified candidates, and save time. 
• When establishing a formal contract with subcontractors, consider key factors beyond price, such as past performance metrics, guidelines for liability, and a detailed scope of work.

What This Guide Will Cover: A Strategic Blueprint for General Contractors

Your reputation in the construction industry is often as good as the work you complete and the subcontractors you bring in to help you complete it. Mindfully managing subcontractors in construction is crucial to ensuring you meet your project timelines, pricing goals, and quality standards for completed work.

A detailed strategy for choosing subcontractors ensures you select the best fit for the job while building a strong foundation for long-term working relationships.

This guide outlines all the end-to-end factors that general contractors should consider when seeking reliable subcontractors for a project, specifying subcontractor management best practices while offering valuable subcontractor workflow tips.

Why Subcontractor Management Drives Project Success

Subcontractor management is the process of sourcing, vetting, onboarding, and working with third-party service providers to complete designated tasks within an overall project. This process allows construction general contractors to fulfill multiple aspects of a project, even when outside of their own specialty or scope.

Effective subcontractor management is an integral part of a successful project, verifying that selected subcontractors have the capacity to ensure safety, efficiency, and execution. Whether it’s finding subcontractors for out-of-town work or needing a project-area expert to fulfill a subset of the job, choosing the right subcontractor is essential to ensuring client satisfaction, adhering to schedule, and solidifying your reputation as a reliable mainstay in your market.

When you can put your confidence in a trustworthy, vetted subcontractor, you can enjoy peace of mind in a successful project outcome. By dedicating strategic effort in subcontractor management, from the prequalification and screening phase to the contract drafting phase, you can ensure that you find the right fit 

Subcontractor Management Boosts Profitability

Beyond quality and schedule, strong subcontractor management directly supports healthier profit margins for general contractors. Top-performing firms that exercise disciplined cost control and efficient project oversight can push margins higher. Startup Financial Projection

By managing subcontractors effectively -selecting competitive, capable partners, minimizing cost overruns, and reducing change orders- you reduce project risks that erode profits. Poor subcontractor performance and defaults are known to significantly eat into margins and delay schedules, whereas optimized subcontractor oversight contributes to stronger cost control and better financial outcomes. Startup Financial Projection

In practice, even modest improvements in direct cost control – including efficient subcontractor coordination- can have an outsized impact on net profitability. General contractors that strategically manage subcontractor relationships are better positioned to finish projects on time and within budget, helping protect and sometimes increase overall project profit margins.

Selection, Vetting, and Risk Assessment

Having a process  for prequalifying contractors sets the pace for a successful project and instills confidence in a positive outcome. The following steps improve your ability to maintain confidence in subcontractor workflows. 

Defining Your Needs and Project Scope

When submitting requests for proposals and invitations to bid, it’s important to have a clear scope so you can find subcontractors to bid on a project and effectively narrow down which parties are best suited to offer their services. Identify and break down project requirements into both granular tasks, like clearing the job site or initiating construction, and deliverables, such as a completed wiring system, structure, or foundation.

A defined scope is beneficial for both your subcontractor candidates to understand whether they are a fit for the task and for your company to identify critical tasks and qualifications you should look for. Ultimately, a distinct project scope prevents scope creep while ensuring accurate timelines and expectations. 

Strategic Subcontractor Sourcing: Go Beyond the Lowest Bid

There are general contractors out there who focus solely on price and give the project go-ahead to the lowest bidder. However, subcontractor management best practices require a comprehensive view of what each potential partner has to offer.

Consider factors like: 

• Historical job performance
• Geographic proximity
• Resource availability
• Industry reputation

It can be helpful to have a scoring or ranking system to quantify suitability beyond price and help you make your decision. List out all your bid candidates along with the above factors to weigh your options—-subcontractor bid management software can help you clearly see the criteria that your subcontractors meet and how they compare.

Rigorous Vetting and Due Diligence

Rigid vetting ensures that no aspects of the project are sacrificed at the expense of safety or compliance. Vet prospective subcontractors to ensure that they can not only get the job done, but get it done right. Vetting of credentials should be among your first steps to narrow down the field of prospects.

Take the following steps: 

• Confirm licenses, insurance, bonding, and safety records
• Review past project references and client testimonials
• Explore case studies or materials that demonstrate successful past performance
• Look for SOPs or materials outlining the subcontractor’s safety standards

• When possible, verify the financial stability of the subcontractor to understand their capacity to scale to project demands

Pre-Qualification and Bid Management

Have an objective system for pre-qualifying and comparing candidates so you can ensure you choose a subcontractor that is most able to fulfill your level of need. Track bid submissions while evaluating completeness, accuracy, and compliance relative to your RFP. 

Whether a bid meets its criteria is typically a good indicator of the reliability you can expect from a subcontractor during the job itself. Software tools like PlanHub can assist general contractors with prequalifying bid candidates with flexible prequalification forms, a centralized, viewable bid board, prequalification tracking, and an integrated leveler to compare bids side by side. 

Document your reasoning for selecting or rejecting bids along the way in order to protect your company from liability, as well as stay true to your principles for what criteria you are looking for to ensure a successful project outcome.

Crafting Robust Contractual Agreements

Contractual agreements ensure a project stays on track, remains focused, and avoids confusion about what is expected out of a contractor-subcontractor relationship.

The Power of a Clear and Comprehensive Contract

A clearly defined contract is key to preventing disagreements while setting the framework for a successful project and a positive working relationship. Laying out important information in a clear contract prevents questions about what’s required from the job, how the distribution of work will be split, and how both parties should expect to communicate with each other.

Specify all the following in a detailed contract:

• Scope of work 
• Project deliverables
• Work timelines
• Payment terms
• Procedures for escalating concerns

During this phase, you should also clarify contact information and norms for communication, whether through email or direct phone conversations between project managers. Establishing these norms at the start prevents miscommunications or possible disputes later on during the project.

Proactive Risk Allocation and Mitigation Clauses

Accountability is key in working relationships, so clarify who is responsible for delays, defects, and safety incidents to ensure that problems are as preventable as possible and quickly addressed when they do arise. Establishing expectations surrounding risk is key to mitigating delays in repairs or addressing possible concerns later. 

Consider inclusions such as:

• Liquidated damages: Establish predetermined costs that a subcontractor pays for delays or failure to fulfill their obligations in the scope to compensate for potential losses. 

• Warranties: Warranties on materials or subcontractor work can provide a guarantee that issues will be addressed promptly if an element of the project fails within a set timeframe. 

• Indemnity clauses: These clauses can clarify who agrees to hold financial responsibility for damages or liabilities that arise from provided work, protecting the other side from liability for damages they may not have caused.

It’s an unfortunate truth that not every project can be perfect, so having a thoughtful system for quickly addressing possible issues ensures client satisfaction and protects your professional reputation.

Strategic Contract Negotiation for Mutual Benefit

A proper contract should be mutually beneficial to both parties to the arrangement. A professional agreement should distribute both the risk and the reward of the project as evenly as possible between the two parties. For example, a subcontractor deserves adequate compensation for completing their fair share of work in the project, while a general contractor should have reasonable protection in case the subcontractor’s work does not meet standards.

This balance is key to promoting subcontractor morale and protecting the project’s success. Include contract terms for risk distribution to encourage accountability and task ownership for subcontractors. Meanwhile, incentives for subcontractor performance, such as increased pay for early completion or superior quality, can also encourage better work output through positive reinforcement. 

Communication, Coordination, and Workflow Optimization

Set the standard for a strong relationship by getting on the same page and setting clear guidelines for communication and workflows, using the following strategies.

Establish Clear and Consistent Communication Channels

Subcontractors and General Contractors should establish their preferred channels for communication at the start of any project to verify that expectations are met and address any questions or disruptions as they arise. It’s crucial that parties establish key points of contact for each subcontractor and job discipline so that contingencies and concerns can be addressed quickly. 

Scheduling regular update meetings throughout the project timeline can help ensure consistent progress reporting and improved collaboration, leading to project success.

Proactive Scheduling and Workflow Integration

Develop a proactive scheduling system to ensure all tasks are identified synchronously, allowing all important parts of the project to be completed with strategic resource allocation and minimal risk of delays. Critical path scheduling helps establish a sequence of dependent activities so that contractors and subcontractors can be aligned on what activities cannot be delayed without impacting the project’s timeline. 

Integrate subcontractor schedules into the master project timeline so that there is clear alignment on what aspects of the project will be done at what times, while minimizing interferences or delays.

Streamlining Subcontractor Workflows for Efficiency

A key consideration in the list of subcontractor workflow tips is to bolster efficiency by empowering the subcontractor to actually fulfill their responsibilities without micromanaging. Implement standardized processes for material procurement and site access so that you can verify they protect the integrity of the job while allowing the subcontractor the agency to do what they do best and hold up their end of the bargain. Offering this agency reduces redundant approvals and bottlenecks in task handoffs, ultimately making the project as a whole more efficient. 

Performance, Quality, and Safety Management

As a general contractor, you need full confidence that your subcontractors can manage all aspects of the job. Ensure prospective subcontractors address high-level performance, quality, and safety management. 

Defining and Tracking Key Performance Indicators (KPIs)

Identify metrics to use for measuring and communicating subcontractor success throughout the project timeline. These metrics establish tangible reference points for assessing subcontractor performance, demonstrating adherence to the scope of work, and ensuring client satisfaction.

Metrics to consider are: 

• Cost adherence relative to the initial takeoff, or cost variance (CV)
• On-time delivery
• Timeliness and adherence to schedule, or schedule performance index (SPI)
• Safety incidents

Consider creating a dashboard or scorecard of key milestones and metrics to reference for ongoing performance evaluations. This dashboard also encourages clear communication between GCs and subcontractors on standards and expectations.

Robust Quality Control and Inspection Processes

Strict quality control procedures and inspection processes are critical for holding all parties in a project accountable and ensuring that small mistakes or oversights are quickly prevented and corrected. Schedule regular inspections and milestone audits to verify work completion quality and compliance at every stage of the process. Meanwhile, document any cases of non-conformances or corrective actions so that they can be appropriately and systematically addressed.

Prioritizing Health and Safety Compliance

GCs must always hold health and safety compliance to the same high standard as project success. While compliance should be a key consideration during the subcontractor vetting and selection process, they must also set the standard for safety prioritization throughout the project by enforcing OSHA regulations and emphasizing site-specific safety protocols. Meanwhile, GCs can create a culture of respect for safety regulations and continuous improvement by tracking jobsite incidents and near misses and applying lessons learned to avoid future risk.

Risk Mitigation and Dispute Resolution

Preparing for risks and disputes while developing contingency plans is a good practice for any business in project planning. The following steps are helpful to consider.

Anticipate and Identify Common Subcontractor Risks

With enough time in the industry, general contractors know that every project brings risk, but preparation is paramount. General contractors should consider these potential risks of working with subcontractors and possible contingencies: 

• Scheduling mishaps
• Labor inefficiencies or delays
• Lack of budget flexibility
• Unmet permitting and insurance criteria
• Equipment unavailability
• Material unavailability or shipping delays

Give extra weight to bids that account for these contingencies in their proposal, as it demonstrates they are proactive in contingency management and are likely to minimize disruptions or delays. During the subcontractor vetting process, take factors like historical performance red flags or regulatory compliance gaps into account. 

Strategies for Proactive Risk Mitigation

Problems can pop up and go awry in any business relationship—the key is to be prepared to respond so you can keep a project from going off the rails. Contract clauses and insurance coverage can help to address and overcome concerns if they do arise. However, establishing proactive approaches through contingency planning, established communication channels, and early problem detection can make all the difference in how you account for and address risk. 

Effective Dispute Resolution Mechanisms

Disputes can occur in any business relationship, especially when there are so many moving parts. Between material orders, timelines, and workflow preferences, there are plenty of areas where contractor-subcontractor relationships can yield disagreements. Having a plan for addressing these disagreements is crucial. 

Utilize strategies like mediation and arbitration to foster an open dialogue for faster solutions than strict legal battles. Include a dispute resolution pathway in your contract up front, such as contact information for escalating concerns and arbitration clauses. Be sure to clearly document any business pathways you follow to resolve them, so you have it on record to inform future subcontractor interactions and better understand the history behind your working relationships.

Leveraging Software for Subcontractor Management

Subcontractor management software has significantly strengthened the ability of general contractors to manage bids. 

The Evolution of Construction Management Software

Construction management software has vastly improved, boosting the efficiency of general contractors in their capacity to submit requests for proposals, reach a greater number of candidates, and vet the pool for the right fit. Developments in construction management software have made manual tracking a thing of the past.

Not to mention, software has an incredible ability to speed up the process of requesting and sifting through bids. General contractors are better able to rapidly send out ITBs, connect with a wider pool of subcontractors, organize and review subcontractor bids in one location, and even match with qualified subcontractors that meet key criteria. A tool like PlanHub also allows contractors to review bid status all in one place.

Key Features of Effective Subcontractor Management Software

Subcontractor management software has made it significantly easier to manage projects and ensure success. The best subcontractor management software often encompasses all the following features:

• Qualified subcontractor database: Access to prequalified subcontractors already using the subcontractor management software looking for projects to bid. 

• Invitation to Bid (ITB) Distribution: Email integrated system to send ITBs to subcontractors matching the project’s requirements. 

• Document management: A cloud-based system that keeps plans, specs, and documents all in one place saves time and ensures project managers can find what they need right away.

• Collaborative capabilities: Collaborative tools allow project stakeholders to communicate across bids and projects  

• Reporting dashboards: A robust activity dashboard can compile information on ITBs received, customized project maps, and project statistics over a given timeframe.

• Mobile accessibility: Mobile capability allows you to carry your project management capabilities into the field for real-time updates, messaging, and bid progress monitoring. 

PlanHub includes all these features and more, empowering general contractors to keep all their projects on track by filtering subcontractor qualifications, tracking bid status, and automatically following up with prospective subcontractors.

Strategic Implementation and Adoption

Once you identify software capabilities and pinpoint the proper tools for the job, it’s important that you ensure its use is maximized and strategically implemented across the team. Establish norms for using the software and develop user training so that your team has the confidence and capability to put it to work.

Then, use data-driven insights to monitor software adoption and effectiveness, including the number of subcontractors matched to your project, invitations to bid (ITBs) sent, number of subcontractors that inform their intention to bid, bids received, time per bid, and the bid-to-award ratio.

Building Strategic Partnerships: Fostering Long-Term Relationships

Establishing strong partnerships up front sets the foundation for not just long-term relationships that result in satisfied clients and potential for greater capacity for future work opportunities.

The Value of Collaborative Relationships with Subcontractors

Collaborative relationships with subcontractors yield reduced turnover, improve responsiveness, and provide mutual confidence in both an effective outcome and client satisfaction. General Contractors should respect the expertise that subcontractors bring to a project and vice versa. Establishing a dynamic of mutual collaboration rather than a top-down hierarchy is often a healthier dynamic for a contractor relationship, providing learning opportunities for both parties and fostering respect for all skill sets.

Fair Payment Practices and Financial Transparency

Fair payment practices and financial transparency are essential parts of sustainable business relationships. Payment terms and preferred payment methods should be discussed up front to prevent delays or disruptions to the project later on.

Other best practices for payment include:

• • Timely invoicing: Set expectations for timelines for receiving invoices and be sure to fulfill the payment within the requested timeframe. 

• Cost tracking: Open cost tracking creates transparency around material and labor costs so that both sides have insight into expenses related to the project.

• Milestone payment: Establish clear expectations for milestone payments throughout the project duration, whether it’s partial payments after a given timeline is met or following completion of set deliverables.
• Clear and documented change orders: Clear and timely change orders are important for respecting both the GC’s and subcontractor’s budget while preventing costly disruptions to the project.

Cultivating a Culture of Trust and Mutual Respect

In facilitating a strong professional relationship, general contractors and subcontractors should maintain integrity and mutual respect throughout the interaction. Professional partnerships provide an opportunity for growth and collaboration beyond just the work that is being completed. Maintain professional and friendly communication throughout all elements of the interaction by treating all parties with respect as both professional partners and as people.

Encourage a dynamic where you can share both positive feedback and constructive criticism between both sides to promote professional development and optimizations in future partnerships or general construction projects. These small acts will go a long way toward solidifying your reputation and will follow you through future projects and bid requests. 

The Impact of Strong Subcontractor Relationships on Your Business Growth

Strong subcontractor relationships are a gold mine for your own business growth. Having a roster of reliable partners to turn to for support in additional projects offers benefits like lower project risk, improved reputation, and greater flexibility to take on future projects. These strategic partnerships allow you to quickly access a resource to support you in completing projects—the better the relationship, the quicker you can access support when a project requires additional specialization or support to meet deadlines.

Subcontractor Management for Sustainable Construction Success

Subcontractor management best practices rely on a combination of strong selection and vetting procedures, a detailed contract, risk management, and open communication. Adopting strategic technological tools can put you in a strong position to manage subcontractor bids with a systematic vetting system and cultivate long-term partnerships. 

Being able to manage all your bids from one platform can make all the difference in staying on top of all your projects and maintaining effective subcontractor management for each one. PlanHub’s general contractor platform equips you not only to solicit bids but also to create a blueprint for a strong working relationship. Our general contractor bidding platform allows contractors to automate invitations to bid (ITB) and contractor matching, spark collaboration in public and private plan rooms, and get on the same page from preconstruction through the end of the project.

Contact PlanHub to book a demo of our software today and see how easy it makes managing subcontractors in construction.