Many subcontractors will do almost anything if they think there's another nickel's profit or another month's company survival in it for them. General contractors always have known this and have taken advantage of it. Can you say “construction management at risk,” or the old 80% (for them), 20% (for you) split on value-adds that you come up with?
So it shouldn't be surprising to you that those who run A&E and GC firms have come up with a slightly new idea for an old concept by conducting what essentially amounts to reverse auctions for individual parts of the construction process.
Subcontractors now are being asked to reduce their potential profits and increase their risks — all the while maintaining fast-track production speeds with no corresponding increases in fast-track prices — through what I call “coopetition” or “cooperative competition.” The concept pits subcontractors against their traditional competitors in local markets and forces them to bid on the tiniest parts of what used to be entire systems.
Think about it: What are your firm and your good guys really good at? Is it hanging duct? Is it installing gravity DWV piping? Or is it installing chillers and hydronic piping or stringing medical gas piping webs? Do you absolutely hate — or are your crews not good at — other things, such as trimming out or doing tight between-layers squeezes? Wouldn't it be good if you as a subcontractor could truly concentrate on what you and your guys do best? Would it also be good not to have to swallow the entire risk of the completed system's installation parts, which you definitely would subcontract out yourself if you could? Not buying it either, huh? Well, I'm trying to put as good of a face on it as I can.
The truth is that even our own guys sometimes have trouble making the piping and duct runs hit exactly where the plans show and have even more trouble making gravity-stuff work in increasingly smaller above-ceiling/below-floor spaces. You or your crews must have the talent to take a typical set of plans, throw them in the garbage and then put the stuff in like it's supposed to be and not like it's shown. The only way to do this is to have as much control over the respective sub-processes as possible. But the aforementioned new/old concept is going to break down such processes even further.
I don't know about you, but I've had RFP's shoved on my desk in which a GC wanted a complete job-cost breakdown of every single little screw, nut and bolt and every running foot of duct, pipe or insulation, etc. My response always has been a polite but firm, “We are not interested in providing such a detailed breakdown of specific line item prices at this time.”
Well, now the economy is heading not just south but all the way to the equator in many areas of the country. As such, those holding the checkbook already are trying to get away with the draconian method of auctioning off not just subsystems of subsystems, but actual street-level component parts of these subsystems.
Sometimes subcontractors supply the parts, but many times general contractors furnish the actual materials (and keep the profit). At that point, subcontractors become labor-only contractors. General contractors know the supply of subcontractors surpasses the availability of work actually out there, especially in a weak economy. Therefore, they can get away with this nonsense, at least for now, but you had better get used to it in case it becomes the norm in the future.
Yes, it will be a nightmare trying to coordinate with four, five, six or even 10 or more other subcontractors who have taken the hit and bought what work they could to keep their guys busy and their doors open. In the end, you and I both know this isn't going to save the owners one red cent because we all have to adjust our prices for the added risk of litigation. (Can you say “litigation city” for most jobs run like this?) There's also the very real headache of trying to make your stuff work with what other subs put in before and after you.
But until the pool of fellow competitors shrinks or the level of work rises to where there's enough work for everyone, this spirit of coopetition will live on. You'll essentially be working for near-nothing doing stuff you'd have sneered at just a couple of years ago under less-than-favorable terms. Until you see the light at the end of the tunnel, take your fellow former competitors, now “coopetitors,” out for a drink and hammer things out so you won't kill each other on the job the next day. This new future is looking suspiciously more and more like the old days we all grew up in, except we have even less control than we used to.
Kent Craig is a second-generation mechanical contractor with unlimited Master's licenses in boilers, air conditioning, heating, and plumbing. You may contact him via email at [email protected].