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Chapter 13
Pricing Subcontractors’ Work
Objectives• Upon completion of this chapter,
you will be able to:– Describe how subtrade work is usually
estimated and explain the role of the contractor’s estimator in this process
– Identify potential problems with subcontractors on a project
Objectives (cont’d.)– Explain how the competency of subtrades
can be evaluated and list what should be considered in this evaluation
– Explain how surety bonds can be used to help manage subtrades
– Describe subtrade pre-bid proposals and explain their use with subcontractor bids
– Describe how subtrade bids are evaluated
Objectives (cont’d.)– Describe the main features of bid
depositories and explain their use with subcontractor bids
Introduction• Subcontractors
– Building construction projects• Often perform 80% or more of the work
– Contractor has to rely on subtrades• Good relationships • Mutual trust• Two-way communications• Common goals
Potential Problems• Possible reasons:
– Unreliability of some subcontractors– Errors in subtrade bids– Overlap or underlap in scope of work – Conditional bids from subcontractors– Bid closing congestion– Compliance with government positive
action requirements regarding minorities
Managing Subcontract Pricing Procedures
• Effective management practices– Required throughout estimating
process• Control problems
– Well-organized system of dealing with subtrades• Identify subtrade needs• Ensure subtrade capabilities
List of Subtrades• Complied after bid drawings and
specifications are obtained– Used to determine trades to be
contacted
• Subtrades should be notified early in estimating process– Design questions and problems are
resolved
Contacting Subcontractors• Most contractors maintain a
directory of subtrades– Checklist on computer spreadsheet
• Estimator checks off or adds trades required• Checklist is compiled• Copy is e-mailed to subtrades• Subcontractors return checklist with name
against trades they are prepared to submit prices
Unknown Subcontractors• Can be stressful
– Sometimes necessary
• Nominated subcontractors– Deal made before bids
• Clause is inserted in bid documents
• Unsolicited subtrade bids– Low price is received from unknown
company
Evaluating Subcontractors• Main concerns:
– Is the subtrade capable of meeting the quality and schedule requirements?
– Does the subtrade have the financial capability required?
Evaluating Subcontractors (cont’d.)
• Factors to investigate:– General company reputation– Quality of previous work performed– Quality of company’s management– Company’s disposition
• General cooperativeness • Ease of dealing with site and personnel
– Financial status of company
Bonding of Subtrades• Bonds are obtained to guarantee
work performance– Surety bonds: manage construction
risk– Bid bonds: give prime contractor the
right to damages from bonding company • If subtrade fails to execute the
subcontract after bid has been accepted
Pre-Bid Subtrade Proposals• Methods of submitting bids:
– Fax and e-mail• Provides a hard copy• Received quickly
• Pre-bid proposals: – Copy of subtrade’s bid without prices
• Complete in all other details
Figure 13.2 Pre-Bid Proposal (Delmar/Cengage Learning)
Analyzing Subtrade Bids• Subtrade bids
– Ensure all work required is included– List inclusions detailing all the work
• Excluded items should be listed on the subtrade’s proposal
• Estimator has to lookout for items excluded from the work and not priced
– Complicated by multiple trade bids and discounts
Figure 13.3 Subtrade Analysis Spreadsheet (Delmar/Cengage Learning)
Bid Depositories• “Bid shopping” or “bid peddling”
– Disclosing prices to obtain an equal or better price• Not illegal, but unethical
• Bid depositories – Assemble bids from subtrades – Distribute them to prime contractors
Scope of Work• Trade scope definitions
– Useful guide to what is accepted locally as the definitions of subtrades’ scope of work• Enables overlap and underlap investigation
• Examples:– Masonry scope of work– Windows scope of work– Glass and glazing scope of work
Summary• Subcontractors on building
construction projects– Often perform 80% or more of the
work – Several problems occur with subtrade
bids
• Effective management practices – Required to deal with subcontractors in
the estimating process