Friday, April 18, 2014

Subcontractor Hiring Guidelines



Here are a few guidelines to follow when you're seeking a subcontractor.

An essential ingredient is finding subcontractors who can be flexible and innovative. In many cases it's important to do a construction project around an existing building or within an active office or business without disrupting the day-to-day operations. A good subcontractor is willing to work at off-hours or devise another way to circumvent the owner's ongoing work schedule.
Review the subcontractors experience to ensure the firm has done your kind of project before.  Sometimes a high-rise builder may not be a good choice for an upscale retail shopping center.  Likewise, a residential home builder subcontractor may not have the skills to tackle commercial construction work.

GATHERING SUBCONTRACTOR INFORMATION

Name
Name of Subcontractor

Federal or Social Security ID
This information is Optional because many companies or individuals do not welcome giving out this information until they actually have been awarded a contract. It this case, this information should be obtained immediately upon starting the project because it saves time at end of year for tax reporting purposes.

Areas of Expertise of Specialization
Helps define the professionals ‘qualifications for your specific project
State License Type
For license identification purposes                                
License Number
To insure that the contractor is properly licensed
License Expiration Date
To insure that the license is currently active and remains valid for the duration of your project
Phone Number AND Emergency Phone Number
General contact information and during construction in the event of an emergency
HTTP://
This URL is useful for obtaining more information about the company or professional
E-Mail Address
Contact information

Bondable
A contractor is bondable when a rated surety company has given the contractor a written statement of bond ability.  Before issuing such a statement the surety company conducts their own background check on the contractor before they make a commitment to provide a bond to the contractor.  When the surety company is satisfied that the contractor is a good risk the contractor becomes bondable.  Even though you may not require a bond for you project you may want to use this information for qualifying contractors. (See Bonding Rate Below)

Bonding Capacity                                                       
The bonding capacity is the dollar amount the bonding company is willing to guarantee for all bondable and non-bondable work the contractor has on hand based on the experience level and capabilities of the contractor. 

Example:  The bonding company determines that the construction company qualifies for a bonding capacity of $2,000,000.  The contractor has work on hand, contracts totaling $1,000,000 ($500,000 requiring bonds and $500,000 not requiring bonds).  In this example the contractor has a bond surplus of $1,000,000 for any future work requiring a bond and will be granted the bond.

Example:  The bonding company determines that the construction company qualifies for a bonding capacity of $2,000,000.  The contractor has work on hand, contracts totaling $1,000,000 not requiring bonds.  The contractor wants to bid on a new $2,000,000 project requiring a bond, which would increase his work on hand to $3,000,000.  In this example the contractor has a bond deficit of $1,000,000 and will not be granted the bond unless the bonding company reevaluates the contractor’s capabilities and agrees to increase the contractor’s Bonding Capacity.

  Tip!
If you are requiring a bond ask the contractor to invoice you for its direct cost.  You'll save a hefty mark-up because it is not necessary to include the bond cost in the contract schedule of values and incur the contractor’s markup.
Bonding Rate
When the contractor becomes bondable the amount the surety company charges the contractor for the bond is called the bonding rate.  This bonding rate is based on the risk factor the bonding company places on issuing the bond to the contractor. The higher the risks to the bonding company the higher the bonding rate.  And conversely, the lower the risks to the bonding company the lower the bonding rate.

The bonding rate is also a good guide for comparing contractors by looking at their bonding rates you can generally tell if the contractor has a good track record. 

Example: Contractor A has a bonding rate of 1% (one per cent) whereas contractor B has a bonding rate of 3% (three per cent).  Contractor A has a greater experience level and capabilities than contractor B as viewed by the Bonding Company.  Also, contractor A's bond will cost you 2% less than contractor B's bond.  
Work on Hand
This is the total amount of work the contractor currently has under contract. 

REFERENCES

When qualifying Subcontractors it is good practice to obsttain at least three references, preferably from former clients and/or vendors or materials suppliers.  Subcontractors who pay bills on time demonstrate dependability and financial stability.

Remember, subcontractor’s can make or break your project so choose your subcontractor(s) carefully.

Tip!
Whenever practical, in your bidding documents, reserve the right to negotiate with any and all contractors because the lowest bidder is not necessarily the right contractor for the project.

Much of this material was taken from the new publication “Construction Like Sushi” ISBN 978-0-9668245-1-3 and available for download on www.propertyandprojects.com

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