Main contractors appoint subcontractors to complete portions of the work on their behalf. Over the years, construction has heavily developed as an industry, which is why contractors have begun to rely on subcontractors instead of employing large workforces by themselves. This allows them to employ sophisticated and specialized construction techniques and get advantages of nominated subcontractor.
The use of subcontractors allows the principal contractor to take on more complex projects while not raising their risk to unacceptable levels. This helps them to manage delivery risk by stepping down major contract restrictions, such as delay damages or liability caps, onto their subcontracts. However, choosing a subcontractor can be tricky.
Why Should You Use a Subcontractor?
Subcontractors are utilised in a variety of industries for a variety of reasons, from the flexibility of being able to scale operations up or down during certain economic cycles to bringing on specialised talent for project-specific activities. Some major benefits of employing subcontractors are:
1. Easy Adaptation to Economic Cycles
Every industry experiences periods of development and decline. Your company can adjust to these fluctuating demand cycles by utilising the services of a subcontractor. You’ll have a lot more flexibility if you can swiftly ramp up staff without having to lay off workers when contracts start to slow down.
The construction business is a great example of when this method makes the most sense. The global financial crisis of 2008 is still fresh in most people’s thoughts, reminding them that it is far easier to downsize with subcontract firms and prevent mass layoffs.
When things do start to pick up, it’s easier to bring on subcontractors who can start working right away than it is to try to hire everyone at once while also having to meet the sudden rise in demand logistically.
2. Minimize Labour and Overhead Costs
You can also keep your overhead costs down by using subcontractors. As the main contractor, your company doesn’t have to worry about hiring and employment, employee benefits, or office space for permanent workers and equipment.
Subcontractors are widely used in the furniture industry, particularly in countries where labour costs are lower.
Many furniture makers, for example, rely on subcontractors to do duties throughout the manufacturing process, allowing them to concentrate on the few important activities such as assembly and finishing. This translates to fewer permanent personnel and less equipment on hand.
3. Keep Your Capital Investments to a Minimum
Another advantage of using subcontractors is that you can gain access to capital equipment and skill advancements without having to invest money. Your subcontractors’ remuneration allows them to improve their own capital equipment and staff skill sets without incurring additional costs for your company.
According to research conducted by the organisers of the UK’s Subcon exhibition, around a third of respondents employ subcontractors to avoid investing in non-core capital equipment.
4. Specialized Work Outside of Your Primary Business
Your company excels at its core concepts, but you may require assistance with those auxiliary operations that are vital but fall outside of your key areas of expertise. Adding that section to your company may not make sense, especially when you can employ a subcontractor to handle such services on an as-needed basis.
This is especially true in the automotive business, which demands quick response times as well as continual improvement and innovation. Inspection, presetting, and balancing of essential tools, as well as general tool management and maintenance, are frequently handled by automotive subcontractors. These duties aren’t directly involved in the creation of an automobile, but they are required in order to do so.
5. Concentrate on Your Assets
You and your core squad probably have a unique set of skills and abilities. Using subcontractors allows you to quickly extend your service without having to hire additional people. You’ll be able to take on larger, more specialised projects without the need to hire permanent support.
Nominated vs Domestic Subcontractor
A domestic subcontractor is any subcontractor hired by the principal contractor to complete a portion of the project. A domestic subcontractor can be considered if the contractor chose them voluntarily or from a list of at least three potential subcontractors.
Nominated subcontractors are pre-selected by the clients and are subsequently imposed on the contractor once the contract is signed. They are more common for projects in their development stage, such as the feasibility stage or outline design stage, where they provide feedback that helps the client move their project forward to the build stage.
Benefits of a Nominated Subcontractor
Some large construction businesses now have their own subcontracting organisation to handle specific projects. Sanken Construction, for example, has San Pilling, SanMech, and San Elects; domestic subcontracting is favourable for those firms because they can allocate their subcontractors to the project and profit from them.
It will also be advantageous for transmitting secret information, particularly rates and other financial papers. As a result, there is no need to be concerned about exchanging such information.
By using a nominated subcontractor, the builder wil develop strong lasting relationships with every supplier as opposed to pursuing the supply network on a project-by-project basis. This helps in creating credibility, which lowers the risk factor in quotations, and these savings are passed on to the client.
In the event of significant demand, suppliers are more inclined to prioritise the client, notwithstanding the monetary benefits of ongoing nomination. They’re also more likely to assist the customer if a planning issue emerges and the client requires solutions in order to secure the necessary planning clearance to proceed with the development.
A nominated subcontractor also provides assistance in addressing early technical challenges and value engineering down the scope to fit within the development budget, in exchange for preferred payment conditions.
Nominated subcontracting mutually benefits the client and subcontractor. The client can choose the expert contractor he or she wants, get design and value engineering assistance, and have direct access to the project throughout its completion. The subcontractor benefits from the increased payment certainty.
All in all, nominated subcontracting is a better fit for contractors looking to build relations, establish trust, and have a streamlined process.