In managing construction, especially large-scale ones, it is not surprising to have more than one contractor who handles the project. Most construction companies look at subcontracting when dealing with too complicated projects or when they found themselves in the following situations:
• Construction companies of all sizes sometimes have inadequate resources to complete the assigned projects.
• At other times, businesses realize that they don’t have the needed expertise in-house to achieve the required output.
• Lastly, the team appointed in project management for construction can determine that external contractors specializing in a particular trade can work at a lower cost than in-house contractors.
Subcontracting solves the immediate problem the construction company faces, but it has disadvantages of its own like most things.
Deciding to be a subcontractor can be a reliable source of work without being employed by a company or seeking new clients. However, it can come with some considerable drawbacks— taxes may be more complicated to compute, pay maybe less dependable, and you’ll probably have less to no say over who you work with daily.
In today’s blog, we’ll dive into the most common pros and cons of working as a subcontractor that can guide whether this line is more fitted for you than being a traditional general contractor.
There are many factors to consider before finally choosing whether or not this track of work is suitable for you—let us navigate you through it.
1. The Generalists and Specialists
One of the most significant and most common differences between subcontractor and general contractor expectations is that project owners often expect subcontractors to be “generalists.”
Typically, a client will hire a general contractor for a construction job. They may need to deliver a variety of tasks that may require an extensive set of specialized skills. For instance, a project owner wanting to redesign a mall’s rooftop garden may expect comprehensive experience with landscaping — including irrigation, soil analysis, softscaping, hardscaping, and maintenance.
The general contractor will likely hire subcontractors to take care of the more specialized activities such as outdoor plumbing, horticultural, or property landscaping maintenance once the construction project is completed.
Through this, subcontractors have more room to demonstrate a specialized skill set and perform jobs that contractors who are accustomed to performing more generalized works may not be able to handle. Furthermore, you also have the chance to hone your skills to a point where you are the first specialist or subcontractor called during a particular job for a construction project.
Do your skills lean more towards construction crew management, documentation and contracts handling, big-picture collaboration… or do you want to focus on a handful of particular, tactile skills and become an expert in those niches? This is one of the questions to consider.
2. Employee vs. Employer
As a subcontractor, you can start your own subcontracting company, or you can work as an employee for someone else. Each has its advantages and disadvantages, and you can choose based on which will fit your professional goals more.
If you choose to establish your own subcontractor business, you’ll be able to obtain many of the significant benefits of being a general contractor, such as greater flexibility in project scheduling and working hours. You’ll be less committed to the project owners you work with as well. If you don’t like a particular project, you’re free to move on to working with a new general contracting company once the job is complete.
It is true that you can make more money working as a general contractor instead of being a subcontractor, most especially if your specialization or field of expertise is highly sought after, but that is not always the case. Additionally, you will not need to look for jobs all the time, unlike subcontractors, and your workload and tasks will be consistent regardless of the type of project you are on.
3. The Full-Time vs. the Freelancing Professional
Once you decided to be a subcontractor, your mileage will start to vary. You will be responsible for paying for your taxes instead of letting the HR department from your contractor company take care of it. Moreover, you will be liable to track the inflow and outflow of your money since no one will do it for you. As an independent contractor or a freelancer, you might also need to pay an even higher self-employment rate and quarterly estimated tax, depending on how much you make in your subcontracting business.
In freelancing, you will certainly not receive as many benefits as you would if you are full-time employed in a construction company. You will need to purchase your health insurance, and there are no sick leaves or sick leaves to file. Nevertheless, you have the option to balance your workload, depending on your goals and circumstances, and maximize the flexibility that subcontracting brings.
4. Relationship With Project Stakeholders
As a subcontractor, you still need to carefully manage your relationship with the project owners or companies that hired you. In doing this, you will still need to show transparency, flexibility, and close communication with them. In this case, however, you will be focused on establishing this relationship with a general contractor.
Since subcontracts are negotiated instead of bid upon, bonds may be unnecessary for subcontracts. This is the opposite of primary contracts, where bonds are required by law. Furthermore, insurance and licensing for subcontractors are the same as general contractors. The license itself may vary, but the bounds will remain the same.
Lastly, as a subcontractor, you are still responsible for managing your workers’ time and keeping a construction daily report of their activities.
5. Dependability to Others
While subcontractors will have more flexibility than general contractors in some areas, they’re bounded in others.
As a subcontractor, your payment is usually dependent upon a general contractor. If the construction project isn’t completed due to factors outside of your control— or if the payment agreement between the general contractor and project stakeholders breaks down— you may find yourself waiting for compensation on completed work and used materials.
An employee under a general contractor knows who they will work on daily. On the other hand, subcontractors may need to work with new construction teams that use different processes. Their working style may also be a bad fit with how you and your crew approach your jobs, creating tension and stress that can result in less efficient work.
6. Handling Large Projects
Construction companies hiring subcontractors can take on larger projects than those they can take care of on their own. They earn a profit on the aspects of the project handled by subcontractors and significantly grow their overall income.
Bigger projects come with higher risks. When more subcontractors receive contracts, the chance that one of them will not perform as expected goes up too. The company acting as the project management team must ensure that the extra profit is sufficient to make these higher-risk projects worthwhile.
7. Field of Expertise
When the involvement of construction professionals is not required for a project, it may still benefit a company to subcontract specialized consulting services instead. Companies who invest in enhancing special skills in areas like traffic management, environmental disciplines, or archaeology usually get the work done faster and at a reduced cost than non-specialists.
However, the tasks may not be performed the way the project stakeholders want them done since subcontractors still possess the upper hand when it comes to specialized works. Since the general contractor lacks the expertise in these trades, he is at the mercy of the subcontractors.
8. Cost Considerations
Construction companies producing large quantities of a few products or services typically have lower costs than general contractors who handle many tasks and projects simultaneously. Subcontracting to these large companies generally saves large amounts of money as well.
In managing construction, high-volume companies usually handle steel structures and cement work. Construction companies often subcontract marketing campaigns or data processing. Even though such subcontracts save time money, the contracts must define the levels of performance and the quality of work the project stakeholders require. The cons of such subcontracts are the risk of not meeting quality requirements or the projected schedule. A tool that can help with this dilemma is a subcontractor scheduling software to ensure you don’t miss anything.
Is Subcontracting in Construction Worth It?
Becoming a subcontractor can provide benefits that general contractors don’t have access to. You have more room to focus on a specialty and even greater flexibility in the construction projects you commit to, and more control over your time.
Ultimately, general contractors have a comprehensive scope of project management works and are responsible for coordinating and collaborating with several stakeholders and third-party contractors. On the other hand, subcontractors have relatively straightforward job expectations, even though the take-home pay balances it out.
Subcontracting can be a fulfilling way to acquire experience with a wider variety of construction management and gain more control over your work, time, and resources. Be sure to weigh all your options and make the choice that is the right fit for you.