Subcontracting

In the construction industry, subcontracting is not only common place but it is also necessary for the timely completion of projects, in many instances. General contractors will subcontract 75% - 85% of a project’s complete scope of work out to contractors that specialize in certain trades or areas of expertise. Subcontracting is an economical way to obtain specialty services when the general contractor does not have the time, the specialized equipment, or the manpower to do certain portions of a project (Schaufelberger and Holm pg 91). Subcontracting work can often lead to a reduction in the price of a given scope of work. A real life example would be when a general contractor uses union labor to perform its scope of work but will hire non-union subcontractors to perform large parts of an overall project. In general, non-union labor is cheaper than union labor so by subcontracting parts or even the whole project out to a subcontractor, the general contractor is able to become more competitive. When the general contractor is able to become more competitive, one of two things are possible. The first is that they can offer a lower bid price to try and secure a job, or they can maintain a higher bid price and turn a larger profit.
To understand subcontracting it is necessary to first understand the relationships between the main participants of the construction projects delivery method. There are many delivery methods in the construction industry, but in all of the delivery methods, the main participants will remain the same. The main participants include the owner, the designer, and the general contractor (Schaufelberger and Holm pg. 3). The owner will have separate contracts with both the designer and for the design and the planning of the project and also a separate contract with the general contractor for the building and general management of the project. Subcontractors that are hired for any given project do not have any contractual obligations by the owner,...