New Game for Subcontractors
As construction managers build new strategies – or otherwise scramble to respond to the development market slowdown – their moves often have significant repercussions for subcontractors.
Among the prime concerns for subcontractors are the dirt-cheap rates that some general contractors and construction managers are bidding for new work. That in turn has surety companies that bond subcontractors in similar distress, says Jay Price, executive v.p. of business development for the Conti Group, a contractor based in South Plainfield, N.J.
“[Surety companies] are very nervous that the subcontractor default rates are going to be skyrocketing because [contractors] are taking $10 [million to] $50 million-size jobs really cheap – they’re going to [pay lower rates to] their subs,” Price says. “The subs in turn are also going to be going in cheap, and if they don’t get their money right away, it’s a cash-flow issue. And then you’re going to see a lot of subcontractors go out of business in the next year or so.”
But some construction firms are looking for ways to partner more effectively with their subcontractors to help manage through a more hostile market. Stalco Construction of Islandia, N.Y., has started a program where it is offering its subcontractors the chance to get early payment for completed work before the standard 30-day window after the contractor gets paid, says Kevin Dunathan, v.p. of operations.
If a subcontractor wants payment within 15 days, Stalco would hold back 1% of the total invoice. If the subcontractor wants to collect within 16 to 30 days, Stalco would shave off 0.5%. Stalco isn’t pocketing the savings, however. Instead, Dunathan says it is funneling those monies into an advertising and marketing budget that aims to help the firm, and ultimately its subcontractors, land new jobs.
“In this way, they’re contributing to an effort that is going to help them in future,” he adds.
Subcontractors will also be looking out for themselves in this market. They are likely to gravitate to the strongest contractors that are showing they have ample work and the confidence of project developers and owners, says Joe Mizzi, president of New York’s F.J. Sciame Construction.
“They are considering construction managers that have strong backlogs and other indications that the company is doing well,” he says. “Those firms will get more subcontractor responses at the bidding level.”