SubContracting SME a challenge a uncontrollable risk a benefit How to handle

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SubContracting (SME)a challenge a
uncontrollable risk a benefit? How to handle
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Many have repeatedly and consistently commented
that the subcontracting obligation is a real
major concern and problem
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Basics
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What is not a subcontract
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Materials (delivery)

• Material purchase (supply) as such is not a
  subcontract and follows different regulations

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• Workers as such
• are
• dependent on the instructions, are not free to do
  how they like, hold no responsibility for the
  product and are therefore not (sub)-contractors
• Are not liable for the product/item
• Have a different legal status in terms of
  obligations and rights (laborer laws)

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• Equipment
• are assets and follow other rules and laws such
  as the financial laws

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• Conclusion
• it needs a combination of several elements to
  create a subcontract
• One element is always managing and decision
  making (creating responsibility) for the item is
  with the subcontractor

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• Subcontract
• in terms of construction means that parts /
  elements of the project (product) are delivered
  by other contractors (such as SMEs) employed by
  the GC.
• A subcontractor is responsible to produce/deliver
  a (partial) product in terms of a measurable item
  in technical and legal terms according a
  ccontract (by defined time, quality, costs etc)
  

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Subcontracts

• Are identified and seen as serious risks and
  none beneficial to achieve the project and the
  objectives of a GC

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Subcontracts

• are
• unsuitable to deliver on time and delay and
  complicate the project process (loss of ability
  to instruct and take direct actions)
• risky in terms of budget
• impossible to be handled in legal terms
• a threat to the GC
• politically beneficially but eliminate/restrict
  profit for the GC

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Subcontractors

• Have
• no money, no material and no equipments
• Are short term companies
• and cannot be made responsible in future for
  defects and cannot guarantee
• Are on low professional grounds
• in technical administrative and managerial terms

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• GTZ (We) disagree to such statements
• and challenge them
• We will therefore address directly ANY
  questions, problems and fears
• We like to find solutions jointly and provide
  answers needed

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GTZ will try to pave the way for successful
subcontractingby providing solutions tailored
to problems, addressing your concerns
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Lack of subcontractors available
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Data we needto understand and to find solutions
to fulfill the 40 rate of the contract
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Basic Cost distribution of a building by
workmanship, material, equipment and overhead etc

• Labour
• Material
• Equipment
• Site overhead
• General overhead
• Risk
• Profit

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Common used Subcontracts

• Piece workers
• Some trades

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Subcontracting by trades
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Sample Cost distribution Library by Trades
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Subcontracting by trades

• We can subcontract trades per building
• We can subcontract the complete trade for all
  buildings
• We can subcontract with equipment
• We can subcontract with materials
• We can subcontract with some materials

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Subcontracting by Components
For example Buildings, Blocks, floors etc....
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Subcontracting by Items
Specified items according BOQ None specified
items in the BOQ
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Subcontracting by Tasks
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Subcontracting by Tasks
Overhead Site-HQ
Direct Productive
indirect Productive
Management Tasks (sample update time
schedules) Financial Tasks (sample site
balancing) Testing, Reporting, Quality
Assurance Maintenance Temp. buildings/facilities G
uarding, transport of staff
Production of HCB Concrete production Aggregate
production (crushing) Formwork including.
erecting
Cleaning Waste removal Transporting/storing

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The subcontracts that are counted within the 40
are for

• local and regional SMEs

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Risks
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Typical Risks using subcontracts

• Sub is not registered correct
• Sub does not pay the taxes
• Sub did not pay materials he used in the project
• Sub did not pay his workers
• Sub did not comply with instructions
• Sub needs a VO
• Sub requests a time extension
• Subs quality is poor
• Sub items have defects
• Sub disappears
• Sub does not deliver all items

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You have to plan how to handle this risk

• As you are aware the GC faces contractual
  consequences in case a subcontractor is not paid
  immediately
• (as agreed in the subcontract)

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Insurance and subs?

• What is needed ?
• Should the GC insure subs and deduct the premium?

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• 2.1.4 Project planning principals apply for
  subcontracting
• Set up project plan (chart of organisation and
  sub trades)
• Set up (sub) risk assessment
• Decision on (sub) risk prevention and procedure
  against (un) foreseen incidents

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Risk response Planning as part of good project
planning
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A definition of Risk(after Gill Ferrell)

• A future event (or series of events) with a
  probability of occurrence and the potential for
• a) loss or
• b) impact on objectives that can be either
  positive or negative.

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Risk logging Cause and Effect

• Condition
• Cause
• Consequence
• Context

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Risk response Options

• Risk Avoidance
• Risk Transference
• Risk Mitigation/reduction
• Risk Deferral
• Risk Acceptance

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Risk Analysis
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Three-Point Estimates

• MO Most Optimistic (best case)
• ML Most Likely (average case)
• MP Most Pessimistic (worst case)

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Quantifying Risk
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Risk management

• Construction projects face various risks which
  threaten the successful performance of the
  contractor according to customer needs and
  specifications.
• Project planning must address these risks during
  project development.

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Risk managementCommon risk types in building
construction

• Financial
• Time
• Design
• Quality
• Legal regulations
• Weather conditions
• Geo hazards
• Material supply
• Ground conditions
• Labour situation

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Principle Approach in risk management (I) The
risk management process
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Principle approach in Risk management (IV)
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Principle Approach in risk management (II)
Selected Risk types
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Principle approach in risk management (III)
Selected Risk types
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One way of Risk Management
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9 Questions in need of answers
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The required list of subcontractors according the
GC contract

• Draft the form of the list the GC has to provide
  after 15 days according the special contract
  conditions

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Can you change the list/items of subcontractors?
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Price adjustment for subcontracts?
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How can I find a sub and know if he is suitable?
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Deductions from subs?

• Direct costs like Electricity, water, materials,
  etc.
• Damages caused by subs
• Liquidated damages
• Performance guarantee
• Warranties

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When is the right time to subcontract ?
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Is there a difference between Subcontractor and
SME
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Why is the calculation of tenders with
subcontracts different than without subs?
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Problems handling subcontractors
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Problems handling subcontractors
Like any client handles such problems a GC being
the client of a subcontractor the key is a
suitable subcontract.
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The Contract with a Sub
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Sample Sub-Contract Format
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How to achieve the 3 main results

• 1. Supporting General Contractors local
  enterprises
• In selection process!
• In negotiation process!
• In improving partnership!

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10 Good Reasons for Sub-contracting

• Concentration/specialization on own core
  competencies!
• Better supervision of construction process!
• Better time management of big projects
  compliance with deadlines!
• Building reliable partnerships in the regions!
• Increased possibilities on local markets!
• Distribution of risks!
• Less own employees (less problems)!
• Better control of price increase!
• Greater efficiency in the use of plant
  machinery!
• Improved reference for future big projects!

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Some more Good Reasons for Sub-contracting for a
GC

• More Resources
• Local contacts and knowledge
• Lower overhead costs
• More knowledge
• Distribution of responsibilities

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The Reason That Counts

• safe and real profit out of the project
• and on the longer run

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FAQs
Frequently Asked Questions (about
subcontracting) Problems associated with delay
of payment for SMEs which is big headache and
main reason for delay at most sites and SMEs are
also facing problem with getting reasonable
prices when they are entering an agreement for
labour cost with the main contractors But it is
experience from previous projects, that SMEs get
directly contracted by the client directly paid
by the client, hereby avoiding delays and
disputes among the GC and SMEs and also thelabour
price including their overheads and profit is
calculated by the client according to the market
situation of the individual places in advance so
that there is no problem between SMEs
contractor on site during offering of labour
price. Why is not the same adopted/implemented
for gtz??