When a subcontractor doesn’t perform according to the terms of its contract, it can often turn a general contractor’s or owner’s experience of a great project from dream to nightmare.
Justine Kastan at Rutan & Tucker LLP in Palo Alto told Construction Dive that General contractors should check with their state licensing agencies to confirm their subs’ licensure status. Some states, such as Florida, make it easy by offering a searchable public database that reveals if the licensing board has ever acted against the sub.
Because it is important to get a sense of a sub’s performance history and ability to financially carry its portion of the project, many general contractors require potential subs to submit qualification packages, Kastan said, that include financial data and other background information.
Bonding capacity is another indication of a sub’s financial and operational health. Even if there is no payment or performance bond required for the project, the fact that the sub can secure one if needed is a nod to that company’s stability.
The best questionnaire or application, however, won’t be as effective as possible if there is not adequate follow-through with the sub’s supplier and customer references.
Termination is the final step that, even under the best circumstances, could eat into the project schedule and budget. So, it’s best for the general contractor to try to mitigate the situation before that point.
That effort should start at the beginning of the project, Kastan said.
“There is really no substitute for an honest and open relationship from day one,” she said. “This means transparency as to risk allocation, contract terms, schedules and more. If the parties have a good relationship and a transparent work plan, then the company principals can get together at the first sign of trouble and come up with a strategy to keep the work moving forward.
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The Dotted Line: How to effectively manage an underperforming sub