Last Updated on January 4, 2021 by Admin
Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party (construction company) known as a subcontractor. Subcontracting is especially prevalent in areas where complex projects are the norm, such as construction and information technology. Kindly read this article to learn more about subcontracting in a construction project.
Subcontracting refers to the process of entering a contractual agreement with an outside person or company to perform certain work. The outside person or company is known as the subcontractor.
The subcontractor is an individual or in many cases a business that signs a contract to perform part or all of the obligations and tasks of another’s contract. A subcontractor is hired by a principal contractor to perform a specific task as part of the overall Project.
Subcontracting is typically done when the principal contractor does not have the time or resources, or skills to perform certain tasks. The incentive to hire subcontractors is to share resources, reduce costs, perform specialized work, expedite the process, better cash flow, and to mitigate project risk.
In the construction industry, Principal contractor often subcontracts different activities and produce a substantial portion of work under their supervision. In fact, the contribution of a subcontractor to the total construction process amount to quite a high percentage of the total value of a project.
Thus, an efficient subcontractor operation is expected to be beneficial to all parties involved, including the owner (customer), principal contractor, and subcontractor.
Advantages of Subcontracting
Subcontracting tasks can be given the principal contractor the necessary time to concentrate on other important issues of the project. In addition, it offers the following advantages:
- Fewer efforts in mobilizing skilled workmen and other resources,
- deployment of additional resources as per project requirement,
- saving in investment cost of material, plants, and tools,
- specialized works which cannot be performed departmentally,
- The process gets expedite, as specialized subcontractors already have the expertise and equipment to provide the service,
- Flexibility in operation,
- better productivity,
- saving the labor cost,
- saving the supervision cost as well in overall overhead cost,
- Budget control, as expenses, can be calculated more accurately than with hiring departmental workers.
- mitigate project risk.
Parameter for selection of Subcontractor
A subcontractor is a common term used in construction. A subcontractor is a construction firm that contracts with a general contractor to perform some aspect of the general contractor’s work. In most construction projects, a vital role is played by subcontractors who are hired to perform specific tasks on a project.
Subcontractors’ selection decisions are of prime importance to principle contractors as these decisions are exercised by them multiple times on every single project. selection of the best subcontractor is a vital process in construction projects.
An important selection of subcontractors might lead to many problems during work progress. there are many factors that must be taken into consideration when selecting subcontractors, However, the selection criteria may vary according to the project need and environment.
- Past Experience,
- Standard of workmanship
- Resource availability,
- Financial strength to sustain the required cash flow,
- Adequacy of experienced site supervisory staff,
- Ability to mobilize at short notice,
- Adherence to program and commitment to complete the project in time,
- Bonding capability,
- Longevity in the Industry.
Classification of Subcontractors
There are different types of subcontractors, depending on the type of agreement that the principal contractor has entered into with subcontractors. The subcontract may also be of different types such as item rate contract, and lump-sum contract.