The art of Subcontract Procurement

On an average project, the main contractor procures between 10 and 20 subcontractors, depending on how much they break things down. Getting subcontract procurement right will affect the success of the project. Subcontracting accounts for approximately 90% of the build cost, so the art of subcontract procurement is a skill worth mastering.

Why is a quality subcontract tender document not widely considered critical to the project’s success? If you issue quality tenders, you’ll receive quality quotes.

When issuing tenders, your aim is to receive multiple like-for-like quotations that are:

• Simple to analyse.
• Within or under your budget.
• Allow you to make a quick decision for the benefit of your project.

Failure to issue quality tenders means you will give information that is hard to comprehend and will result in receiving fewer quotations back. Those you receive back will be harder to analyse and non-compliant in many areas.

With subcontract procurement, I believe “you get out what you put in. If you want more, give more”.

Follow these 5 Steps, and you can beat your budgets, raise the bar in terms of quality and achieve subcontract procurement success.

1. Pre-qualification and due diligence
2. Bill of Quantities (Measured Pricing Document)
3. Scope of Works
4. Invitation to Tender
5. Follow-ups and Mid Tender Meetings

I review these steps in greater detail now below.

Step 1: Pre-Qualification and Due Diligence

Some of the most critical work in subcontract procurement is done at the beginning.

It is imperative to identify and verify subcontractors for your tender. I advocate tendering between 3 and 5 subcontractors per package because if 1 contractor drops out, you will not be shorthanded. Anything less than 3 will likely expose you to too few tenders, and anything more than 5 is simply unnecessary, given the pre and post-tender validation required. You will be wasting both your and the subcontractor’s time.

When you’ve identified subcontractors you think are suitable, you need to start doing background checks and establishing the financial stability and viability of the business. However, remember that financial information is frequently outdated, and any recent events affecting a business’ financial security may not be reflected in the available reports, so, in my opinion, this information isn’t definitive but informative.

As well as looking at the subcontractor’s portfolio, it’s essential to investigate their capability and track record in carrying out the type of work planned to ensure they have the necessary skill set and experience to deliver the package in prospect. For example:

A company that regularly builds two-storey load-bearing masonry houses may not be an appropriate choice for constructing reinforced concrete framed medium-rise apartment buildings, irrespective of whether both are residential developments.

Another related aspect often overlooked is capacity: does the business have the appropriate resources available to service your project?

The project’s location from the subcontractor’s office is also relevant. A site remote from a subcontractor’s base is likely to suffer from a higher churn of site-based personnel and inadequate attention from office-based management, both of which are likely to affect the delivery of the project.

An essential element of subcontract procurement that I also recommend is requesting references. As well as dealing with projects undertaken recently, the references should include all aspects of dealing with the company, including commercial performance.

These background checks gauge their overall suitability to carry out your project and are an integral part of subcontract procurement. As part of their tender response, you can also ask to see how the project will be managed, including an organogram and indicative programme.

Quick Takeaway on Pre-Qualification:

1.  Do they have capacity?
2.  Are they suitable for the project? Have they done similar projects nearby?
3.  If so, have you got references or visited those sites?
4.  How do they manage Health and Safety performance?
5.  Depending on the size of the scheme, consider financial checks. How will they fund the project?

Step 2: Pricing Document

For me, the Pricing Document is the most critical part of subcontract procurement. You should prepare a Pricing Document to allow the quantification and costing of the works, and I recommend you issue this document as part of the tender.

Many don’t produce a Bill of Quantities to avoid the cost or time of doing so. Some even fear issuing a Bill of Quantities means taking responsibility for the quantities. Although it may save cost if you do not produce a Bill of Quantities, this will lead to subcontractors producing their own take-offs or price build-ups, and you will have no common basis to compare tenders.

Depending on how the price for the works is then incorporated into the order, there is the risk that scope gaps, specification changes, and quality deviations will be incorporated into the subcontract agreement. This may lead to unbudgeted cost increases and disputes about what has been included. Including your own Pricing Document / Bill of Quantities is far less risky.

Having a Bill of Quantities in place also brings immeasurable benefits as each subcontractor will respond more quickly and price on your terms and, therefore, on a like-for-like basis.

Having a Bill of Quantities also serves as a management tool for the project. Contracts should always contain rates for the work. A Bill of Quantities provides a basis to value any likely changes and assists in valuing the works in the monthly applications for payment.

Consider the risk allocation of ‘with or without quantities’ contracts carefully. The Bill of Quantities precedes the drawings and specifications if the agreement is with quantities. Any missing items from the Bill of Quantities are a change and, therefore, a client risk.

Regardless of the risks, the benefits are tangible and will make the subcontract procurement process simpler and more effective. It will speed things up, allowing you and the subcontractors to focus on intelligent value engineering solutions instead of measuring a project for which you already have the quantities.

Quick Takeaway on the Bill of Quantities:

1.  Providing a Bill of Quantities means you receive like-for-like tenders, making the tender analysis and comparison process simple and effective.
2.  A Bill of Quantities will improve the speed and quality at which tenders are returned.
3.  The Bill of Quantities is inserted into the contract and used as a management tool, providing a pre-defined valuation method (for variations and applications) for the rest of the project.

Step 3: Scope of Works

A critical element of subcontract procurement is the Scope of Work.

The Bill of Quantities and the Scope of Work document sit together, and when you’re drafting the Scope of Work, it should ‘talk’ to the Bill of Quantities. The objective of this document is simple: it needs to clearly outline and define the deliverables of the package and what you expect from the subcontractor.

At the beginning of the document, it is best practice to confirm what the package includes in terms of design, supply and installation, and it should explicitly say something like:

“The scope of works for this package includes the design, supply and installation of the aluminium windows and doors ….”

After this, clearly list and describe the deliverables of the package and make explicit reference to the drawings and documents attached. You understand the detail of the project, and whilst creating a tender document, try to keep in mind that your sole objective is to impart your knowledge to the reader to give them a comprehensive understanding.

One way to make life simple is to split the Scope of Work document into sub-headers:

• Measured Works
• Preliminaries
• Interfaces
• Other Items for Consideration

To ease understanding, you should refer to the documents associated with the package, i.e., specifications, window schedules, drawings, etc., throughout.

Quick Takeaway on Scope of Works:

1.  Have you explicitly confirmed what the subcontractor needs to deliver?
2.  Have you explicitly confirmed what you require from the subcontractor regarding the management team, insurance and health and safety?
3.  Have you referred to the Pricing Document and other documents in your descriptions?

Step 4: Invitations to Tender

The invitation to tender letter is essential to the subcontract procurement puzzle. This should be presented in a standard format and cover the following:

• Tender Period: How long does the subcontractor have to return a price
• Tender Return: Explain the documents you’d like listed in your tender return
• The Contract: Explain the details of any potential contract terms and conditions
• Document List: List and categorise relevant documents
• Value Engineering: Ask the specialist for intelligent solutions to reduce costs

Tender Period:

Choosing a reasonable tender period for the subcontractors to return their quotes can sometimes be challenging. It is a case of balancing your own programme against the quality of the tenders you want to receive.

Generally, the more time you give, the better the returns will be. My suggestion on appropriate timings is:

• Install Only Tender: 2 weeks
• Supply & Install Tender: 2 to 3 weeks
• Design, Supply & Install Tender: 3 to 4 weeks

Tender Return

You’ve spent a lot of time creating a bill and scope and want to receive like-for-like, comparable tenders. Therefore, make it clear that any quotation must be in the exact format you wish, or it will not be considered.

Also, make it clear that it should include certain vital items:

• Quotations will only be accepted if on the bill provided.
• Please have an indicative programme.
• Please provide Insurance certificates and Tax / CIS details.

The Contract

You must provide details of the contract you will give the subcontractor if they’re successful. If you do not, you may enter a different phase of negotiation on the contract terms, which may increase the overall price.

If you’re clear on the contract’s conditions, payment terms, and critical matters like retention and practical completion, etc., negotiations on the terms will be much quicker and smoother and will not affect the price.

Document List

The tender will include multiple drawings, specifications, scope and bill. Creating a document list will make the tender simple and comprehensible to understand. Moreover, any queries or disputes that arise in the future will make it simple for you to identify and refer to documents supporting your position.

Value Engineering

Construction is a highly technical industry with hundreds of trades, making it almost impossible for anyone to understand all the different specialities. The subcontractors will better understand the technical details of their package, and therefore, wouldn’t it be nice if the experts gave you some insight into how best to manage things?

We advocate requesting value engineering solutions from the subcontractor, and you should mention this in your letter to invite cost-saving initiatives.

Quick Takeaway on Invitations to Tender:

1.  Have you given the subcontractors a suitable amount of time to return the tender?
2.  Have you confirmed precisely what format you’d like to receive the tender in?
3.  Have you confirmed the contract conditions?
4.  Have you listed the relevant information for that package?
5.  Have you asked for Value Engineering solutions to be put forward?

Step 5: Follow-Ups and Mid-Tender Meetings

Regardless of how much time you’ve given the subcontractors to return tenders, it is good practice to follow up on your enquiry at the halfway point. For many doing subcontract procurement, this is seen as an unnecessary exercise, but this is the key to getting a complete set of tenders back.

A follow-up brings with it only advantages:

1.  It serves as a reminder of the pending deadline.
2.  You to start building a relationship with the subcontractors.
3.  You iron out any uncertainties or queries early.
4.  You should reiterate your formatting requests to ensure the subcontractor delivers everything you’ve requested.
5.  It allows you to repeat your request for Value Engineering and mention that this will be key in your decision-making.

It may be time-consuming to call the subcontractors, but it means you’re much more likely to receive complete tenders in the format you wanted and on time. It is much simpler chasing them midway through the tender than on deadline day.

If subcontract procurement is done well and you spend the time to make sure everything is picked up, there are only benefits. Good subcontract procurement generally leads to the following:

• Both parties enter the contract with a complete understanding of their risks.
• Reduced friction between as the chance of missed scope leading to variations is decreased significantly and improves collaboration.
• Increased Value Engineering opportunities which can reduce overall build costs and programmes.

I appreciate that the subcontract procurement process described above is the perfect case where you have the maximum amount of time and energy to give a project. I know from working in construction this is seldom the case.

Despite this, I still firmly believe that subcontract procurement means “you get out what you put in. If you want more, give more”. You may not be able to do each step in the absolute depth I have prescribed here, but if you are always endeavouring to do so, I am confident you will do better subcontract procurement and deliver better projects.

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.