Contracting Team
Contracting Team – Members:
- General Contractor (Captain)
- Subcontractor
- Independent Contractor
- Vendor
The general contractor is effectively the lead contractor for the Contracting Team. The owner contracts directly with the general contractor and afterward, the general contractor contracts with separate entities, subcontractors, to perform individual tasks such as drywall, plumbing, demolition, etc.
The Subcontractor is the person or company who contracts directly with the general contractor to perform a specific trade.
An Independent Contractor is a person or company who makes an agreement directly with an owner and has no subcontractor agreements. Independent contractors may perform one or more trades.
A Vendor is a person or company who provides materials or equipment, not custom fabricated, for a given project. The vendor invoices the general contractor for all work and materials according to contract schedule and terms, and then charges a fee plus tax.
Contracting Team – Responsibilities
The Contracting Team is commonly responsible for getting the building and occupancy permits, adhering to all applicable building codes and the physical construction of the project as described in the construction documents created during the planning phase. This team is usually comprised of many separate companies who contract with each other to complete specific parts of the project (See diagram at right). They are on the same team to ease discussion.
The general contractor is responsible for constructing the overall project, managing and paying subcontractors and vendors for labor and materials. The general contractor invoices the owner for all work, according to the contract schedule and terms and typically charges overhead and profit. The Contracting Team will either have a general contractor or not. A project may be small
enough that the Owner Team may only need to work with a few subcontractors in order to complete the construction process. We talk about the expenses of a general contractor later in Overview – To Use a General Contractor or Not.
Like the general contractor, the subcontractor is responsible for providing all labor and material necessary to complete the activities within their specific scope of work. The subcontractor invoices the general contractor for all work, according to contract schedule and terms and charges overhead and profit.
Independent contractors are responsible for procuring their own materials for their work. The independent contractor invoices the owner for all work, according to contract schedule and terms, then charges an overhead and profit percentage.
It is important to note that each company usually operates independently, forming a subset of the ‘Contracting Team,’ although they can also form legal partnerships.
Contracting Team – Objectives
The Contracting Team has multiple objectives. The Contracting Team’s objectives are to win the job as discussed in Overview – How Contractors Get Jobs, maximize profit and avoid liability (as discussed throughout the construction phase), and complete the project.
Contractors cannot do anything unless they win the project. When contractors do win projects and are working from a bid price, like the Owner Team, they like when projects run quickly and smoothly from beginning to end.
Contracting Team – Issues
Regardless of the contract price, contractors will generally work to maximize profit the moment they get a signed contract. As a result, contractors do not always have the owner’s best interest at heart.
Contractors try to maximize profit in five ways:
- using construction shortcuts (Common shortcuts are listed under the bidding phase)
- using lower cost materials
- coercing owners and subcontractors to finance construction
- renegotiating (already agreed) subcontractor prices
- finishing the project faster
Shortcuts can be a good way of doing the same task easier and/or faster, like cutting similar dimension lumber at the same time, or it can be a bad way to speed up the job, like using a nail to do a screw’s job. We’ll cover common improper contractor shortcuts in Construction – Improper Contractor Shortcuts.
Using lower cost materials is not a problem unless they are inferior materials. Many vendors offer materials at competitive prices. Through comparison shopping you can find the lowest priced supplier for the same or similar material. As we talk about in the bidding phase, it is always helpful to invite contractors to make material suggestions to help you get the competitive shopping done.
Owners finance construction by paying contractors up front for labor and materials. While not recommend, under certain conditions it may be necessary, so we talk about the main conditions and the special way to handle upfront payment in Construction – Construction Draws.
Renegotiating subcontractor contract prices after the owner awards the project to the general is a common and acceptable practice even if questionably ethical. Commonly subcontractors finance the construction in the same way the general contractor does, by doing the work before receiving payment for that part of their contract.
Finishing the project faster saves time. Because time costs money the less time a contractor is on site, the more profit they make when paid on a bid. Imagine a contractor’s bid wins, and they assumed their work would take four days to complete. All things being equal, if they complete their work in three days, they eliminate 25% of the working hours, which becomes profit.
TIP: Understanding how contractors commonly operate will have immense value during Bidding and Construction.