‘A Survival Guide to Self-Performing Work’ can be found on page 62 of the 2020 edition of Perspective, a compilation of insights from members of the RLB team around the world.
Contractors that “self-perform” have the ability to do specific trade work without contracting with other companies (subcontractors). Their direct employees complete a portion of the construction, such as concrete work, steel framing, carpentry, or another specialty.
Many variables must be considered by general contractors when deciding whether to self-perform (SP) or subcontract work packages, among them risk, fees, supervision, schedule, and availability of labor. The reasons for self-performing vary, with some focusing on scopes of work requiring higher quality, greater complexity, or more aggressive schedules, and others on work that subcontractors are not interested in undertaking—for whatever reason.
In the current economic climate, with its attendant construction labor shortage, many trade subcontractors, unsure of their ability to properly staff a project, are averse to providing cost estimates and bids. Additionally, estimators and other management staff at trade contractors are also busy, which forces them to be more selective in deciding where they spend time providing cost estimates to general contractors (especially at earlier design stages where the subcontractor may not yet be confident that the project is “real”) and in managing the actual construction work. Owners facing the pressure of schedule constraints on projects sometimes accept this lack of input on the part of subcontractors with little question, moving on with the bidding process. This provides general contractors with an opportunity to slide into the driver’s seat when it comes to pricing, with the goal of garnering a contract for SP work.
Any lack of input from qualified subcontractors creates a critical void in the process. It puts added emphasis on the general contractor and throws into relief which of them can, or can not, supply SP services. Those that aren’t SP-qualified are frequently weeded out of the candidate pool, while those contractors who remain in contention are often asked to provide detailed pricing to the owner. It’s worth noting that owners working without cost consultants are often at a disadvantage when it comes to understanding these detailed estimates for such specialized work.
When the feasibility of SP work is real, and since enacting it can yield benefits, a project team should plan for it very early on. For this to be effective, both the general contractor and the owner must be transparent in their communication. It is often observed that general contractors bring up the idea of SP work too close to the time of establishing the Guaranteed Maximum Price (GMP) with the owner. A collaborative approach between a general contractor with market knowledge and an educated owner will likely reveal an optimal solution well before any binding decisions need to be made.
For complex projects, input from trade experts is valuable in early stages of design. While there is value to the project in selecting a trade contractor for this preconstruction input, it might also introduce an element of convenience to the general contractor. The significance of that convenience—selecting a subcontractor in the early design stages that will also likely perform the construction—becomes clear when it is their own internal SP department that provides the input. While this may streamline the flow of information, it also stifles pricing competition. Even if the opportunity is eventually opened up to other bidders within that trade to establish the GMP, those bidders, thinking that the scope of work has already been won by the “incumbent”, might not provide competitive numbers, or they might not have a complete knowledge of the intricacies of the scope which have been developed during the preconstruction phase.
Regardless of which entity provides the preconstruction input for a given trade, if a bidding situation for a trade exists that involves both subcontractors and SP, the fairest way to administer that situation is to have both parties submit their bids directly to the owner for review. Prior to soliciting the bids, there should be a detailed, descriptive scope of work for each trade. This will minimize the need for clarifications and assumptions in the pricing, and will ensure that comparing quotes between the subcontractors and the SP provider is as “apples to apples” as possible.
Communication, Costs, and Competition
The success of a SP project relies to a great extent on an established relationship between people who have a proven track record of collaboration and who operate in an environment that fosters efficient communication. However, these qualities aren’t always present in the marketplace. Sometimes, and more often in today’s busy environment, SP forces are willing to travel longer distances, from locations where resources may be more available, to fulfill manpower requirements. Not only is the synergy of familiarity lacking in these situations, but costs to the owner are more likely to be higher due to additional management staffing costs. Quite often, the SP divisions of general contractors act like actual subcontractors to the general contractor, with a completely separate management staff. Sometimes subcontracts are written within the company that contain a second layer of overhead and profit. Taking a more integrated approach to SP may lead to both lower costs to the owner, as well as better production by the SP contractor.
In this labor-strapped environment, some general contractors have recently proposed composite crews, where a “prime” subcontractor’s workforce is supplemented by that of the SP general contractor, or vice versa. The sooner the owner and general contractor exchange expectations on staffing strategies, schedules, and budgets, the sooner a process for buying out the project can be formulated.
Choosing between SP and subcontracted work becomes even more difficult when the SP contractor’s price comes in slightly higher than the subcontractor’s price. This isn’t an abnormal situation, since many SP firms have more experienced labor as part of their staff and may have better access to training programs. Especially in a setting where public monies are used to fund projects, it is very difficult to justify this additional cost to an owner. The SP firms may be able to demonstrate a superior record of quality and safety, or commit to a more aggressive schedule, but because of the focus on cost by many owners, a metric may need to be developed to justify the increased costs.
Hindsight, as we all know, is 20/20. Only once the project gets underway will it be possible to truly determine whether the right decision was made; if the SP contractor comes through on schedule maintenance, construction quality, and change order experience, it just might outweigh the difficulty of justifying the discrepancy between the initial price and the extra cost to the owner.