Subcontractor Evaluation and Management Framework for Strategic Partnering

Recently, main contractors have shifted their attitudes about subcontract procurement to more strategic and long-term partnering philosophies. The objective of this study was to present a framework for subcontractor evaluation and management to help main contractors develop more strategic and productive relationships with their subcontract partners. As the strategic performance feedback model, the balanced scorecard concept was adopted with modification. A case study was also conducted to evaluate the framework with subcontracting strategy, performance indexes, weighting, evaluation of subcontractor performance data, and feedback methods. The research results obtained can be useful as a guideline of subcontractor management for long-term partnering and also to enhance overall productivity within the construction supply chain.     

Transaction-Cost-Based Selection of Appropriate General Contractor-Subcontractor Relationship Type

Relationships between general contractors and subcontractors are generally formed on a project-by-project basis. However, because of the competitive nature of the construction industry, this traditional arrangement can result in adversarial relationships between general contractors and subcontractors, which can jeopardize potential or ongoing collaborative construction plans. To avoid this problem, close, long-term relationships between general contractors and subcontractors, as in strategic partnerships, must be established. Unfortunately, forming and sustaining such relationships can be time-consuming and cost-intensive. Furthermore, this type of relationship does not necessarily enhance cooperation or work performance. For contractors to successfully establish effective partnerships with their subcontractors, they must select the appropriate relationship by considering the different characteristics of the subcontracted work involved. Based on transaction cost theory, the findings of this study show that transaction costs incurred by general contractors and subcontractors vary according to the type of relationship established. Therefore, for the purpose of comparing transaction costs incurred in both competitive and partnership relationships, transaction-cost-based profit models for both general contractors and subcontractors are developed, respectively, for each relationship type. As well, by applying different strategies to maximize profits in each relationship, and by simulating the parameters affecting the nature of the subcontracted work, the conditions and relationships under which general contractors’ profits are optimized have been determined. Finally, based on simulation, practical guidelines for choosing the most appropriate relationship type are proposed.     

Issues in Subcontracting Practice

Subcontractors are very important to the successful completion of most construction projects, yet the many issues involved in subcontracting practice are seldom acknowledged. A literature review indicates that these issues include the timeliness of payments by general contractors, the process of selecting subcontractors, subcontractor bonding, construction insurance, safety issues on the construction site, partnering arrangements with various parties, and productivity issues. A questionnaire survey was administered to subcontractors, general contractors, and construction owners to investigate these issues and to determine the differences in perceptions between the parties. The results confirm the existence of the issues identified in the literature and in addition indicate that (1) the practice of retainage withheld by general contractors seems to be acceptable to many subcontractors unless its magnitude is large relative to the size of the firm; (2) postaward bid shopping by general contractors is sometimes justified, particularly in cases where the scope of subcontract work is modified; and (3) current bonding and insurance practices are adequate unless the additional transferred risks are excessive. Recommendations are made on the basis of the findings to minimize the negative effects of said issues.     

Relative Importance of Subcontractor Selection Criteria: Evidence from Singapore

Subcontractors carry out a large portion of the work done in construction projects. Thus, selecting the right subcontractor essentially contributes to the project’s success. We designed a choice-based conjoint experiment to examine the relative importance of four criteria in the subcontractor selection process of main contractors from Singapore: price, technical know-how, quality, and cooperation. Although main contractors adopt a multicriteria selection process and perceive all four criteria to be important for their choice decision, the actual choice situation reveals that price is still by far the most important selection criterion, followed by quality, cooperation, and technical know-how. Main contractors are not willing to compromise on price but accept a lower performance of a known subcontractor on the remaining criteria.     

Owner’s Role in Construction Safety

Despite dramatic improvements in recent decades, the construction industry continues to be one of the industries with the poorest safety records. Recent improvements are due, in part, to the concerted efforts of owners, contractors, subcontractors, and designers. While past safety studies have investigated the roles of contractors, subcontractors, and designers, the owner’s impact on construction safety has not been previously investigated. This paper will present the results of a study on the owner’s role in construction safety. Data were obtained by conducting interviews on large construction projects. The relationship between project safety performance and the owner’s influence was examined, with particular focus on project characteristics, the selection of safe contractors, contractual safety requirements, and the owner’s participation in safety management during project execution. By identifying practices of owners that are associated with good project safety performances, guidance is provided on how owners directly impact safety performance.     

Simplified Spreadsheet Solutions.?I: Subcontractor Information System

This paper presents a subcontractor information system (SIS) to support the estimating and project control functions of subcontractors and small∕medium-size contractors. For the proposed SIS to be simple and practical, it was developed in a spreadsheet program designed to maintain information related to resources and projects and to generate important business reports. Resource data are stored in six worksheets for labor, equipment, crews, material, subcontractors, and alternative methods of construction for various tasks. In addition, a separate worksheet is designed for each project to be used for estimating and control purposes. The latter worksheet allows the user to specify the work breakdown structure and optional methods for construction. As such, it represents a transparent estimating model that allows for quick what-if analysis regarding time and cost. In addition, the reporting worksheet provides information related to time, cost, and resource use at the individual and the multiproject levels. In a companion paper, the use of the SIS as basis for overall schedule optimization is described.     

General Contractors' Management: How Subs Evaluate IT

A large set of criteria by which top quality subcontractors evaluate the managerial performance of general contractors under whose management they have worked during the construction process and by which they may differentiate their bids to different generals for the same future project are listed and described. These criteria can also be seen as the intrinsic managerial, cost‐and time‐sensitive factors by which general contractors or any manager of construction could improve performance, competitiveness and profitability. It also describes separate, “most important” and “super‐important” subsets of the foregoing criteria∕factors for office and site staff, etc., and the range of effects of the generals' good and bad managerial performance against these criteria∕factors on the costs and duration of the subcontractors' work. The cost and duration effects, etc., that each lump sum bidding general contractor and appointed construction management agent has on the subcontractors' work are compared, and the carefully formatted research process which produced these results is outlined.     

Agent-Based Compensatory Negotiation Methodology to Facilitate Distributed Coordination of Project Schedule Changes

Change is ubiquitous in construction project schedules and there are many interrelationships and interdependencies in project schedule changes. Therefore, a schedule change in the work of a subcontractor might affect schedules of other subcontractors, as well as the project deadline. The subcontractor should resolve schedule conflicts with other affected subcontractors. This implies that there is a need for a methodology for the distributed coordination of project schedule changes (DCPSC). This paper presents a novel agent-based compensatory negotiation methodology to facilitate the DCPSC wherein a project can be rescheduled dynamically through negotiations by all of the concerned subcontractors. The methodology consists of a compensatory negotiation strategy based on utility of timing, multilinked negotiation protocols, and message-handling mechanisms. A simple case example illustrates the methodology. The methodology makes new contributions in both theoretical and practical areas. In practice, this methodology will improve project network schedules, by lowering the sum of the cost of the subcontractors associated with their resource constraints. In theory, the methodology provides a distributed coordination methodology that can improve interaction and collaboration among agents and people.     

Empirical Assessment of Internationalization Strategies for Small and Medium Construction Companies

In the wake of increased globalization, more small and medium construction companies (SMCCs) are expanding into the global market. However, the international construction industry is different from the domestic with respect to resource, regulations, culture, entry strategies, and risk levels among other factors. This paper explores various ways and modes of internationalization for SMCCs under 13 key hypotheses that are relevant to the issues of internationalization from the perspective of SMCCs. To verify these hypotheses, this study used actual data from 560 cases of SMCCs’ overseas projects performed between 1990 and 2007. It was found that SMCCs’ entry scheme as prime contractors was more rewarding than in the case of subcontractors. Moreover, SMCCs are likely to evolve from subcontractors engaged with home-country contractors to subcontractors engaged with foreign contractors. Also, cultural distance is positively related to performance, but the effects of cultural properties are not as strong compared to the international manufacturing industry. The results are expected to help SMCCs build internationalization strategies by determining promising entry modes, proposing possible evolutionary paths to enter overseas projects, and assessing cultural effects in reference to SMCCs’ successful performance.     

Modeling Interfirm Dependency: Game Theoretic Simulation to Examine the Holdup Problem in Project Networks

Subcontractor selection strategies used by contractors can significantly affect short-term project and long-term organizational success. Existing research on subcontractor selection strategy implicitly assumes that the evaluation of subcontractors depends on current conditions. We extend this perspective by integrating an agent-based simulation model with game theory to examine whether precontract partner selection strategies that do not consider subcontractor selection as a repeated game may lead to a version of the holdup problem. The holdup problem we investigate focuses on relationship-specific investments in learning after the introduction of an innovation or organizational change across a project network. A minimum total cost strategy may decelerate the rate of adaptation to an innovation or organizational change, thereby proving that the holdup problem can exist in project networks. The findings contribute to subcontractor selection strategy literature by simulating the impact of the holdup problem in project networks, distinguishing task interdependence as a moderating variable, and identifying that the minimum total cost strategy can be a suboptimal strategy for project networks adapting to systemic changes.     

Whole Life Performance Assessment: Critical Success Factors

Whole life costing (WLC) has become the best practice in construction procurement and it is likely to be a major issue in predicting whole life costs of a construction project accurately. However, different expectations from different organizations throughout a project’s life and the lack of data, monitoring targets, and long-term interest for many key players are obstacles to be overcome if WLC is to be implemented. A questionnaire survey was undertaken to investigate a set of ten common factors and 188 individual factors. These were grouped into eight critical categories (project scope, time, cost, quality, contract/administration, human resource, risk, and health and safety) by project phase, as perceived by the clients, contractors and subcontractors in order to identify critical success factors for whole life performance assessment (WLPA). Using a relative importance index, the top ten critical factors for each category, from the perspective of project participants, were analyzed and ranked. Their agreement on those categories and factors were analyzed using Spearman’s rank correlation. All participants identify “Type of Project” as the most common critical factor in the eight categories for WLPA. Using the relative index ranking technique and weighted average methods, it was found that the most critical individual factors in each category were: “clarity of contract” (scope); “fixed construction period” (time); “precise project budget estimate” (cost); “material quality” (quality); “mutual/trusting relationships” (contract/administration); “leadership/team management” (human resource); and “management of work safety on site” (health and safety). There was relatively a high agreement on these categories among all participants. Obviously, with 80 critical factors of WLPA, there is a stronger positive relationship between client and contactor rather than contractor and subcontractor, client and subcontractor. Putting these critical factors into a criteria matrix can facilitate an initial framework of WLPA in order to aid decision making in the public sector in South Korea for evaluation/selection process of a construction project at the bid stage.     

Total Quality Management Implementation in the Egyptian Construction Industry

Total quality management (TQM) has been recognized as a successful management philosophy that can be successfully implemented in the construction industry. By examining the Japanese contractors working in Egypt and comparing their managing systems to the local ones, a comparative analysis of the two contractors working in the Egyptian field is presented in this paper to illustrate how TQM can be implemented effectively in the Egyptian construction industry. Bearing in mind the location bound nature of the production process, the competitive bidding, which emphasizes cost and the absence of the quality culture of the clients, subcontractors and site operatives are some of the constraining factors for implementing the quality policy. Based on the research findings, the paper presents some features of the Japanese construction industry that could be implemented in the Egyptian field in addition to a new model for TQM implementation that appropriates the Egyptian construction industry.     

Construction Site Safety Roles

A survey of design engineers, general contractors, and subcontractors indicates there is not uniform agreement on the site safety responsibilities that should be assumed by each of these groups. Possible explanations for this lack of shared expectations regarding site safety roles are discussed. It is suggested that specific site safety responsibilities be assigned on future projects based on each group’s ability to control the factors needed to prevent eight root causes of construction accidents.     

Improved Subcontractor Selection Employing Partnering Principles

Despite the increasing extent of subcontracting in construction, the importance of subcontractor selection is frequently underestimated. While the subcontracting element needs more attention in contractor selection itself, subcontractor selection techniques themselves need considerable improvements. This paper examines how such techniques can beneficially draw from improved multicriteria contractor selection methodologies in general, and specifically from recent developments in client-contractor partnering. It is shown how partnering may be profitably extended further into the supply chain, i.e., into subcontractor selection. A European case study illustrates the development of a subcontractor selection process that incorporated partnering principles. Despite the longer and costlier selection process, it was found that subcontractor pricing levels were reduced by about 10% to account for anticipated efficiencies arising from the proposed partnering. Markedly better time and cost control was achieved on the pilot project. The relationships between all project participants were also found to have improved considerably. Such observations confirm the value (1) of expanding the partnering “envelope” to encompass subcontractors in general; and more specifically, (2) of assessing the potential for such extended partnering as an integral part of the subcontractor selection process.     

Proposed Subcontractor-Based Employee Motivational Model

The intent of this research was to identify the factors that promote positive motivational behavior in construction subcontractor crews. The factors affecting motivation, goal-setting, workforce needs, and incentives were investigated to determine the attributes for a subcontractor employee motivational model. A survey addressing these four categories was distributed to subcontractor foremen and supervisors to establish a list of motivational factors. The statistical analysis of the survey results aided in the final development of the proposed subcontractor based employee motivational model, which includes such components as confidence and competence as being reinforced by quality of work, incentives, safe performance, praise, and a sense of belonging. The proposed model provides industry practitioners with another level of understanding of the motivation sequence of the subcontractor’s labor force. Perhaps the most interesting finding was related to the attributes found in relation to workforce needs. A common link “feeling of being a member of the team/crew” was discovered between “praise” and “job security.” It was surmised that essentially a worker must first receive praise before they feel as if they are a member of the team/crew and once they feel like a member of the team, they then begin to acquire feelings of job security. The results of this study further reinforce the findings of several previous behavioral studies. Future research should attempt to validate the model using a larger sample size incorporating multiple general contractors.     

Analysis of the United States Department of Transportation Prompt Pay Provisions

In recent past the United States Department of Transportation has implemented a number of changes in regulations regarding federal-aid transportation projects. Some of these regulations are designed to help the disadvantaged business enterprise (DBE) firms and subcontractors in general, by requiring the general contractors to pay their subcontractors in a timely manner. Further, these regulations require that general contractors pay their subcontractors’ retainage after the subcontracts are completed, even if they have not received their own retainage from the owner. This paper reviews these new regulations and introduces a financial model for quantifying the effect of these new regulations on the contractors’ profit and the cost of transportation projects. The analysis is done using a spreadsheet-based cash flow model that takes into consideration the expenditure curve, the owner and general contractor’s payment and retainage policies, front money, finance charge on negative cash flow, and interest income on positive cash flow, and final payment and return of retainage policies. A survey was conducted among contractors in Massachusetts and their input was used to run the cash flow model. The results of the analysis for eight different projects are presented and it is shown that the new regulations, on average, reduced the contractor’s profit by 4.35%. It is also shown that the average potential cost increase for transportation projects is 0.14%.     

D-SUB: Decision Support System for Subcontracting Construction Works

Letting work to subcontractors is a very common practice in construction industry. Subcontractors help contractors overcome problems including the need of special expertise, shortage in resources, and limitation in finances. The decision to subcontract involves designating work items to be subcontracted and making assignments to subcontractors. Generally, work assignments to subcontractors can be for the total quantity of a work item or a proportion thereof. This paper presents a decision support system that makes assignments to subcontractors of the work items designated for subcontracting. Moreover, the system calculates and plots the overdraft profile based on the financial terms of the contract and project schedule. The ultimate goal of the system is to make work assignments to subcontractors under constraints economical and predict the expected profit at the end of the project. The system encompasses four basic components including project data, linear programming module, sensitivity analysis module, and financial analysis module. The sensitivity analysis adds strength and flexibility to the system by allowing the user to experiment with different scenarios. Finally, the developed system that represents a structured method for making subcontracting decisions is demonstrated through an illustrative example project.     

Measuring Safety Climate of a Construction Company

Safety climate can benefit contractors, specialty contractors, and owners of industries by providing them with the knowledge of attitudes and perceptions that can help to consistently achieve better safety performance. The objective of this research was to determine safety climate that would enhance safety culture and positively impact perceived safety performance on construction projects. A safety climate questionnaire survey was conducted on the construction sites of a leading construction company and its subcontractors in Hong Kong. Approximately, 1,500 hard copy questionnaires were distributed and the response rate was excellent, resulting in 1,120 valid questionnaires being collected from 22 construction projects. By means of factor analysis, two underlying safety climate factors were extracted, accounting for 43.9% of the total variance. Multiple regression analysis confirmed that these climate factors, “management commitment and employee involvement” and “inappropriate safety procedure and work practices” were significant predictors of workers’ perceptions of safety performance. The findings indicated that the relationship between perceived safety performance and “inappropriate safety procedure and work practices” was inversely correlated. The results suggest that safety climate can be used as an effective measure of assessing and improving site safety for projects under construction. The findings of this study and the methodology might be useful for research at other construction sites in other regions and countries. This work provides useful information for project managers and safety practitioners who desire to improve safety climate and safety performance on construction sites.     

Subcontractor Schedule Control Method

Trade coordination and claims documentation is a challenge on any project, particularly for specialty subcontractors. The writers introduce a schedule control method initiated by the subcontractor, which facilitates coordination and communication between a subcontractor and other project participants as well as documentation to the prime contractor. A case study illustrates the preparation of a trade-specific critical path method (CPM) schedule, which is updated on a regular basis. The writers also address the interrelationship between the CPM schedule, internal reporting, schedule of values, and labor tracking. It is difficult to ensure that all subcontractor-produced documentation is complementary, but it is well worth the effort when it comes to supporting a claim. Monthly schedule updates and narratives communicate the conflicts, issues, and schedule constraints the subcontractor experiences or anticipates on a project, thereby providing contractually required notice to the prime contractor during the project. This increases the likelihood of resolving issues during the project, while simultaneously protecting a subcontractor’s position if change order requests are denied or if back charges are levied prompting a subcontractor to enforce its rights, execute a claim, or proceed to litigation.