Subcontractor Perspectives on Factors that Most Affect Relationships with General Contractors in Commercial Construction

Research Proposal

Subcontractor Perspectives on Factors that Most Affect Relationships with General Contractors in Commercial Construction Projects: A Victoria, Australia Study

Introduction

This research proposal sets out the parameters for conducting a research project that aims to gain a better understanding of the factors that affect the relationship between the subcontractor and the general contractor from the subcontractor’s perspective on commercial construction projects undertaken in Victoria, Australia. The research will build on and provide a contrasting study to previous research undertaken by McCord & Gunderson (2014) which focused on factors affecting the general contractor – subcontractor relationship from the subcontractors perspective, limited to the geographical location of the State of Washington, USA. In identifying opportunities for future research, McCord & Gunderson (2014, p. 138) state that “the research could be continued or expanded by undertaking a comparative study overseas that may provide interesting contrasts or similarities.”

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In the commercial construction industry, subcontracting is common practice. On any particular project, a general contractor (or head contractor) may rely on up to 40 subcontractors to perform the specific work items that are required. In construction terms, a general contractor is defined as “a person or company that agrees to manage a project, especially a building project, and provides materials and workers, and that might employ subcontractors to do parts of the work” (Cambridge University Press, 2018). Whereas “subcontractors are hired by a general contractor to help them complete their contracted work” (business.gov.au, 2018). A typical group of subcontractors that work together on a project may include diverse trades such as demolition, civil, steel erection, vertical transportation (elevators), mechanical, electrical, plumbing, roofing, carpentry and flooring to name a few. The requirements of a project will dictate the type, size and capabilities of each subcontractor that may be required (Knutson & Schexnayder, 2009).

Each project has a unique combination of trade specific subcontractors that are assembled under a general contractor. The general contractor may also have its own labour force working alongside the various subcontractors throughout the project. There is a team approach to completing the work on most projects with the general contractor taking the lead to manage the jobsite and direct subcontractor personnel.

Subcontractors are a vital component of the success of most construction projects. General contractors utilise subcontractors for various reasons such as: it enables them to limit their risk exposure, they lack expertise in a special type of work required and it expands their available workforce so they have more opportunities to bid on new projects (Gould & Joyce, 2014). Approximately 80% of the dollar value of construction is accomplished under subcontracts therefore the subcontractor’s perspective is important (Currie, Sweeney and & Hafer, 1991). Subcontractors rely on general contractors for virtually all of their work and the relationships they maintain with general contractors in their geographic area directly affect their long-term success. Generally, a subcontractor evaluates the performance of the general contractor on a project-by-project basis. A subcontractor can choose which general contractor to work with and this business decision can be affected by a number of factors. The perceived fairness and capability of the general contractor can be a significant factor when considering future work with that general contractor (Knutson & Schexnayder, 2009).

Research Questions

The following research questions are proposed:

1. From the subcontractors perspective, is the practice of bid shopping a betrayal of trust that is serious enough to end the relationship?
2. From the subcontractor’s perspective, are the general contractors’ project manager and superintendent considered one of the most important factors in maintaining the relationship between the general contractor and subcontractor?
3. How do subcontractors perceive the importance of payment issues in maintaining the relationship?
4. What other factors are important to the subcontractor-general contractor relationship?

Rationale

The rationale for the research is to focus on the subcontractor – general contractor relationship from a subcontractor point of view. Specific attention will be paid to factors that are most important in maintaining the relationship, with emphasis given to the particular actions or practices of a general contractor that may cause subcontractors to suspend or terminate a relationship. Much has been written internationally about some of the more common relationship linked factors such as; bid shopping and payment terms and these factors will be included in this research to gain a Victoria perspective that could be compared to other Australian states or regions within other countries. However more broadly, little research has been undertaken on; the financial capacity of the general contractor, future work prospects & the types of work, safety requirements, previous claims & disputes, project manager capability & fairness and superintendent capability with the general contractor team. These other relationship dynamics will be included in the study to enhance empirical findings in these areas.

Literature Review

Constantino, Pietroforte & Hamill (2001, p. 440), summarised the construction business as a relationship business:

Subcontracting develops a set of stable relationships between general contractor and subcontractors. On a project basis, this relationship takes the form of ‘classical’ contracting, but as parties cooperate over the years, the same relationship takes the form of ‘relational’ contracting.

Since subcontractors secure virtually all their work through general contractors, the success of the typical subcontractor depends directly on the relationships they establish and maintain with those general contractors that need their expertise. Once the relationship is established, most subcontractors work with the same general contractors on a regular basis and they tend to maintain the relationship over time. Shash (1998, p. 106) stated that “general contractors and subcontractors may not cooperate in a highly recurrent way; nevertheless they entertain long term business relations.”

Proctor (1996, p. 14) emphasised the importance of developing a spirit of trust between general contractors and subcontractors, which requires a long-standing practice of fair dealing between parties. He detailed the Four C’s of the general contractor-subcontractor relationship: consideration, communication, cooperation and compensation stating that “the ultimate responsibility for successful completion of a project lies with the general contractor.”

The subcontractor must evaluate each general contractor who may be bidding on a project based on what is in the best interest of the company. General contractors who do not treat their subcontractors well may not receive bids from them in the future or the subcontractors may decide to raise their bids to general contractors that don’t treat them well (Currie et al., 1991). Hendrick and Schemm (1991, p.11) support this practice:

Tremendous differences exist among various contractors in experience, financial stability, technical ability and business acumen that will define whether a particular prime contractor will be a good team member or not. These differences can and should be taken into account in fashioning a bid proposal to more than one prime contractor on a project. The price or other terms quoted need not be the same nor must a subcontractor bid to all prime contractors. The bid to each prime contractor must reflect a careful assessment of relative risks, benefits and burdens expected to arise out of a subcontract relationship.

Tracey (1991, p. 3) studied the subcontractor-general contractor relationship with the purpose “to better understand this relationship and possibly improve it.” The study detailed the common experiences of subcontractors and determined that, collectively, they have many common concerns; one-sidedness of subcontracts, the bidding process favours the general contractor and the general contractor has the upper hand in the relationship. The most divisive areas in subcontractor relationships with general contractors were identified by the subcontractors as bid-shopping and onerous contractual clauses such as: pay-when-paid provisions, indemnification clauses, and retention practices.

Birrell (1986) summarised his own 1978 dissertation about how subcontractors evaluate the management capability and business practices of general contractors. Through interviewing subcontractors and general contractors, the study identified the most significant criteria that affect the subcontractor’s efficiency in conducting their operations. The study identified a framework to evaluate a general contractor in order to provide subcontractors with useful information to structure their future bidding practice toward general contractors. The better a general contractor was at management, the lower the subcontractors pricing could be. Conversely, poorly managed firms are likely to receive higher pricing from subcontractors when bidding new projects (Birrell, 1986).

Proposed Participants

The HIA-CoreLogic Construction 100 Report (2017) lists the 2016-2017 top three largest commercial construction contractors in Australia as:

1. Probuild Pty Ltd
2. Multiplex
3. Lend Lease Corporation

Note: Ranking is by total value of commercial contracts awarded.

The author has either worked with or knows industry contacts that have worked with each of Australia’s top three commercial contractors within Victoria respectively. It is proposed that calls will be made to contacts representing each of the three companies to establish a number of appropriate subcontractor companies and contacts that have undertaken trade specific works for the general contractor contacted.

From the subcontractor by trade recommendations put forward by each general contractor, the author intends to purposefully select three subcontractors from ten trades to participate in the study, thus providing a total of thirty respondents. McCracken (1988) states that eight respondents are sufficient for many research questions, therefore thirty participants should be sufficient to obtain data relevant to the four primary research questions proposed. Subcontractors will be sourced from the specific trades of; demolition, civil, steel erection, mechanical, electrical, plumbing, vertical transportation (elevators), roofing, carpentry and flooring. The ten trades have been selected to provide relevance to the study because in the author’s professional experience, they are commonly required to undertake work on large scale commercial construction projects. In sourcing the participants, the author intends to target representatives from subcontractor companies with a minimum of five years’ experience in a position where they have worked directly with a general contractor on a commercial construction project.

Research Method

A mixed-methods approach incorporating a semi-structured interview and survey is proposed to enable comprehensive collection of data. Qualitative and quantitative components shall be combined to provide both emergent themes and numerical representation of participants’ opinions and experiences. This approach is designed to counter the inherent limitations of a strictly qualitative or quantitative study (Creswell, 2007). In order to gain valuable, broad-based information from participants, an interview will be developed that contains elements that will combine deductive and inductive questioning (Patton, 2002). The proposal to incorporate a survey into the interview provides an ordered means to enable comparisons and grouping of data. The survey will allow the participants to determine the relative rank of each of the factors.

Semi-structured interviews will ensure the same questions are asked of each participant along with relevant probing questions. There will be an open-ended exploratory section that asks each participant to offer any other personal accounts describing their good and bad experiences with general contractors and their opinions of any other relationship factors that they may deem important. In the survey, each participant will be asked to rate the importance of the factors on a ten-point Likert scale and to identify any particular factors believed to be important enough to end the relationship with a general contractor.

To maintain an ethical approach to collecting data, participants will be advised that the interview and survey is anonymous and that the results will be collated and organised and then after transcription all reference to company names and names of individuals will be removed. In addition, participants will be advised at the start of the interview that it is completely voluntary and that they are not obligated to complete the interview once it has started and are free to leave at any time.

Sample interview questions that incorporate a ten point scale for each relationship factor are provided in Appendix A.

Analysing the Results

It is proposed that questions and answers will be audio-recorded and then transcribed and coded by the author. The discussions from participants will be grouped into ten relationship factors as follows:

Within each of the ten relationship factors, interview discussions will combined according to each individual question within that category. The responses and discussions from all thirty participants will then be analysed and evaluated by specific subject question in order to establish trends. Participants will be asked to rate the importance of each of the ten factors on a ten point scale with ten being the most important.

After rating each factor on a ten point scale, each participant will be asked to rank their top three most important factors from the list of ten factors. An indication of importance will be obtained by totalling the points for each category and then dividing by the number of respondents to give a category average. Category averages will be ranked from highest to lowest correlating to level of importance.

Conclusions and recommendations drawing on the qualitative and quantitative results from the study will be presented and discussed in response to each of the four primary research questions.

Disseminating Findings from Research

It is anticipated that findings from this research could first be presented in person at a relevant conference / member association industry event such as an Australian Subcontractors Association event – https://www.asaonline.org.au/asa-events/. Presenting this information to such an event will allow for a targeted delivery of the key findings to the participants most relevant to the study- the subcontractors. It would be expected that a number of the thirty participants who gave up their time and provided their input to the interviews undertaken through the study would be invited to the event along with senior management from their businesses and industry colleagues who are association members.

Presenting in person would enable ideas to be developed and fine-tuned before submitting a manuscript of publication to industry specific journals. Reputable journals that the author suggests would provide a good platform to publish this research include; International Journal of Construction Education and Research, International Journal of Construction Management, Journal of Construction Project Management and Innovation, International Journal of Construction Project Management, Journal of Construction Engineering and Management.

In researching which journals to apply to publish in, the author will review manuscripts in the journals of choice to understand topics of interest that most reflect what the current audience of readers has been thinking about and what the editors think represent important issues to assess whether the findings from this research contributes to the discussions that are currently occurring.

References

• Australian Subcontractors Association (2018). Viewed 6 November 2018, https://www.asaonline.org.au/asa-events/
• Birrell, G. S., (1986). General Contractors’ Management: How Subs Evaluate It. Journal of Construction Engineering & Management. Vol. 3, no. 3, pp. 244-259.
• Business.gov.au (2018). Contractors, viewed 1 November 2018, https://www.business.gov.au/people/contractors
• Cambridge University Press (2018). Cambridge Business English Dictionary, viewed 1 November 2018, https://dictionary.cambridge.org/dictionary/english/general-contractor
• Constantino, N., Pietroforte, R., Hamill, P., (2001). Subcontracting in Commercial Residential Construction: An Empirical Investigation. Construction Management and Economics. Vol. 19, no. 4, pp. 439-447.
• Cresswell, J. W., (2007). Qualitative Inquiry & Research Design Choosing Among Five Approaches. Thousand Oaks, CA: Sage Publications, Inc.
• Currie, O. A., Sweeney, N. J., Hafer, R. F., (1991). Construction Subcontracting: A Legal Guide for Industry Professionals. Hobken, NJ: John Wiley & Sons, Inc.
• Hendrick, D., Schemm, N., (1991). Safeguarding Your Subcontract Rights. Alexandria, VA: Foundation of the American Subcontractors Association.
• Hia.com.au (2017). HIA-CoreLogic Construction 100 2016/17, viewed 5 November 2018, https://hia.com.au/-/media/HIA-Website/Files/ShopHIA/Downloads/economics/Construction100.ashx
• Gould, F. E., Joyce, N., (2014). Construction Project Management, 4th edn, Boston, MA: Boston Pearson
• Knutson, K., Schexnayder, C. J., (2009). Construction Management Fundamentals, 2nd edn, Boston, MA: McGraw-Hill Higher Education.
• McCord, P., Gunderson, D., (2014) Factors that Most Affect Relationships with General Contractors on Commercial Construction Projects: Pacific Northwest Subcontractor Perspectives, International Journal of Construction Education and Research, Vol 10, no. 2, pp. 126-139.
• McCracken, G., (1988). The Long Interview. Thousand Oaks, CA: Sage Publications, Inc.
• Patton, M. Q., (2002). Qualitative Research & Evaluation Methods, 3rd edn, Thousand Oaks CA: Sage Publications, Inc.
• Proctor Jr., J. R., (1996). Golden Rule of Contractor-Subcontractor Relations. Practice Periodical on Structural Design and Construction, Vol 1, no. 1, pp. 12-14.
• Tracey, A. J., (1991). Contractor-Subcontractor Relations from the Subcontractors Perspective. Unpublished Masters Thesis, University of Washington, Seattle.
• Shash, A. A. (1998). Subcontractors’ Bidding Decisions. Journal of Construction Engineering & Management. Vol. 124, no. 2, pp. 101-106.

Appendix A – Sample Interview Questions

General Questions

1. Please state your name.

2. What is your company name?

3. What is your area of expertise/type of subcontractor?

4. What is the age of your business?

5. What is the size of your business based on annual revenue?

6. What are the smallest and largest projects (by dollar revenue) that you have worked on?

7. How many projects do you typically oversee (personally) in one year? Or concurrently?

8. Are you in a management position that oversees projects where you work under a general contractor?

9. How many years have you worked in commercial construction?

10. How much of your work (percentage wise) is subcontracted through general contractors?

Specific Questions on Relationship Factors:

1. Bid Shopping

• Has your bid ever been ‘shopped’ by a general contractor? If so, please elaborate.
• Would you consider terminating your relationship with a general contractor that shopped your bid?
• Have you ever terminated your relationship with a general contractor after being bid shopped?
• If you did end a relationship with a general contractor, did that general contractor engage in shopping your bids more than one time?
• Would you consider not entering into a relationship with a general contractor that had a reputation for shopping bids?
• Would you ever continue in a relationship with a general contractor that shopped your bid? Why?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of a general contractor’s bid shopping practices when considering starting or maintaining a relationship with that general contractor.

2. Pay-when-paid

• Are you familiar with the pay-when-paid provision in some subcontract agreements?
• Have you ever had your payments withheld by a general contractor due to non-payment from the client or financial institution?
• Have you ever decided not to sign a subcontract because of the pay-when-paid provision?
• Have you ever ended a relationship with a general contractor because of their pay-when-paid payment practices toward you?
• Would you ever continue in a relationship when a general contractor utilises a pay-when-paid provision? Why?

Statement On a scale of 1 to 10 (with 10 being the most important), rate the importance of a subcontract pay-when-paid clause when considering starting or maintaining a relationship with a general contractor.

3. Timeliness of payments

• Have you ever been paid late (due to no fault of your own) by a general contractor?
• Have you ever maintained a relationship with a general contractor who was consistently slow with their payments to your business?
• Have you ever ended a relationship with a general contractor because of their poor payment record with your business?
• Would you continue in a relationship with a general contractor who is known to be slow to pay you? Why?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of a general contractor’s speed of payment when considering starting or maintaining a relationship with that general contractor.

4. Financial Capacity of Contractor

• Have you ever not been paid because a general contractor was having financial trouble?
• Would you consider this factor when deciding to establish a relationship with a general contractor?
• Would you ever continue in a relationship when a general contractor that was not financially sound? Why?
• Have you ever ended a relationship with a general contractor because they were not financially sound?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of a general contractor’s financial capacity when considering starting or maintaining a relationship with that general contractor.

5. Future Work Prospects & Type of Work

• Would you ever consider future work when deciding to establish a relationship with a general contractor?
• Have you ever sought out a general contractor in order to establish a working relationship because the general contractor had significant work opportunities?
• Have you ever overlooked a past offense or difficulty in order to secure new work with a general contractor?
• Have you ever ended a relationship with a general contractor because they did not have many bidding opportunities?
• Why would you continue in a relationship when a general contractor that has minimal work prospects?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of the potential opportunities for future work offered by a general contractor when considering starting or maintaining a relationship with a general contractor.

6. Safety Requirements

• Have you ever decided not to sign a subcontract because of the excessive safety requirements?
• Do you appreciate the emphasis on safety by general contractors or do you consider it to be a hindrance to your work?
• Have you ever ended a relationship with a general contractor because of their excessive safety requirements?
• Would you be more likely to establish or maintain a relationship with a general contractor because they had a good safety program?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of the safety requirements imposed by a general contractor when considering starting or maintaining a relationship with that general contractor.

7. Previous Claims & Disputes

• Have you ever had a claim or dispute that was resolved with a general contractor so that, afterward, you felt good about continuing in your relationship together?
• Have you ever ended a relationship with a general contractor because of a claim or dispute? How did you make that decision?
• Have you ever overlooked a previous unresolved claim or dispute in order to continue in a relationship with a general contractor? Why?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of previous claims and disputes you have had with a general contractor when considering maintaining a relationship with that general contractor.

8. Project Manager Capability & Fairness

• Have you worked with project managers that you liked? If so, what factors contributed to your evaluation?
• Have you worked with project managers that you disliked? If so, what factors contributed to your evaluation?
• Have you ever decided not to sign a subcontract on a particular project because of the assigned project manager? Why?
• Have you ever ended a relationship with a general contractor because of your treatment from a project manager?
• Do you normally know who the project manager will be on a project before you bid on a project? If you did know, would it affect your bidding decisions?
• Have you ever bid a project or signed a subcontract solely because of your relationship with a particular project manager?
• Would you continue in a relationship with a general contractor after you have been mistreated by a project manager? Why?

The final part of this section is separated into 2 components so you can rate each one separately; 1. The capability and experience of the project manager and 2. The fairness of the project manager.

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of

the capability and experience of the project manager when considering starting or

maintaining a relationship with a general contractor.

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of

the fairness of the project manager when considering starting or maintaining a relationship

with a general contractor.

9. Superintendent Capability

• Have you worked with superintendents that you liked? If so, what factors contributed to your evaluation?
• Have you worked with superintendents that you disliked? If so, what factors contributed to your evaluation?
• Have you ever decided not to sign a subcontract on a particular project because of the assigned superintendent? Why?
• Does the overall quality of a general contractor’s superintendents affect your relationship with the general contractor?
• Does the capability of a superintendent affect your decision to work on a particular project?
• Do you normally know who the superintendent will be on a project before you bid on a project? If you did know, would it affect your bidding decisions?
• Have you ever ended a relationship with a general contractor because of your treatment from a superintendent?
• Have you ever bid a project or signed a subcontract solely because of your relationship with a particular superintendent?
• Would you continue in a relationship with a general contractor after you have been mistreated by a superintendent? Why?

Statement: On a scale of 1 to 10 (with 10 being the most important), rate the importance of the capability and experience of the project superintendent when considering starting or maintaining a relationship with a general contractor.

Exploratory section:

• Please add any other factors that you deem to be important to your relationships with general contractors, either positive or negative, that have not already been presented in the categories listed above.
• What factors would affect your pricing when deciding how to bid to particular general contractors?
• Would you ever raise or lower your pricing to certain general contractors based on one of these factors? Which ones and in what way (higher or lower)?

Ranking: Please rank the top 3 relationship factors in order of importance from most important to least important.

Note: Survey questions have been adopted from McCord & Gunderson, 2014.