Contracts, negotiations in 2011 and beyond

The marketplace today has changed so drastically, and in so many ways, that it is difficult to form a complete list. The one constant though, is that contractors still exist (at least for the immediate future) and subcontractors still engage in commerce with them.

Contract negotiation basics have not changed very much, but the details sure have. Everyone, the general contractor, you, your employees, the supply house, manufacturers and your sub-subcontractors, is looking for an edge. Something to give them a leg up on their competition and get more bang-for-the-buck out of every move they make. If that were not the case, any or all of the above would be gone … out of business or worse.

As you already know, the economic outlook is hazy and not easy to predict. You could say is has gone from cool to frigid. Whether or not it has come up from frigid back to cool, in other words on the rebound, is a matter of personal speculation. So adaptation to the current conditions is a must for any businessperson who counts self preservation among their daily requirements. What that means for each of us may vary, but the bottom line is the same for all.

Toward that end you might have tightened up your bidding, kept a tighter rein on your inventory and waste on the job, trimmed your manpower, vehicle(s) program cut overhead, expanded your scope of market share and generally streamlined your business. What do you think the people you bid to have done? If they're still around, they've done the same and more.

And some do
With the withering of the market for new work, many contractors that formerly negotiated their projects with select architects, engineers or owners are now forced into the current competitive bidding market. Often they are bidding against competition that could politely be described as unqualified. In this atmosphere a new paradigm has emerged and as a subcontractor you are the one who will be learning how to deal with it.

In the past there was always the low bid criterion. That being said, once a relationship was established with the contractor, the lowest bid requirement was moved back a notch to allow for the subcontractor's track record to be factored in to the mix. After all, what good is a dead low bid if the sub can’t perform or pay for his material? Even the lowest qualified bid was subject to interpretation. Things have changed, and not for the better.

Recently a subcontractor friend, after bidding on and being awarded a contract for a new hospital, received a new 'requirement' from a general contractor with whom he had done business for more than 20 years. The requirement? The subcontractor needed to provide a full financial and operational disclosure including profit margin, overhead, cash on hand, labor factors, and much, much more. The general wanted all the information that a bank might require for a mortgage, and even more. One might excuse this if it was a new subcontractor, but they wanted what many consider proprietary information that a good businessman would never dream of divulging to anyone, and this from a business associate of some 20 years standing!

This subcontractor had performed flawlessly on every project, from small remodels to entire hospitals, which they had ever done for the contractor. There was never even the slightest hint of a problem with the finances, suppliers or any of the other myriad things that can plague a business. Yet the contractor was requiring that the subcontractor provide the information before issuing a contract for a job that was waiting to start.

What brought this about? No one knows except the general contractor, and he is not talking. We can, however, speculate as to the thinking behind this onerous new requirement. By using the requirement as a 'stick' to the new project’s 'carrot' the contractor could force the subcontractor into the unenviable position of providing proprietary information to the contractor, to be used at some later point to dictate pricing on changes orders or perhaps even the next project coming up. Sort of like the fox requiring the keys to the henhouse. The subcontractor would, effectively be giving away everything to the general. By providing the information, he would be unable to adapt or adjust to any changes in either the labor or material market without the direct approval of the general contractor, architect or owner.

The more things change
Thirty years ago the practice of 'sub-busting' was common in the hot markets of the rapidly growing southwest. This was a scheme whereby a general contractor would squeeze a new subcontractor until the subcontractor went out of business, then the general would hire another new subcontractor, get a little more work done, and do the same thing to him. With a steady supply of new subs the plan worked pretty well. I know because I saw it happen more times than I care to remember. This new requirement smacks of that type of thinking, albeit with a project start, in this time of shortage of available work, being the lure.

The subcontractor, in this instance, respectfully declined to provide the information. They are presently working on the project. Remember, our industry is very unforgiving and ethically challenged, negotiate with care and make sure you anticipate the pitfalls.

The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].