Negotiating Contracts - New Wrinkles? Same Ol’ Same Ol’

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 today—the general contractor, you, your employees, the supply house, manufacturers and your sub-subcontractors—are 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.

Some Things Don’t Change

As you already know, the economic outlook, especially in this election year, is hazy and not easy to predict. You could say is has gone from cool to frigid, and is waffling around in an icy uncertainty. Whether or not it will 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 general contractor, the lowest bid requirement was moved back a notch to allow for the subcontractor’s track record to be factored into 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. Well, things have changed, and not for the better.

Recently a plumbing subcontractor [friend of many years], 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 over twenty years. The requirement? The subcontractor was being asked to provide a full financial and operational disclosure including profit margin, overhead, cash on hand, labor factors, and much, much more. 

The general contractor wanted all the information that a bank might require for a mortgage, and more. One might excuse this if it was a new subcontractor but the general contractor 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 twenty years standing!

This plumbing 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. Quality work was performed on time and per contract specifications. Yet the general contractor was requiring that the plumbing subcontractor provide the information before issuing a contract for a job that was waiting to start.

The More Things Change...

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 was attempting to force the subcontractor into the unenviable position of providing proprietary information to the contractor. This data could, and more probably would, 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 hen-house. 

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 They Stay the Same

Thirty years ago the practice of “sub-busting” was common in the hot markets of the rapidly growing southwest (specifically, Arizona and Nevada, parts of Utah and Colorado). This was a scheme whereby a general contractor would squeeze a new subcontractor (by withholding payment or some other such chicanery) 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 always available the plan worked pretty well. I know because I saw it happen more times than I care to remember. 

This new “requirement” by the general contractor in the above scenario smacks of that type of thinking, albeit with a project start, in this time of shortage of available work, being the lure.

The plumbing subcontractor, in this instance, respectfully declined to provide the requested data. They were awarded the contract without providing any of the information and are presently working on the project. Remember, our industry is very unforgiving as well as ethically challenged. Negotiate with care and make sure you anticipate the pitfalls. The most important take-away from this new(?) wrinkle is...stand on your ethical principles! If you can be bullied into submitting, you won’t be in business very long.

The Brooklyn, NY-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].