Sub-Contracting Problems

On 19th June 2001, John Battersby gave a talk at one of the regular “breakfast briefings” of the Construction Group of the British Chamber of Commerce in Hong Kong on the problems associated with sub-contracting in Hong Kong’s construction industry and suggested a few solutions.  Nearly seven years later, these problems still remain.

In John’s view, sub-contracting was perhaps one of the most misunderstood aspects of the Report of the Construction Industry Review Committee “the Tang Report” on the then current state of the construction industry in Hong Kong. From a quick read of the report, some people might have jumped to the conclusion that all that had to be done was to ban the employment of sub-contractors who were not registered sub-contractors and many of the problems in Hong Kong’s construction industry solved. As John pointed out in his introduction, it is not of course quite as simple as that. The problems associated with sub-contracting are many and varied.

In John’s view, for many parts of the construction process, subcontracting is actually unnecessary, uneconomic and inefficient. Many of the problems in today’s construction industry are caused by subcontractors who are not managed properly and/or who fail to provide skilled labour and adequate supervision themselves. Sub-contracting is unnecessary if it is for work which could be more economically carried out by the Main Contractor employing his own labour (e.g. formwork, concreting, carpentry and joinery, general finishing trades, etc).

Sub-contracting becomes particularly uneconomic and inefficient when the sub-contractors themselves sub-let the work, sometimes through several tiers of sub-sub-contractors each with their own separate markups.
In such cases, labour becomes so divorced from management that progress and quality suffer to the detriment of both the Employer and Main Contractor. This is a serious problem in Hong Kong and one of the principal problems highlighted in the Tang Report.

However, sub-contracting is also a necessary process when it comes to specialist work (e.g. electrical and mechanical works, piling, structural steelwork, curtain walling etc) and in the case of trades where continuity of work cannot be guaranteed (e.g. steel fixing, metal work, roofing, etc). In the case of specialist works, sub-contractors are traditionally nominated or named by the Architect so that the Employer can have a say in the selection of specialist equipment. This is of particular importance where after sales services are required. In the case of intermittent trades, steelfixers, metalworkers and roofers have always traditionally been employed by trade sub-contractors who are provided with a continuity of work by moving from project to project at the relevant stages of construction.

The construction industry has come in for a lot of criticism in recent times. Much of that criticism has been directed at the sub-contracting system, unfairly in John’s view.

It is not the sub-contracting system which is the problem as such. Rather, the problem is the manner in which sub-contracting has been allowed to run out of control by all concerned.

The Tang Report recognized that “the delivery of a construction project is a highly complex process, involving multi-disciplinary inputs provided by a vast number of participants from tradesman, technicians, supervisors, professionals, consultants, contractors and sub-contractors to client organizations and regulatory authorities.”

Highly complex processes require the very best management to ensure that the end result is achieved efficiently and economically.

With regard to the problems of sub-contractors’ performance with regard to progress, quality and timely completion, John considered that this is due in part to a lack of management on the part of sub-contractors. He also considered it was due to inadequate planning and coordination by main contractors and poor contract administration by employers’ consultants. As a result:

• sub-contractors attempt to follow programmes which do not work;
  
  
• sub-contractors prevent one another from working efficiently on site because the sequencing and timing  of their various work activities have not been properly coordinated;
  
  
• sub-contractors’ interim payments are under-valued;
  
  
• variations are not paid for until long after additional work is carried out;
  
  
• extensions of time are not granted and as a result liquidated damages are improperly set off against payment certificates.

These problems are generally due to insufficient resources both in terms of numbers and capability. Consultants and contractors tend to provide the resources which they have budgeted for on the basis of their fees and contract price respectively. It stands to reason that if you seek the lowest price you get the lowest standard of management and contract administration otherwise the companies concerned go out of business.

In order to overcome this aspect of underpricing, contracts should specify the numbers, qualifications and experience of the respective project management teams. Such specifications should then be strictly enforced. In John’s view management and administrative resources should not be the subject of competition. We all know what a senior engineer and a junior engineer cost. You get what you pay for.