7 Challenges of Subcontractor Management

Many general contractors use subcontractors to carry out specific jobs or projects as they explore ways to save employee-related costs and improve productivity. Before agreeing to terms with these parties, the general contractor conducts a thorough background and credentials assessment to confirm the subcontractor’s qualifications. When this next level of outsourcing occurs, general contractors must be aware of the challenges and risks associated with subcontractor management.

This article lists and discusses seven such concerns.

Subcontractor Management: 7 Challenges

Using subcontractors can bring many benefits to a business, such as increased capacity and expertise. However, several challenges come with the extra outsourcing, including:

1. Maintaining Quality Control

Because hiring companies experience decreasing control over work quality when projects move to subcontractors, the general contractor must ensure the subcontractor meets the necessary standards and requirements.

More specifically, companies forfeit the right to dictate much of the hiring process they control when leveraging internal teams, including the following:

• Hand-picking full-time employees
• Training them to meet specific expectations
• Evaluating them periodically
• Rewarding them for good work

The hiring company relinquishing these rights might mean subcontracted employees are not loyal to the hiring company or its customers, potentially resulting in subpar work. As such, the general contractor must maintain quality control on behalf of the hiring company.

2. Preserving Communication During Subcontractor Management

Communication is vital when working with subcontractors, especially when dealing with complex projects. Misunderstandings and miscommunications can lead to any of the following:

• Delays
• Errors
• Unexpected costs
• Increased incident rates

Unfortunately, interactions between hiring companies and subcontractors are typically minimal, as most communication flows through the general contractor, requiring the general contractor to facilitate communication amongst all parties.

3. Protecting Against Data Breaches

General contractors are increasingly worried about the dangers of maintaining secure networks, safe data, and private information, particularly when managing subcontractors on top of their workforce.

Subcontractors add another level of data breach risks. Internal IT staff is readily available and accessible to the hiring company and contractors, but those working for subcontractors are not. 

Many of them require more in-house security and IT specialists, making it possible that they can only partially address all internal security issues and employee behaviors, potentially leading to a leak of sensitive information.

4. Ensuring Coordination Across Subcontractors

If the general contractor hires multiple subcontractors for a project, the hiring company might need help coordinating efforts across the various parties to ensure everything runs smoothly. The general contractor must coordinate the teams’ collective actions if this type of breakdown occurs.

However, this process can be challenging because no two subcontractors are precisely alike. Instead, they likely differ in several ways, including the following:

• Work styles
• Priorities
• Training levels
• Workforce sizes
• Schedules

These variants increase coordination complexity and require time and resources to manage.

5. Avoiding Dependence

General contractors might need to rely more on subcontractor performance when using them for several critical functions. Over-outsourcing these projects can damage the hiring company and general contractor’s reputation and financial well-being if subcontractors perform poorly or too slowly.

Dependability is also a function of availability, and several variables can affect access to subcontractors in a given market. Sometimes, the general contractor can immediately identify a subcontractor that meets the hiring company’s requirements and is immediately available. 

Conversely, the general contractor might discover that the search takes longer if demand for particular service spikes in a specific area or during the busy season. Aside from availability, finding a subcontractor that works well with the general contractor can take some time.

6. Confirming Insurance and Licensing

While hiring companies are not required to carry liability insurance for subcontractors, they might be held responsible for any accidents caused by an uninsured or unlicensed subcontractor.

Typically, hiring companies can confirm the general contractor’s credentials relatively quickly by requiring the following:

• The necessary paperwork to confirm authorization to work domestically
• A copy of the W-9, which includes the tax identification number
• A copy of the liability insurance certificate

However, as mentioned earlier, the hiring companies have much more direct interactions with the general contractors than the subcontractor, meaning they might rely on the general contractor to confirm subcontractor qualifications. As such, the general contractor must perform due diligence to protect its client.

7. Paying Higher Labor Costs

While hiring companies are exempt from paying health insurance or employer-related taxes for subcontractors, outsourced labor for specialized services often comes at a greater hourly rate to a subcontractor than those companies would pay their employees. 

General contractors must do their best to keep these costs under control to safeguard their and the hiring company’s financial interests.

Reducing Risk Requires the Best Subcontractor Management Software

While outsourcing projects has many advantages, general contractors must be aware of several risks to subcontractor management, including issues with quality control coordination, communication, liability risks, and excessive reliance. Ultimately, it is up to each general contractor to consider the advantages and disadvantages of subcontracting and then decide in a way consistent with their overall business strategy and objectives.

However, a general contractor’s ability to manage the risks associated with outsourcing to subcontractors depends substantially on the management software they employ.