Subcontractor Selection and Performance Evaluation in Construction

Introduction to Subcontracting in Construction

Outsourcing may be a term of fairly recent origin, but the practice itself is truly ancient — humans have been compelled to organize themselves into cooperative networks throughout history just to survive. Indeed, many of the same reasons for such practices remain applicable today. Few companies possess the expertise, talent, and resources to accomplish everything required of an organization in-house, and most therefore outsource some component of their business systems (Child & Faulkner, 1998). From this perspective, it simply makes good business sense to ally with others who are in a better position — because of superior talent, expertise, and resources — to do certain types of work more efficiently, and the construction industry is no exception.

In fact, although some automobile owners may still possess the mechanical aptitude needed to work on cars today, few will likely possess the ultra-expensive computerized diagnostic equipment and sophisticated tools required to do so efficiently, so it just makes sense to have a specialist do the work instead. According to Brimmer (1992), "The subcontractor works below the general contractor. This is usually a small firm — it could be a single individual with a few employees — that obtains work from the general contractor. The subcontractor may also be highly specialized for certain projects" (p. 43). Likewise, many contractors may lack the expertise or requisite experience needed for a given project and will require the assistance of numerous subcontractors to help complete the project on time and on budget (Applebaum, 1999).

In this regard, Brimmer adds that "the key general and subcontracting firms have typically gained expertise by specific experience. For instance, an electrical contractor is nearly always an electrician, a plumbing contractor is a plumber, and a mechanical contractor is a mechanic. The opportunity to enter early and master these trades is vital to success" (p. 43). In almost every case, there will be certain components of a project that can only be accomplished by certain trades, and there will be local, state, and federal laws to take into account as well (Sims, 2002). These are critical issues given the enormous scale of the construction industry in the United States today and the amounts of money that might be involved in a major project. As Brimmer (1992) emphasizes, "The construction industry is a major force in the U.S. economy. It is a mainspring of economic growth and generates significant jobs and revenue" (p. 43).

According to Applebaum (1999), the construction industry can be divided into three fundamental components: general building contractors; heavy construction contractors; and specialty trade contractors. This author reports that "general building contractors build residential, industrial, commercial, and other buildings. Heavy construction contractors build sewer systems, roads, highways, bridges, tunnels, dams, and other projects. Specialty trade contractors are engaged in specialized work activities such as carpentry, masonry, plumbing, electrical, painting, heating and air-conditioning work, and all other trades that go into the building of a structure" (Applebaum, 1999, p. 5).

In order to gain as much insight as possible into what factors should be evaluated in selecting a subcontractor, this study employed a mixed methodology using both a critical review of the relevant literature and a case study of general contractors in the construction industry — examining how they have gone about accomplishing and evaluating the process in different settings for different types of projects. According to Gratton and Jones (2003), a critical review of the current literature is an essential task in all research: "No matter how original you think the research question may be, it is almost certain that your work will be building on the work of others. It is here that the review of such existing work is important" (p. 51).

In addition, the literature review is a useful way of developing the background required for the research, where it is important to demonstrate a clear understanding of the relevant theories and concepts, the results of past research into the area, the types of methodologies and research designs employed in such research, and areas where the literature is deficient (Gratton & Jones, 2003). In this regard, Wood and Ellis (2003) identify the following as important outcomes of a well-conducted literature review as it specifically relates to the construction industry today:

Research Approach and Methodology

It helps describe a topic of interest and refine research questions or directions in which to look. It presents a clear description and evaluation of the theories and concepts that have informed research into the topic of interest. It provides insights into the topic that are both methodological and substantive. It clarifies the relationship to previous research and highlights where new research may contribute by identifying research possibilities that have been overlooked so far. It demonstrates powers of critical analysis by, for instance, exposing taken-for-granted assumptions underpinning previous research and identifying possibilities for replacing them with alternative assumptions. It justifies any new research through a coherent critique of what has gone before and demonstrates why new research is both timely and important.

As to the case study approach, Zikmund (2000) reports that the case study method is "an exploratory research technique that intensively investigates one or a few situations similar to the researcher's problem situation" (p. 722). The main advantage of incorporating this approach into a research project is that a subject area can be investigated in depth and with great attention to detail (Leedy, 1997). The intent of this combined approach is to provide industry professionals with timely guidance concerning which techniques have proven successful in evaluating different subcontractors for a given project, notwithstanding the enormous differences that each such project will entail.

The construction industry uses many of the same management techniques employed in other fields, but there are aspects of construction that set it apart and suggest that some management styles are simply not appropriate or transferable. As Sebestyen (1998) emphasizes, "Over the past 100 years, management in industry has emerged as a scientific discipline, with many new ideas such as ensuring competitive advantage, downsizing, de-layering, concentration on the core business and human aspects, and re-engineering. Management in construction, on the other hand, has always been based on experience and organizational talent" (p. 265). The experience and organizational talent that characterize successful general contractors will also vary widely.

Today, construction work is typically performed and coordinated by the general contractor, who may specialize in either residential or commercial and industrial building and assumes complete responsibility for the project. In some cases, the owner of a project will assign certain parts of the work to be performed by others — such as outfitting a hotel with furniture, installing special conveyor systems in a factory, or installing racking systems in a warehouse (Applebaum, 1999). As this author notes, "Although general contractors may do a portion of the work with their own crews, like carpentry, concrete, and masonry, they often subcontract most of the construction work to heavy construction contractors and to the specialty trade subcontractors" (Applebaum, 1999, p. 6).

Factors in Subcontractor Selection

Because this practice is so common, understanding which factors are typically used by construction contractors to select their subcontractors has assumed new relevance for industry observers and professionals. It is reasonable to suggest that every contractor will have unique selection criteria depending on the type of project involved and their own experiences with comparable projects in the past. Furthermore, previous experiences with subcontractors will play a large part in whether the same company is considered for a future job, just as word-of-mouth recommendations from other contractors will likely be taken into account.

Some of the most important — and intuitive — factors to consider when selecting a subcontractor include whether the subcontractor possesses the requisite resources, skills, and experience to accomplish the job in a timely fashion according to the project specifications and budget. According to Black's Law Dictionary (1990), the selection criteria used by most general contractors relate to whichever company emerges as the lowest responsible bidder, which is the "bidder who not only has the lowest price conforming to the specifications, but also is financially able and competent to complete the work as evidenced by prior performance" (p. 947). Therefore, selecting a subcontractor may require specific trade or general contracting experience, but the selection criteria involved will directly relate to the job at hand, how well the company has performed these tasks on similar projects in the past, and their perceived ability to complete the project satisfactorily. For example, in their study of Nawkaw, Inc., Amason and Ciavarella (2001) report that "commercial jobs usually were won through competitive bidding by general contractors, who then hired subcontractors. Sometimes general contractors did not seek bids, instead choosing subcontractors on the basis of their past performance" (p. 77).

Other factors influencing subcontractor selection relate to the organizational structure of the project. As Frame (2003) points out, there is a basic approach to most large construction projects in use today. A commonly encountered organizational structure involves the owner retaining direct authority over both the contractor and the architect-engineering firm; in this arrangement, the owner can issue directions and both the contractor and architect-engineering firm are obliged to comply. This degree of control over these two key players is what makes this structure appealing to owners (Frame, 2003).

This approach also means that the contractor has an additional measure of control over subcontractors because, although the architect-engineers retain authority over design issues, the contractor has authority over the physical building effort (Frame, 2003). Some valuable insights can be gained from the experiences of the general contractor and primary architect-engineer firm used for the construction of the U.S. Penitentiary at Coleman, Florida — the first design/build project contracted by the U.S. Bureau of Prisons (Conley, 2000). According to Conley, "The project's success is the result of the team's ability to organize and work together, each viewing its individual roles and responsibilities from very different perspectives, while keeping the project focus in the forefront" (p. 118). The selection of the architect-engineer for this project was clearly based on the congruence between the respective organizations' corporate cultures and their mutual desire to complete the job in a timely and professional fashion. Conley notes that "unwavering professionalism and open communication were necessary to produce viable construction schedules, system pricing, design and engineering, and construction means and methods in a concise group voice" (2000, p. 118).

Taken together, these considerations suggest that identifying the most appropriate subcontracting candidate for a given project can become a full-time job if the general contractor does not have relevant previous experience with similar projects, because the subcontractor may not possess the precise mix of skills and resources needed and the general contractor might not recognize the deficiency. According to Applebaum (1999), "Specialty trade contractors usually work at only one trade, such as painting, carpentry, or electrical work, or two or more closely related trades, such as plumbing, sprinkler work, and heating and air conditioning. Beyond fitting their work to that of other trades, specialty contractors do not have the responsibility for the building of the structure as a whole" (p. 6).

Likewise, specialty contractors may receive their contracts from general contractors as well as engineers, construction managers, architects, or even the owners themselves; many specialty contractors also perform repair work, which is typically contracted for by owners, occupants, architects, or rental agents (Applebaum, 1999). This means that the successful subcontractor for a given project will possess both the requisite resources and relevant experience with comparable projects, and be able to communicate that ability effectively to the general contractor (Amason & Ciavarella, 2001). This analysis may be subjective and informal — based on personal communications with associates in the construction industry who have had direct experience with the subcontractor under consideration — or it may require more formal evaluation techniques.

Some contractors assign a greater degree of importance to the ability of the subcontractor to "walk the walk" and "talk the talk" of a given project, seeking those subcontractors that most closely align with the cultural aspects of the general contracting organization. In this regard, Applebaum (1999) reports that the social organization of the construction industry and its associated technology and traditions lead to construction worker behavior that reflects the following cultural patterns: autonomy and self-reliance of the craftsworker; a large measure of control over the work process by the craftsworker; decentralized decision-making on the construction site; nonbureaucratic organization of construction work; loose supervision of craftsworkers by construction management; integrated interdependence of work groups; and enjoyment of work satisfaction by construction workers (Applebaum, 1999, p. 185).

In many real-world settings, there may be other factors that affect the subcontractor selection process that are not formally written down but nevertheless remain firmly in place. As Brimmer emphasizes, "Common threads, such as apprenticeship systems and trade unions, help connect the construction industry. Moreover, there is the old-boy network composed entirely of white males. . . . Frequently the officials letting public contracts belong to the old-boy network. Once a contract has been awarded, the general contractor normally shares work with subcontractors" (p. 43). These lingering practices have created institutionalized bias against Black and women subcontractors in the construction industry. Specifically: historic limitations including small size and thin performance records have restricted Black firms primarily to subcontracting roles; Black firms often do not receive notice of upcoming public contracts; Black firms are often contracted only to satisfy affirmative-action and set-aside requirements; many minority-owned firms remain outside the selection process for private-sector projects; minority-owned subcontractors may have problems securing bank loans; many minority-owned subcontracting companies find it nearly impossible to negotiate change orders; and some minority-owned subcontractors have been excluded from developing relationships with construction material suppliers at competitive prices (Brimmer, 1992).

While conditions may have improved for minority-owned subcontractors in many regions, it is reasonable to assume that many of these constraints remain in place. Assuming, however, that the playing field is as level as possible, the selection criteria used by a general contractor will tend to vary from project to project depending on the project's unique requirements and the personal preferences of the contracting organization. Therefore, it is important to develop a general process by which the subcontractor selection process can be managed consistently over time.