Subs Should Join Forces!

Executive Summary.  On a project with multiple subcontractors, and say you’re one of them, implement a winning strategy for claims success by joining other subcontractors. 

The scenario.  There’s a thousand different scenarios to exemplify my proposal here, but let’s say your company is a cabinet installer on a large new single family home project.  There are 400 homes and you have to install kitchen and bathroom cabinetry in each of them.  In each of the homes you go in to to perform your work, the kitchens are in a different state of completion.  Some do not have electrical and plumbing done, some have incomplete drywall, and maybe some aren’t even dried in yet to protect from the elements.

The impacts to you.  The impacts to your company may include the following:  mobilization/remobilization, excessive go-backs, unbalanced manpower, and/or overcrowding.  All of these items contribute to poor cash flow, decreased profit, and an adversarial relationship with the general contractor or owner.

You’re not alone.  As the cabinet installer, you may be thinking about making a request for equitable adjustment (REA) due to these losses.  Well, here’s a little secret – you’re probably not alone.  The other subcontractors likely have similar stories – they’re not working efficiently either.  And it’s not their fault either!

The impacts to all.  The painter cannot paint because the drywaller’s not done.  The drywaller cannot close up the walls because the electrician’s not finished.  The electrician is not complete because his drawings were late out of the permitting agency.  And you, the cabinet installer, cannot get your work done because of this trickle effect described in this paragraph resulting from other subcontractors’ lack of performance. It’s the domino effect!

Join forces.  In the scenario presented, there is one common problem:  your client (the owner or general contractor).  He or she has mismanaged the job and the effect of this has cost you, and your fellow subcontractors, thousands or millions of dollars.  Instead of playing into the Owner’s/Contractor’s hand by going against your fellow subcontractors, partner with these other subs.  Instead of your staff preparing a request for equitable adjustment (REA), hire out the service to a firm that can represent you jointly and severally.  I’m not suggesting that one firm provide a claim on behalf of multiple subcontractors in one document – I’m suggesting, at a minimum, that one firm prepares independent REAs for multiple clients.  It is likely that you will want your case to standalone against the client, but  there is benefit to you by having one firm prepare it concurrently with other parties’ requests.

The upside.  The top reason to join forces and hire a common claims professional is the expedited completion of the effort.  The staff on your project is busy running the project and has no time to prepare the claim.  So often the process is protracted because staff is too busy to work on the REA.  Another benefit is the consistency of presentation in entitlement and damages calculation.  It is likely that similar causal effects exist between each of the subcontractors, and using the documentation in a somewhat aggregate fashion can help the overall case.  The entitlement can be consistent presented and the manner in which costs are calculated also can be.  This makes review of the REA(s) more efficient for your client.  Lastly, a significant benefit is cost to you.  Sharing the cost between other parties will not cut the cost in half, but it will be a fraction of hiring a claims consultant on your own.

The downside.  The obvious downside is the “you’re ganging up on me” effect the client will feel.  And this may be true, but when it comes time to negotiate your losses, you’ll be feeling the “you’re ganging up on me” effect from their project manager or attorney. 

My story.  I had work once with a general contractor with over 40 subcontractors and I saw firsthand how the mistakes of this general contractor were unfairly distributed amongst the subcontractors and suppliers.  There’s definitely a fine line between maintaining a relationship with a client and protecting yourself.  Making the decision to join forces with other subcontractors results in a more efficient, lower cost approach to recouping costs for the work.  You will need to make sure to handle it in a delicate and professional manner with your client.