How To Manage Construction Subcontractor Tiers

You won a bid for that big construction project. Now, it’s time to delegate tasks to your subcontractor partners.

The contract between a contractor and subcontractor is called a subcontractor agreement; it outlines the work the sub is responsible for. A subcontractor agreement is different from the construction project’s overall contract where the contractor independently agrees on details like project costs, timelines, and communication protocols with the project owner.

 

What Are Subcontractor Tiers?

The subcontractors hired by you, the general contractor, are called second-tier contractors.

It’s not uncommon to have your subcontractors hire additional companies to complete some tasks. Those companies are referred to as third-tier subcontractors.

Each level of contractor is accountable directly to the contractor who hired them for the job – regardless of tier – and each subcontractor is only responsible for the terms included in their subcontractor agreement.

Let’s break this down:

• The property owner/architect creates a contract with the general contractor.
• The GC creates contracts subcontractors (second-tier contractors).
• The second-tier contractors can create additional contracts with third-tier subs to complete the job.
• And so on.

Each subcontractor agreement exists to help GCs ensure that each aspect of their construction project is well managed by the appropriate trade professional. It’s up to GCs to set the terms of the agreement – like payment, project expectations, and deadlines. But subcontractor agreements don’t just protect the general contractor. Since subs accept the terms in the agreement, if a payment is withheld, the sub can take legal recourse to get compensated.

Keeping track of all these agreements and tiers can be difficult and managing them presents several challenges: 

• Missing documents
• Maintaining compliance
• Efficient communication
• Delayed payments

That’s where GCPay comes in.

Since GCPay payment application software stores all your documents in one system, it’s easy to pay your subs on time. Effortlessly add your subs to any project in the system… plus, if the sub has worked with any of our commercial construction customers, they’ll already be available for selection. If not, it only takes a few minutes to add them.

 

Change Orders

When your sub needs to adjust contract terms, they file a change order. A change order is a document used to revise the original project agreement. Before materials are ordered or work is completed, you approve that change order. Sometimes the change order needs to be approved by multiple contractors. The challenge comes when change orders aren’t properly managed, inflating project charges and onsite delays.

GCPAY WIN: Subcontractors should have an efficient way to communicate and manage the need for change on a project. With mobile, cloud-based software, any subcontractor tier can conveniently manage their change orders and communicate those needs to keep business moving efficiently.

 

Lien Waivers

You probably require your subs to submit a lien waiver with their application for payment. It’s not uncommon for GCs to receive an expired lien waiver, one that isn’t notarized, or maybe one that isn’t signed. Even if lien waivers are submitted on schedule, it’s tough to keep them organized.

GCPAY WIN: Reduce mistakes and speed up the application for payment process. You can generate, populate, sign, and send lien waivers automatically through GCPay so that you never have to worry about missing documents again! In GCPay, the contractor uploads waivers and attaches digital tags so that the waiver is always set up correctly. GCPay notifies subcontractors that there is a waiver to sign. Once submitted, the GC receives an email that the lien waiver has been uploaded. After reviewing it, the GC can accept or reject the waiver.

 

Compliance Documents

Each construction project must meet applicable requirements – from federal and state laws to safety and insurance regulations. Every part of the process must be properly documented. PlanGrid reports that inefficiencies like rework, missing data, and conflict resolution cost the construction industry more than $177 billion each year. It’s the general contractor’s responsibility to ensure that any (and all) subcontractor tiers are compliant with the applicable regulations. All too often compliance documents get misplaced, aren’t filed right, or are filled out wrong.

GCPAY WIN: The process is automated! With GCPay, you can keep track of all your compliance documents and automate compliance alerts.

 

Payment Terms

There’s so much paperwork when it comes to payment in construction. Every subcontractor agreement should list a contract price and consider progress payments, unit price contracts, or conditional payments.

Progress payments are based on the percentage of work that’s complete. Usually payments are made monthly, but some GCs choose to send the payment when certain percentages of the work has been completed.

Unit price contracts divide the total work required to complete a project into separate units. You might call this measure and pay contracts or remeasurement contracts. With unit price, the contractor provides the owner with price estimates for each unit of work, rather than an estimate for the entire project.

Some subcontractor agreements include “pay if paid” or “pay when paid” which are conditional payment clauses. Conditional payment clauses state that payment is contingent on another event and can delay final subcontractor payment.

GCPAY WIN: Your subs get visibility into their pay app status. GCPay makes applications for payment paperless and cuts time for everyone on billing paperwork.

Billing options can become a headache for accounting. With GCPay, GCs have the option to select close the month out after the billing due date on each project. So, if you ask your subs to get their invoice in by the 20^th each month, but they submit it after the 20^th, then the payment automatically pushes to the following month.

 

Contractor Tier Organization

Now more than ever, commercial contractors are moving away from manual, paper-based processes. GCs are more efficient and improving relationships with second-tier contractors by implementing software with document storage and real-time data. The move to digital improves transparency, collaboration, and outcomes.

When it comes to managing complex construction projects, automation, collaboration, and organization are key to success. General contractors and their subs can handle the full pay app process in GCPay without ever touching a sheet of paper. Now… that’s a major win.