Tips for an effective subcontracting relationship
Here are some tips about how to structure the subcontracting arrangement for mutual benefit to both the subcontractor and head contractor.
Have a contract.
Handshake agreements are common in the trades industry, but agreements - especially of a financial nature - that aren't governed by a contract spell RISK. And risk is something that as a business you must focus on - especially if the impact and likelihood of that risk is high.
A contract's just a bunch of discussion and then the writing down of your discussion. You can source standard subcontracting contracts on the internet for a small fee, but we'd recommend working through an experienced contract lawyer for relationships beyond any initial trial periods. Standard contracts are great for low cost 'tentative' subcontracting relationships, just remember to include the details of the trial period as well as the most important part - payment and warranties.
Of course, if you plan to subcontract to many different trades you can develop a standard contract for use with more than one business, and save money.Items to think about including in your contract
- Payment terms and structures, including any details around sourcing of new customers
- Commitments to meeting, being on time for jobs, work attire
- Incorrect quoting - do you go back to the customer and requote, or do you absorb the costs?
- Defects or customer complaints - who will deal with them, how will you establish fault, and are there penalties?
Structure of your agreement
A subcontracting arrangement can be one-way or mutual, but remember that you're not just sharing customers - you're also sharing your business cultures. If your cultures clash you'll find that your relationship will struggle unless you have an exceptionally detailed contract (mainly because the detail will require lots of discussion which will mean that you'll understand each other's businesses better).
The structure of your relationship should be practical. If it's too complicated then you're going to spend ages each month working out how much to pay for each job. But, think about setting standard terms that compensate for areas where there are either more or less expenses for each business. Think about how expenses work for a job you'd do alone, and then work out what new tasks are added or removed when you sub-contract.
Managing the relationship
Like any good marriage, the key to a good relationship is communication. And while it may feel unnecessary, having regular structured catch ups (beer or no beer) is important. Focus on things like the pipeline of work, the customer's feedback, plans for the next month (including holidays), and anything that feels relevant. Just because your relationship is business based, doesn't mean that you can't also be friends. But be wary here - some people are more comfortable with doing business with friends than others, and you should be cautious with deciding to socialise together too.
Tools that can help your manage operations better
Check out your accounting package - it may well have structures that are suited to servicing a subcontracting relationship and the administration of that.
For quoting, developing a structured quote guideline for use on any job is ideal.
Then also sharing your calendars electronically is an excellent way to keep on top of each other's schedules - even from your mobile phones. If you quote a job and win it, you can also think about communicating the details of that job in your partner's calendar.
