The Subcontractor Dilemma - Page 2 - Machine Underground -Tractor & Commercial Equipment Discussion Forum

Dougster · 05-31-2008, 11:08 AM

Quote:

Originally Posted by Ducati996

Im not sure Doug why you have the customer right mulitple checks - that to me sounds like you eliminated your profit out of the sub-contractor equation and they get paid directly. Your service should be based on one POC (point of contact) that being you. All payments go to you, you settle up with the contractors. You have control when payement comes from you and only you. You dont want the sub going to the client and getting paid and lets say they arent done yet? That way there is no direct dealing with the customer and lets say there is additional work thats agreed to, you just eliminated your percentage and direct responsibility as it was your job that you found. Your total price to you customer should include your sub-contractor work along with your percentage worked in it as your total price. When you sub out work, you should be onsite until the work is done and meets the customers needs and you being the one POC. It works out very well when done similar to this, plus you validate the subs work, and can use them for the future and long term relationships, along with getting better pricing. Never give control to others especially when its your job. I used this method all the time and in many cases I sub out lets say lawn maintaince and retain 50% or more and take care of the billing and inquiries. And jump in when needed - I also take care of what i sub out, and always try to keep it within the range of what I can do myself if things dont go right with the sub. This can happen so be careful...

My current need to have my clients write multiple checks stems directly from the "no subs allowed" stipulation in my business liability insurance policy. That's exactly the point we are discussing here: i.e., whether or not it is prudent for me to pay my insurance company an extra $250 per year in order for my business to be able to employ subcontractors.

For example, if I need a trucker next week to haul away excess fill or demo debris, I am not allowed to have his work show up in my billing or be part of the payment I get. To do so would constitute employing a subcontractor which I am currently not allowed to do. By violating that stipulation of my insurance policy, I would effectively be operating without enforceable insurance. Paying the insurance company $250 for the subcontractor rider to my policy would give me the right to hire subcontractors and to bill the client for the trucker's services and have the cost of those services included in the check that the client writes to my company.

But in regard to the subcontractor mark-up issue... I simply cannot add anything to an agreed lump-sum, fixed-price bid. I just can't. My bid is my bid. It is the price my client has agreed to pay for my services including any ancillary service providers needed to get the job done. I can markup that already expensive trucker 15% or 500% in my books if I want... but I can't charge the client one penny more than the agreed project price in my bid. And if I markup that trucker by 500% or even 15%, I absolutely guarantee you that I will not get the job because my bid price will not be competitive in my market. The Godless truckers are already sucking the lifeblood out of me.

I respect you and Lone both as highly successful "dirtwork-related" businessmen... which I am currently not. But you guys apparently do not work on a lump sum, fixed price bid basis. It appears that you both work on a time and materials basis... including the use of subcontractors on a pass-thru basis plus markups.

I'm not sure how you manage to get away with that approach because it certainly would not fly here.

Or am I missing something bigtime???

If so, please help me to understand what I am doing wrong.

Dougster™

**PaulChristenson** · 05-31-2008, 02:05 PM

Quote:

Originally Posted by Dougster

My current need to have my clients write multiple checks stems directly from the "no subs allowed" stipulation in my business liability insurance policy. That's exactly the point we are discussing here: i.e., whether or not it is prudent for me to pay my insurance company an extra $250 per year in order for my business to be able to employ subcontractors.

For example, if I need a trucker next week to haul away excess fill or demo debris, I am not allowed to have his work show up in my billing or be part of the payment I get. To do so would constitute employing a subcontractor which I am currently not allowed to do. By violating that stipulation of my insurance policy, I would effectively be operating without enforceable insurance. Paying the insurance company $250 for the subcontractor rider to my policy would give me the right to hire subcontractors and to bill the client for the trucker's services and have the cost of those services included in the check that the client writes to my company.

But in regard to the subcontractor mark-up issue... I simply cannot add anything to an agreed lump-sum, fixed-price bid. I just can't. My bid is my bid. It is the price my client has agreed to pay for my services including any ancillary service providers needed to get the job done. I can markup that already expensive trucker 15% or 500% in my books if I want... but I can't charge the client one penny more than the agreed project price in my bid. And if I markup that trucker by 500% or even 15%, I absolutely guarantee you that I will not get the job because my bid price will not be competitive in my market. The Godless truckers are already sucking the lifeblood out of me.

I respect you and Lone both as highly successful "dirtwork-related" businessmen... which I am currently not. But you guys apparently do not work on a lump sum, fixed price bid basis. It appears that you both work on a time and materials basis... including the use of subcontractors on a pass-thru basis plus markups.

I'm not sure how you manage to get away with that approach because it certainly would not fly here.

Or am I missing something bigtime???

If so, please help me to understand what I am doing wrong.

Dougster™

You have low cost insurance, because you don't have subcontractors...

Lets take the following scenario...If you have a subcontractor trucking dirt away from you work site and he runs over a child...YOU WILL BE SUED...why because you are the PRIME contractor...and the Lawyers will argue that the trucker would NOT have been there if NOT for you...

This is why your business policy restricts subs...it limits THEIR exposure...

On the other note...

NO ONE BIDS fixed priced contracts today!!!
Maybe COST+...
It is too easy to have an unforseen event WIPE OUT any possible profit...

Dougster · 05-31-2008, 02:26 PM

Quote:

Originally Posted by PaulChristenson

You have low cost insurance, because you don't have subcontractors...

Lets take the following scenario...If you have a subcontractor trucking dirt away from you work site and he runs over a child...YOU WILL BE SUED...why because you are the PRIME contractor...and the Lawyers will argue that the trucker would NOT have been there if NOT for you...

This is why your business policy restricts subs...it limits THEIR exposure...

Totally correct.

Quote:

Originally Posted by PaulChristenson

On the other note...

NO ONE BIDS fixed priced contracts today!!!
Maybe COST+...
It is too easy to have an unforseen event WIPE OUT any possible profit...

You were in government way too long Paul!

Lots of folks are bidding fixed price contracts. They are in the majority today in private industry for any well-defined (or definable) job. I am up against them all the time!

Cost+ is a dream in today's economy for the kind of work I do. The only "out" I have is for subsoil risk. That is pretty much standard in any prudent excavation contract.

Dougster™

**Ducati996** · 05-31-2008, 02:57 PM

Quote:

Originally Posted by PaulChristenson

You have low cost insurance, because you don't have subcontractors...

Lets take the following scenario...If you have a subcontractor trucking dirt away from you work site and he runs over a child...YOU WILL BE SUED...why because you are the PRIME contractor...and the Lawyers will argue that the trucker would NOT have been there if NOT for you...

This is why your business policy restricts subs...it limits THEIR exposure...

On the other note...

NO ONE BIDS fixed priced contracts today!!!
Maybe COST+...
It is too easy to have an unforseen event WIPE OUT any possible profit...

Nobodys forcing the guy to take the job your offer - providing he has his own insurance, he is responsible for his crew, insurance and liability. How it get harshed out in court, matters little because having your own insurance protects you. Im my case no mention of Subs as not being allowed.

I really dont understand the business Doug goes after, and his insurance policy just seems to be too restrictive to be any good IMHO. I would find another broker who handles a line out of state with less restrictions.
As with the case of his dirt hauling - nobody requires that it be spelled out, you write it down as a dump fee or misc cost and be done with it (and dont itemlize it). Nobody will know if its a sub or not, and my opinion your not required to tell all. Start asking for more cash deposits down, or 50% down to cover all your costs (including subs). It sounds like Doug is going after government work, where the silliness never ends.
Sell the job first worry about the crap that dosent matter later, otherwise you will create more barriers to sales before you even sell a job. Its comes down to basic sales, if you are looking to find reasons not to sell and be successfull you will find it. Sell first, everything else will work itself out is really all I can add or suggest now

Dougster · 05-31-2008, 05:01 PM

Quote:

Originally Posted by Ducati996

Nobodys forcing the guy to take the job your offer - providing he has his own insurance, he is responsible for his crew, insurance and liability. How it get hashed out in court, matters little because having your own insurance protects you. In my case no mention of Subs as not being allowed.

As Paul C. correctly points out, in today's crazy litigious world, if something goes wrong, the Godless evil lawyers will go after anybody and everybody. The fact that a subcontractor has his own liability insurance for his own mistakes doesn't mean they won't come after me. In fact, the chances are 100.00% that they would. In any case, there is a clear additional exposure to my insurance company if they allow me to have subcontractors. $250.00 worth to be exact.

Quote:

Originally Posted by Ducati996

I really dont understand the business Doug goes after, and his insurance policy just seems to be too restrictive to be any good IMHO. I would find another broker who handles a line out of state with less restrictions.

First time excavators are not exactly in a good bargaining position with most insurance companies.

It took me a ton of shopping and a very long time to get to this policy. It was the best I could get by far. Yes, it has certain restrictions... but overall it was the least restrictive policy I could possibly afford.

Quote:

Originally Posted by Ducati996

As with the case of his dirt hauling - nobody requires that it be spelled out, you write it down as a dump fee or misc cost and be done with it (and dont itemize it). Nobody will know if its a sub or not, and my opinion your not required to tell all. Start asking for more cash deposits down, or 50% down to cover all your costs (including subs). It sounds like Doug is going after government work, where the silliness never ends.
Sell the job first worry about the crap that dosent matter later, otherwise you will create more barriers to sales before you even sell a job. Its comes down to basic sales, if you are looking to find reasons not to sell and be successful you will find it. Sell first, everything else will work itself out is really all I can add or suggest now

No government work for me... but when I tell you that I play by the rules (state and federal government, IRS and insurance), I really do play by the rules... to the very last letter of the law. I consider everything I do and every transaction I write up to be an audit target... by the IRS or by my insurance company or both.

Am I crazy? Paranoid? Unrealistic? A damn business fool? Am I too honest??? Perhaps so. Probably all of the above and worse.

But right now it's the only way I know how to conduct this silly little excavation business.

Dougster™

**Ducati996** · 05-31-2008, 05:36 PM

Quote:

Originally Posted by Dougster

As Paul C. correctly points out, in today's crazy litigious world, if something goes wrong, the Godless evil lawyers will go after anybody and everybody. The fact that a subcontractor has his own liability insurance for his own mistakes doesn't mean they won't come after me. In fact, the chances are 100.00% that they would. In any case, there is a clear additional exposure to my insurance company if they allow me to have subcontractors. $250.00 worth to be exact.

First time excavators are not exactly in a good bargaining position with most insurance companies.

It took me a ton of shopping and a very long time to get to this policy. It was the best I could get by far. Yes, it has certain restrictions... but overall it was the least restrictive policy I could possibly afford.

No government work for me... but when I tell you that I play by the rules (state and federal government, IRS and insurance), I really do play by the rules... to the very last letter of the law. I consider everything I do and every transaction I write up to be an audit target... by the IRS or by my insurance company or both.

Am I crazy? Paranoid? Unrealistic? A damn business fool? Am I too honest??? Perhaps so. Probably all of the above and worse.

But right now it's the only way I know how to conduct this silly little excavation business.

Dougster™

I get audited almost every year - haven't lost $1 each time. I play by their rules and win every time. You are doing the right thing and I admire that, I think now that you have insurance, you can shop around for a better deal since you aren't a first timer. The rates should be better as well since no claims and now a track record. I guess for a piece of mind $250 is fine -
Again I don't have that limitation and no said clauses - thats my point that i wanted to make. I didn't have to pay extra for that...I would assume you went for a excavation coverage -
I might have to give you a few proposals (with automatic margin built in for you to use as a template in excel) and invoices that show tax collected, non-itemized quotations/invoices with a general contract statement. Most had some type of sub (friend) that did some part of the work. Never had the customer pay them and no there is no record anywhere of their presence. No need for it and its legal, we are all licensed and insured, etc...Its normal practice in these parts.
I sub out all my water sprinkler parts, paving (blacktop), portion or all of the brickwork, tree removal, debris haul away, etc...cash transactions mostly, sometimes barter nothing illegal about any of that.
I do feel your too cautious and worried about litigation, and that might be choking you too much in being adventurous. Remember those that take the risks, get the reward most of the time. Cant make an omelet without breaking a few eggs. If you are really paranoid of the ligatious atmoshepere, then you need to network with a few lawyers and just start a friendly relationship with them and have their business cards handy to hand out when someone is an asshat.

Hope this helps, these are only suggestions. Im no Buffett so its just experience being shared, see if it can be applied somewhere for you if it works for you.

**PaulChristenson** · 05-31-2008, 05:38 PM

Quote:

Originally Posted by Ducati996

Nobodys forcing the guy to take the job your offer - providing he has his own insurance, he is responsible for his crew, insurance and liability. How it get harshed out in court, matters little because having your own insurance protects you. Im my case no mention of Subs as not being allowed.

I can tell you have NEVER been sued...

...BE GLAD...BE VERY GLAD...

Even if you win...It costs money to be sued...

ALL insurance has coverage limits...for example, what happens when you are slapped with a $2million lawsuit and you have an insurance coverage of $1million??

Immediately, the insurance company will do everything within its power to negotiate down the claim to its coverage limits and then if that happens they will tell you to settle...even if it is NOT your fault...WHY? (UNLESS you happened to have a COMPLETE video record of the event that PROVED beyond a shadow of doubt that you are innocent...

...and since you don't have that...

)Because with the current state of the way juries award damages in civil suits, there is no way an insurance company wants to end up in court.
And the way they look at it...they'll just raise yours and everyone else's premiums to recoup to monies they had to pay out and they get to take a business deduction off their taxes to boot...

**Ducati996** · 05-31-2008, 06:05 PM

Quote:

Originally Posted by PaulChristenson

I can tell you have NEVER been sued...

...BE GLAD...BE VERY GLAD...

Even if you win...It costs money to be sued...

ALL insurance has coverage limits...for example, what happens when you are slapped with a $2million lawsuit and you have an insurance coverage of $1million??

Immediately, the insurance company will do everything within its power to negotiate down the claim to its coverage limits and then if that happens they will tell you to settle...even if it is NOT your fault...WHY? (UNLESS you happened to have a COMPLETE video record of the event that PROVED beyond a shadow of doubt that you are innocent...

...and since you don't have that...

)Because with the current state of the way juries award damages in civil suits, there is no way an insurance company wants to end up in court.
And the way they look at it...they'll just raise yours and everyone else's premiums to recoup to monies they had to pay out and they get to take a business deduction off their taxes to boot...

Thankfully Paul I understand how the world around us works

your points are valid, and Im not in disagreement with them. Heck check out the verbaige just for running a website (this one) under the TOS link.
thats for just posting on the internet -

**PaulChristenson** · 05-31-2008, 06:19 PM

Quote:

Originally Posted by Ducati996

Thankfully Paul I understand how the world around us works

your points are valid, and Im not in disagreement with them. Heck check out the verbaige just for running a website (this one) under the TOS link.
thats for just posting on the internet -

You TOS data is TOO LARGE...this would be a more appriate font for the TOS data...

**LoneCowboy** · 05-31-2008, 07:42 PM

Almost 99% of my stuff is fixed price. I almost never work hourly (unless it's something really odd that just isn't typical or something I'm clueless on)
People want one price. Nobody does cost plus. Nobody. (except government who doesn't care, because ti's not their money). You screw up and midbid it, well, you eat it. The customer agreed to X price. That's only fair.

You include their markup in your bid. If you get a bid to haul crap away for $300, then in your bid, your cost of hauling crap away is $360 and that's added to the total while you give them one thing. Certainly if you have already bid it, then no, you can't add someone in. But bidding in the future, you add in things that you don't do well..

On the insurance issue, while I surely think it's prudent, I think you worry too much.
a. What exactly are they going to get if they sue you? blood out of a turnip and all that.
b. Unless you really screw up, or they are on your job site, then it's your A$$. (the truckdriver runs over a fence, that's you. the truckdriver has an accident while leaving your job and going home, off the property, that's him).