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

Dougster · 05-30-2008, 01:24 PM

Well, I just talked with my business insurance agent and it's gonna cost me an extra $250.00 per year if I wish to have the ability to employ subcontractors on my jobs even if they have their own separate business liability insurance policies. The alternative is doing like I have been doing: basically making my clients write separate checks to separate parties for separate services.

The work still gets done either way... but it has been something of an embarrassment.

It would be one thing if I were in a position to mark-up subcontractor services and take a nice little cut for myself... but in this paranoid economy and my particular market, that could make me even less competitive with the struggling & desperate big boys as well as the illegal alien crowd.

Any opinions out there on this? Am I just throwing away more money on insurance I'll never use? Or is it buying me more credibility and more opportunity to move into bigger, better, more complicated jobs?

$250.00 is a lot of generic peanut butter, stale bread and gruel.

Dougster™

Deanster · 05-30-2008, 02:04 PM

Could you hold off until you have a job nailed down that requires it, then gift your $250 to the insurance company?

Dougster · 05-30-2008, 02:35 PM

Quote:

Originally Posted by Deanster

Could you hold off until you have a job nailed down that requires it, then gift your $250 to the insurance company?

Well, that's the thing: No job actually requires it. I can think of no special service that I would want to subcontract that could not be directly contracted by the client if necessary. It may not be preferable or pretty, but it does work. And some clients even view that as saving them money since there is no possible way I could be adding a mark-up or fee.

On the other hand, telling a client that he's got to cut separate checks to 3 or 4 parties does make me sound like a rinky-dink, shoestring operation... which I am, of course... but it's not an image one likes to project or openly advertise.

In other words, it would be a convenience for everyone involved and a subtle image or marketing tool. And in a pinch, I could subcontract an entire job to someone else... although that could be risky and it is certainly not my intent.

Dougster™

**Ducati996** · 05-30-2008, 02:57 PM

Im confused Dougster, why not have payment as cash - at least enough to cover what the Sub requires? I wouldnt bother with the extra step, folks want to deal with one person, so you being the general contractor pay the subs, the customer pays you. Checks are fine with me but its only a portion, cash covers all my expenses everytime....We are working in a cash business thats why its so worth while -

Dougster · 05-30-2008, 03:18 PM

Quote:

Originally Posted by Ducati996

Im confused Dougster, why not have payment as cash - at least enough to cover what the Sub requires? I wouldnt bother with the extra step, folks want to deal with one person, so you being the general contractor pay the subs, the customer pays you. Checks are fine with me but its only a portion, cash covers all my expenses everytime... We are working in a cash business thats why its so worth while -

Other than one neighbor I snowplow who insists on paying me in greenbacks, none of my clients have ever paid me in cash. It is 97% checks and 3% PayPal. But the issue is not cash vs. checks. The issue is having rock solid, zero-loophole, liability insurance protection for what I do. When the underwriter sets the rules, I follow them to the letter. Right now, my business liability insurance forbids me from employing any subcontractors, insured or not. I'd like to change that to allow me to employ subcontractors on a limited basis, but there is a cost: $250.00 extra per year for up to $25,000 in subcontractor billings. My guess is that I'd never exceed $10,000 per year in subcontractor billings ever, but $25,000 is the minimum for which you can buy protection.

Dougster™

**PaulChristenson** · 05-30-2008, 05:20 PM

Owners and Contractors Protective (OCP) liability insurance

If so, then YES...you want to have this policy...

Dougster · 05-30-2008, 06:44 PM

Quote:

Originally Posted by PaulChristenson

Owners and Contractors Protective (OCP) liability insurance

If so, then YES...you want to have this policy...

Can't seem to put my fat little fingers on my policy right now to check the actual title, if any (I am soooooo disorganized this month!)... but it's just a $1 Million general business liability policy customized to my particular business activities. I have not yet seen the proposed rider that would allow me to use subcontractors. I should have it in hand by early next week.

Dougster™

**LoneCowboy** · 05-30-2008, 11:03 PM

I've been close to this, but it hasn't happened yet. It will probably happen first with snow removal. We do "partner" with people who do things we don't. (the typical one is spraying weeds, we don't do that). But, I'd say go for it if you think you're going to employ subs.

BUT
Their **** gets marked up. 15 to 20% is typical, common and expected. They get more work thru you, they are gauranteed to get paid,
a. you should get a better rate from them.
b. The customer should expect to pay.

If the customer wants to deal with everyone else, that's fine, but I'm not touching it if I'm not getting paid for it. I might make a suggestion, but if I'm sitting on my a$$ waiting for someone else that THEY were supposed to set up, well, my meter is running.
That's what I get the 15-20% on top for.

Just like when I order rock for someone (or compost, or whatever). I get it at wholesale (pay taxes on it) and I mark it up for my trouble. I have to set it up, get the price, meet the guys, etc and if something goes wrong, I'm eating it. Damn right I'm marking it up. If the customer wants to get it, that's fine, have a good time, but the stuff better be here when I'm there or I'm charging.

If you aren't going to bill for it, why do it?

most people just want one person to 'take care of it all". they really don't care too much what it costs. You just tell them what it costs. (the sub plus your percentage) and either they are ok with that or they aren't.

Dougster · 05-31-2008, 08:44 AM

Quote:

Originally Posted by LoneCowboy

I've been close to this, but it hasn't happened yet. It will probably happen first with snow removal. We do "partner" with people who do things we don't. (the typical one is spraying weeds, we don't do that). But, I'd say go for it if you think you're going to employ subs.

BUT
Their **** gets marked up. 15 to 20% is typical, common and expected. They get more work thru you, they are gauranteed to get paid,
a. you should get a better rate from them.
b. The customer should expect to pay.

If the customer wants to deal with everyone else, that's fine, but I'm not touching it if I'm not getting paid for it. I might make a suggestion, but if I'm sitting on my a$$ waiting for someone else that THEY were supposed to set up, well, my meter is running.
That's what I get the 15-20% on top for.

Just like when I order rock for someone (or compost, or whatever). I get it at wholesale (pay taxes on it) and I mark it up for my trouble. I have to set it up, get the price, meet the guys, etc and if something goes wrong, I'm eating it. Damn right I'm marking it up. If the customer wants to get it, that's fine, have a good time, but the stuff better be here when I'm there or I'm charging.

If you aren't going to bill for it, why do it?

most people just want one person to 'take care of it all". they really don't care too much what it costs. You just tell them what it costs. (the sub plus your percentage) and either they are ok with that or they aren't.

I hear what you're saying Lone... and there is no denying that "buying" the right to hire subcontractors from my business liability insurance company would be the first necessary prerequisite step to hiring subcontractors in order to mark up their bills. But I've got to tell you honestly... that is neither my goal nor intent.

The fact is that every job I've bid so far this year (and most last year) were bid on a firm, lump-sum, fixed-price basis. It makes no difference whatsoever where my "profit" resides in that lump sum. I can calculate it 19 different ways if I wish (and sometimes I do!!!)... but at the end of the day, I win or lose the job based on one number. I may have the client writing 2 to 4 checks... but in total, they still have to add up to that one bid and accepted fixed price number. I wish I could get paid on a time and materials basis including hefty markups for me, my equipment, the materials and any subcontractors, but that is not reality around here.

In other words, there will be no more or less net money in my pocket after a job if I pay this $250 rider fee or don't. What I'd be buying for $250 is a marketing & image tool (mainly, as I see it) and a definite convenience for my clients. Will it improve my image and thereby help me win more jobs? Possibly. Will it make me more net profit per job? Doubtful.

The possible downside here (other than the $250 fee) is that my clients no longer get what amounts to an "open book" approach to the actual costs of executing their project. There is no question that some of my clients have appreciated that knowledge. There is also no question that it has saved some of them money when they either decided against some overly expensive aspect of the project or were aware of a cheaper materials source or less costly ancillary service provider. For better or worse, this "working together with the client" approach has become a trademark feature of the old Dougster's™ business.

Dougster™

**Ducati996** · 05-31-2008, 10:34 AM

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...