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This morning, we were on a call with a relationship customer, discussing the cost of a project. Obviously, everyone involved, including us, wants the lowest possible cost. It got me to thinking about risk management in regards subcontract pricing.

I have learned am important lesson. Most of the time, one can continue to work numbers down. Getting them too low with subs and vendors that cannot perform leads to false expectations and economies.  It’s always a balancing act between cost and deliverables, and finding the path to hit the bullseye is rarely easy. The work produced must be the right quality level for the project. When any aspect of the project underperforms, from the materials used to build, to the subs building with them, it creates a problematic project, often with a domino effect for other aspects of the build or the development.

Our estimators have lists of subs who are well-capitalized and do an excellent job, but tend to be a little more expensive. They also know subs who are not as well-financed, but that can also get the job done, probably not at the same level, but satisfactorily. A mix of these contractors, sprinkled in with the “A” subs when appropriate, can generally lower cost. Like most things we face, balance is key.

 

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Merrill Stewart is Founder and CEO of The Stewart/Perry Company, a commercial building contractor based in Birmingham.