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Managing sub-contractor risk

At a glance

  • Zurich Risk Engineer Andy Chisholm discusses the best methods for main contractors to work with sub-contractors
  • With the economy improving, sub-contractors are likely to be in high demand on construction projects
  • Zurich’s expertise and knowledge can produce greater efficiencies for main contractors

As the construction industry in the UK cranks into gear once again following the barren years of the financial crisis, the role of the sub-contractor is likely to play a major part in this revival by satisfying workload demands.

Zurich Insider sat down with Andy Chisholm, a Construction Risk Engineer and Team Leader at Zurich Risk Engineering UK, to talk about how to best manage a sub-contractor relationship and the risks and benefits of main contractors using them.

Andy, a chartered civil engineer, has also recently become an underwriter for Zurich’s Subguard product, which gives a main contractor protection against sub-contractor default in line with their own sub-contractor terms and conditions.

Q: As the UK economy picks up, do you see sub-contractors being able to handle the potential increase in work available?

A: A great number of sub-contractors who weathered the recession made cuts early and became streamlined and conservative in their approach. But with the economy turning, if you are opportunistic then you will be trying to win as much new work as possible.

Although sub-contractors will be able to handle it, they need to make sure they don’t bite off too much and end up with cash flow problems, as a lack of cash can prove terminal to most businesses.

Q. What are the potential risks involved with using sub-contractors?

A: Fundamentally, they are not part of your organisation. So you are going to have corporate interface issues as not everyone works in the same way.

Then you need to ascertain if they are capable and have the technical know-how. Most sub-contractors will say they are specialist as they are optimists. In construction, unlike other industries, you build the prototype. You will never have the opportunity build a second Shard.

Then you need to find out if they actually have the resources and the finances – is there a threat of insolvency? Loyalty should also be a consideration. Do they have better relationships with other employers, and do you need to work harder to create a better relationship?

And then there are capacity capabilities. For instance, in the UK there are only two or three large steelwork sub-contractors. If you are a main contractor, there is an almost monopolistic situation where you could have to live with the requirements of the market, especially if the sub-contractors are at full tilt on other projects.

Fundamentally, a main contractor will live or die by the success of their sub-contractors. If a sub-contractor gets annoyed and walks off the project, then you are in big trouble.

Andy Chisholm, Construction Risk Engineer and Team Leader at Zurich Risk Engineering UK

Once on a project, sub-contractors could also start hitting main contractors with variations and changes, or charging because the site conditions aren’t exactly how they were meant to be.

But a lot of this comes down to relationships. If you have worked for years with a sub-contractor and have had a good relationship, then they will have become a subset of your team and will value a continuing and mutually beneficial relationship.

Q. How can main contractors reduce their risks when dealing with sub-contractors?

A: Again, having good relationships is key. If you invest time, it is amazing what people will do for you. It is trust on both sides and about having your own suitably qualified staff used to working with different trades and the complexities.

It is also about engaging your sub-contractors at an early stage. They may even be able to suggest savings to help you remove waste from all stages of the project.

Q: How should main contractors treat their sub-contractors?

A: Like full-time members of their own organisations, fundamentally a main contractor will live or die by the success of their sub-contractors. If a sub-contractor gets annoyed and walks off the project, then you are in big trouble.

Q: Finally, how can Zurich help in the process?

A: Zurich has both underwriters and risk engineers with great knowledge of sub-contractors and main contractors and how they work and fit together.

Obviously, we wouldn’t want to tell a main contractor how to do their work but we can suggest tips and tricks on the side to finesse and bring greater efficiencies.

For more information on this and other construction-related risk please speak with your local Zurich contact.

You can also find out more and access helpful guides and insight with our new Fire Risk Resource.

Image © Getty

For more information, get in touch

Andy Chisholm | Team Leader - Energy & Construction Team, Zurich Risk Engineering UK | 0207 228 9693

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