Common Subcontractor Risks- and How to Solve Them

Contractor managing construction billing forms over the phone and computer

As general contractors face increasing responsibilities related to stronger regulations, additional risk is passed down to subcontractors. Recent burdens like increased costs of materials and labor shortages create strong pressures on subcontractors and make them more vulnerable to default and other risks. However, the issues these risks cause for subcontractors and the general contractors who take responsibility for the project aren’t always recognized. This is why it’s essential for subcontractors and GCs to have a firm understanding of subcontractor risks and options available to address potential risks common to the construction industry.

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Common Risks Faced by Subcontractors

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Operational Risks

Risks that occur on-site during the project completion could result in injury or poor quality. These risks might include safety issues, productivity, supply chain errors, and increased labor demands.

Contractual Risks

Most construction contracts include terms that concern indemnity, site conditions, payment conditions, disputes, and more.

Financial Risks

The payment process in construction is complicated and often delayed. Financial risks include late or non-payment, limited cash flow for project completion, insurance costs, and credit requirements.

Compliance Risks

Upon signing a contract, the GC takes on the responsibility of complying with all federal, state, and local requirements surrounding building and safety laws. These requirements must be carried out by subcontractors as well. The consequences of non-compliance may include fines, penalties, and even license revocation.

5 Strategies to Manage Subcontractor Risk

Two construction employees discussing risk solutions

Putting solutions in place before potential risks become a reality is the most effective way of managing risk in construction. As more construction technology solutions arrive in the industry, avoiding risk is becoming less of a burden for subcontractors and the general contractors who hire them. Consider how these strategies and tools can help you eliminate subcontractor risk.

Begin Each Project with a Solid Contract

When a prime contractor or GC wins a bid on a project, a contract is created to outline the scope of the project, requirements, payment schedule, and other essential details. When the GC hires subcontractors to complete portions of the project, details and responsibilities from the original contract flow down to subcontractors. As a subcontractor, it’s important to know the essential language and details of a subcontractor agreement.

Create a Stringent Safety Plan

Most construction professionals know that failure to adhere to OSHA’s safety standards and practices can lead to the shut-down of a job site. However, poor safety standards can also lead to serious injury, shoddy work, lawsuits, and even death. To avoid this, all subcontractors should have a firm understanding of safety requirements and be prepared to submit a detailed safety plan that includes the processes and methods used to enforce it.

Simplify the Payment Process

The payment process in the construction industry requires a wealth of paperwork and signatures before approval is possible. Unfortunately, one error or delay on a single pay app can lead to late payments on an entire project. When you invest in subcontractor pay app software, everyone is on the same page, without the manual tasks typically associated with pay apps. Pay app software can help you generate company-specific pay apps, eliminate human error, and cut time spent on billing paperwork.

Automate Compliance

Compliance tracking is a crucial part of safe building practices and construction billing. Manual tracking of compliance documents is tedious and time-consuming, often resulting in delayed payments or other construction delays. With an automated compliance management tool from Flashtract, you can automatically collect documents, see compliance statuses and receive updates on compliance changes. 

Improve Communication

Poor communication in construction can lead to poor documentation practices, time lost to scheduling errors, and lost paperwork. 62% of contractors cite poor communication as the cause for low productivity. When you adopt billing software that offers tools that predefine retainage in contracts, automate pay app reminders, eliminate billing for unapproved change orders, and allow e-signatures, missed communication becomes a thing of the past.

What next?

It’s no secret that contractors and subcontractors face a variety of risks when working on any type of construction project. Yet, with careful planning and modern tools, eliminating these risks is becoming easier every day. Flashtract provides construction professionals with a variety of software solutions designed specifically for the construction industry. Learn more about how our products can help you save time and avoid many of the risks faced by subcontractors.

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