Making the Grade

K Srinivas, Assistant Professor, National Institute of Construction Management and Research (NICMAR), Hyderabad, presents a case study in subcontractor performance evaluation and rating.Subcontracting refers to the process of entering a contractual agreement with an outside person or company to perform a part of the work entrusted to the main contractor. The outside person or company is known as the subcontractor.In the construction industry, builders often subcontract different activities and produce a substantial portion of work under the supervision of general contractors. In fact, the contribution of subcontractors to the total construction process can account for as much as 90 per cent of the total value of a project. Thus, an efficient subcontractor operation is expected to be beneficial to all parties involved, including the owner, general contractor and subcontractor. Subcontractors bear responsibility for much of the productivity achieved at site. An efficient subcontractor always executes hassle-free activities, leaving no scope or room for complaint from the main contractor.To improve productivity, subcontractors should be familiar with modern construction and production methods that reduce duration and cost. It can also be improved by effective quality management. This constitutes primary measures for improved productivity while secondary measures encompass subcontractor familiarity with modern management techniques and their efforts to reduce accident rates and motivate workers. However, subcontracting does pose some potential pitfalls, such as loss of control over quality and time, resulting in loss of reputation of the contractor.The benefitsHiring subcontractors offers a number of advantages. Subcontracting tasks can give the main contractor the necessary time to concentrate on other important issues of the project and take steps to expand the business. In addition, hiring a subcontractor is usually less expensive than hiring a full-time contractor because small businesses are not required to pay taxes, worker compensation benefits or insurance for independent contractors.The challengesSubcontracting is a common strategy adopted in many business sectors, and the construction industry is no exception. Conflicts and disputes often occur between the main contractor and subcontractor. Here are some of the major issues:Owing to lack of coordination between different subcontractors employed in a project, delays occur in time schedules of various activities, which, in turn, have an adverse chain reaction on overall completion time. If subcontractors fail to adhere to scheduled work as per the contract, delay may result in payment of hefty liquidated damages (LD) by the prime contractor, thus causing him a heavy financial burden. Poor quality of work on account of ineptitude is a prime reason for disputes between the prime contractor and subcontractor.  Delays and defective work by the subcontractor results in cost burden to the prime contractor, thus reducing profitability.Objectives and methodologyThe subcontractor performance evaluation programme aims to ensure that contractors possess the requisite qualifications, experience and knowledge to execute a project in time. The study is conducted as follows:List out and analyse the performance parameters critical to the success of the subcontracting process. Allocate appropriate weight to different performance parameters so that necessary importance and priority can be maintained for each parameter in the performance evaluation process. Analyse current practices regarding subcontractor performance in the construction industry and develop an appropriate methodology to assess the performance of sub contractors.  Develop a performance evaluation process and questionnaire. Prepare a guideline to rate subcontractors based on data obtained from the performance evaluation. Analyse the responses and implement the requirements accordingly. Industry surveyIn the Indian construction industry, a few firms have conducted the subcontractor performance evaluation and rated present and past subcontractors. But there is a long way to go to make it a practice for every project being executed. Some examples of steps taken by Indian companies are listed below:One company has made an effort to evaluate subcontractors working on an exp-ansion project of a reputed steel plant by considering parameters such as availability of resources, quality of work, wastage of materials, efficiency in work, risk management practices and safety aspects at site. Also, another leader in the construction industry has a database of subcontractors that can be retrieved by logging on to the 'execution and subcontracts' module. This database has the option to enter a rating and comments about the subcontractor, which can be viewed by users. This gives users some insight on the performance of a subcontractor before selection and award of work. ConclusionIn a highly competitive arena where Indian contractors are competing with globally acclaimed contractors, there is a great need for uncompromised attention to different aspects of construction. As the Indian construction business model is highly dependent on subcontracting, proper selection of subcontractors, suitable contracting methods, excellent monitoring of work and a smooth relationship with the subcontractor are all essential.RecommendationsImplementing the subcontractor performance evaluation and rating as a routine procedure will not give any benefits to the prime contractor. A database of subcontractors along with their ratings should be made available to the concerned persons in the organisation, which will enable them to take decisions effectively. The standardisation of procedures of subcontractor performance evaluation and rating is highly important as difference in evaluation procedures may result in incorrect scores and false ratings. As construction companies operate across many regions, implementation and intimation of subcontractor performance rating data will be a herculean task, if it is to be done manually. The use of information technology such as ERP software may be adopted for easier, effective and speedy implementation.The limitationsThe study is developed on an evaluation questionnaire assuming equal weight to all parameters of evaluation. If the prime contractor has priorities in performance parameters, then due weight must be assigned to performance parameters according to his individual priorities.A generalised approach has been adopted for the development of evaluation methodology and questionnaire. This study or approach needs to evolve according to the size of the organisation and extent of subcontracting.Case StudyProject: Mindspace Cyberabad is a business ecosystem developed by K Raheja Corporation and Andhra Pradesh Industrial Infrastructure Corporation (APIIC) for the technological development of Hyderabad.Prime contractor: BL Kashyap and Sons Ltd is a respectable construction and infrastructure development company founded in 1978 as a partnership firm and was incorporated as a limited company in 1989. It mainly deals with the construction of factories, IT campuses, commercial and residential complexes, malls and hotels.Subcontractors: Numerous subcontractors were involved in the execution of the project. The study mainly covered the performance evaluation and rating of three subcontractors working under the prime contractor - Ultracon Structural Systems Pvt Ltd, Satyanarayan, Belchowdhuri. This article showcases the evaluation of one of these.Execution: The study was executed by handing over the questionnaire to all relevant persons like project managers, prime contractor and others directly or indirectly responsible for evaluating the progress and satisfactory execution of the project by the subcontractor. The questionnaire covered aspects like quality and schedule of work, project management, contract management, and health or safety management by the subcontractor.Performance ratingPerformance was rated as follows:Excellent (>85 per cent): The subcontractor exceeded the contract requirements and expectations in all evaluated areas. The subcontractor was completely knowledgeable regarding contract requirements and applicable laws and regulations. A consistently  high level of cooperation, project management and appreciable job site control contributed to an unusually good result.Good (75-84 per cent): The subcontractor met the contract requirements and exceeded them in some areas. He was cooperative and performed the work with minimum prompting.  Fair (70-74 per cent): The subcontractor generally satisfied the minimum requirements of the contract. However, he had to be prompted or reminded of contract requirements.Poor (55-69 per cent): Even though the project might have been accepted, the subcontractor's performance was not up to the mark. While some tasks were performed satisfactorily, most tasks evaluated reflected a less than satisfactory response to the contract requirements.Unsatisfactory (54 per cent or below): The subcontractor's performance did not meet the minimum contract requirements and there was a possibility of the project being jeopardised. The subcontractor's poor performance or uncooperative attitude created unnecessary and avoidable difficulties in executing the project as per the contract requirements.Overall rating: The subcontractor met the contract requirements and exceeded them in some areas. The overall rating is Good; as about one-fourth of the total parameters evaluated fell in the 'Fair' category, there is a lot of scope for improvement.Similarly, the other two subcontractors were evaluated and rated. The overall rating for both was good as they met the contract requirements and exceeded them in some areas. As per previous records, Satyanarayan has good experience with different types of formwork and reinforcement work in multi-storeyed buildings. Owing to this expertise and good track record of maintaining the schedule as per the contract, he has been assigned the work for BLK & Sons Ltd. Also, as per Belchowdhuri's past track record with the company in focus, he is the most preferred contractor for the past six years.References -Thomas, SNG, (May 2007). Using Balanced Scorecard for Subcontractor Performance Appraisal, Strategic Integration of Surveying Services FIG Working Week 2007 Hong Kong, China-Parrott, BC, (2005). Construction Subcontracts: An Exercise in Risk Management, Martin & Price, LLP, USA -Maassen, Larry, (2006), Quality Procedure for Subcontractor Performance Evaluation, Los Alamos National Laboratory, Mexico About the Author K Srinivas has been an Asst Professor with National Institute of Construction Management & Research, Hyderabad (NICMAR) for the past 6 years. Prior to that, he has worked for 13 years as a Design Engineer in National Water Development Agency.To share your industry experiences with us, write in at feedback@ASAPPmedia.com