Subcontracting has received a lot of bad press lately. Thanks, in part, to the Wal-Mart raid that uncovered nearly 250 illegal immigrant workers, some people see subcontracting as a way for unethical contracting firms to gain advantage over law-abiding companies.

But, that is the exception to the rule.

Subcontracting can be a successful way for building service contractors to grow business without taking on the costs associated with employees. The key component to subcontracting is the contractor/subcontractor working relationship — their synergy.

In many customers’ eyes, subcontractors are an extension of the main contractor’s organization. So, your subcontractor should mirror the quality, image and business goals, as well as other traits that your organization tries to represent. If you hire a subcontractor to fill a labor void, or the subcontractor is only interested in providing bodies, the end result is usually impersonal service. If you want to strengthen customer ties and grow, then you need to find a partner — someone capable of bringing a lot more to the arrangement than warm bodies.

Following are examples of building service contractors who leveraged the contractor/subcontractor relationship in a way that paid off for both parties. The working relationship extended well beyond the reams of paperwork that make subcontracting legal. At least, beyond a casual relationship that means nothing more than people showing up on time, working their shift and going home. The subcontracting relationship is far more complicated than that. It requires businesses that share a common work ethic, respect for customers and common business philosophy.

Learning from experience
Valentin Garcia, CBSE, president of Supreme Maintenance Inc., Albuquerque, N.M., started his company in 1992 with his wife and two kids. With hard work and perseverance, he was able to expand his business; within a year, he’d added 100 more employees to keep up with the business demands. Today, Garcia has more than 250 employees, including a vice president who sits on the board of directors of the Building Service Contractors Association International.

But there was something else besides grit and determination that enabled his business to take off.

In 1994, Garcia got a call from a BSC who had taken over a national cleaning contract. Due to the account’s geographical span, the prime contractor couldn’t cover all of the states involved and needed to subcontract. Supreme Maintenance already handled half of the account’s New Mexico buildings. Garcia was given the opportunity to handle the entire state as a subcontractor. He wasn’t simply told to clean more buildings; he also was asked to evaluate the cleaning processes and how he could improve them.

Within eight months, he had taken over the entire New Mexico account — but the relationship development didn’t end there. The prime contractor still looks in on Garcia and monitors the work.

“If you don’t hold the subcontractor to certain quality standards, you’ll have problems,” says Garcia. “But if they’re on the ball and meet or exceed those standards, you shouldn’t have any problems.”

Once a month, the prime contractor performs random inspections and on-site audits — due diligence designed to promote quality and improvement. Because of these standards, Garcia’s portion of the national contract enjoys the highest rating of the account.

“We sometimes go beyond what the prime contractor is looking for,” says Garcia. “Going beyond makes us look good, the prime contractor look good, and keeps a good relationship between the prime contractor and the client. And if they look good, we’ll stand a better chance of retaining the contract.”

Subcontracting connected Garcia’s organization with a larger, highly experienced contractor.

“Since we are a smaller company, sometimes we have to ride the coattails of large national companies to help us to grow and get our foot in the door,” says Garcia.

In Garcia’s case, it was easier in 1994, as a small company, to secure large accounts by subcontracting through a BSC instead of bidding directly. Often times Garcia has lost bids because the building manager was only focused on price. Garcia believes a good prime contractor thoroughly understands what services cost and won’t be obsessed with low-ball bids.

“When sitting down with a client, sometimes you have to educate them about pricing and explain why prices are what they are. Many times they do not realize what is involved. When you’re sitting down with a prime contractor, you’re speaking the same language,” says Garcia.

A Local Reflection
Ken Galo knows that image is important. Most of his customers are local businesses that see using a local BSC as a plus because it promotes the community. They like the idea of people driving by and seeing local business trucks in the driveway, he says.

Galo, owner of L&K Facility Services, Brookfield, Wis., offers full-property service to his clients. But since he only handles cleaning, he needs to find a subcontractor to handle snow removal, HVAC, plumbing and other maintenance-related tasks.

Galo also understands that a subcontractor is an extension of his company. With a subcontractor in charge of so many account aspects, Galo needs to find a company that mirrors his organization’s image.

“Not only is [full-property service] one-stop shopping, it’s one-stop blaming,” says Galo.

To ensure his clients receive this same quality of work they would get from him, Galo looks for certain flags, including proof of workers’ compensation insurance, references and a fair-market bid price.

Workers compensation guarantees that the subcontractor is reporting his payroll. References show if the work was done on time and how the work site was left when the job was finished.

When Galo bids a job, he normally submits a mid-range bid. When seeking a subcontracting bid, he generally accepts the same range.

“I can notice a low-ball bid and I don’t take it,” he says.

And since image matters, the subcontractor must be local — just like Galo and his client base.

This local approach has been effective — he has landed new accounts through cross-referrals from his subcontractors. Since Galo and his subcontractors are all local, they attend the same chamber of commerce meetings. And, if they’re performing maintenance services on a new account, they’ll often pass along the information to him.
“I get business leads I may not have gotten on my own,” he says.

Competitor Intelligence
Kurt Zachhuber, managing director, FVG Services, Bedford, N.H., straddles both sides of the subcontracting fence: He hires BSCs to perform services for him, and he provides services to others. He has been involved in business relationships that work and those that don’t.

One lesson that Zachhuber quickly learned was not to pick a subcontractor on price alone. He hired a subcontractor to provide floorcare based on a low-bid price. But when the work was done, the level of quality Zachhuber demanded wasn’t there. Instead of putting down the required five coats of wax, the subcontractor had only used two. Zachhuber knew that all coats couldn’t possibly be there because the subcontractor couldn’t afford the necessary supplies based on his bid.

Now, when looking for a subcontractor, Zachhuber has a new credo:

“Price is not everything. We are not fooled by numbers.”

Zachhuber chooses a subcontractor he knows can meet his standards. He evaluates a contractor’s experience, certifications, equipment and staff, and performs background checks.

“We need to make sure we’re in the same boat … otherwise, we’re not going to earn a great name in the marketplace,” says Zachhuber

So, Zachhuber hired someone he knew very well to be his subcontractor — his competitor.

Zachhuber believes that if a BSC only has one account in an area, it is smart to subcontract it to a competitor who has many accounts in that area. The competitor will appreciate that you’re not out there stealing accounts, he says.

“Have a sportsman-like philosophy. If you’re interested in killing your competition, you won’t have someone to play tennis with,” Zachhuber adds.

Zachhuber and his competitor enjoy a valuable long-term relationship. This relationship has led to client recommendations in out-of-reach markets and (with the customer’s consent) to even swapping accounts.

When working with competitors, it’s important to respect one another, says Zachhuber. For example, when subcontracting for a competitor, one of Zachhuber’s employees thought he would do his boss a favor by making the competitor look bad — the employee cut corners and didn’t perform up to agreed upon specifications. When Zachhuber learned what had happened, he immediately fired the employee.

And Zachhuber’s confidence in the work his subcontractor provides enables him to land more accounts.

“If you know the people you deal with, the more certainty you’ll have in the product you offer,” he says. “This will help your business grow faster…If you know the quality of your product, you can give a better sales pitch.”

A Cautionary Tale
When subcontracting fails, it’s not always because of legal violations. Sometimes the pay is bad, the business chemistry is lacking or communication stalls.

Lee Fahrenkrug has worked as a subcontractor for local contracts on large national accounts.

“They don’t pan out because they don’t pay anything,” he says. “The bottom line is the bottom line. By the time [the job] gets to me, I can’t make any money.”

Sometimes, Fahrenkrug, who is president and owner of First Choice Cleaning Inc. in Oshkosh, Wis., was not allowed to survey the building and make a reasonable quote on the project. The prime contractor only offered one price — take it or leave it.

But besides not making enough money to cover his labor costs, Fahrenkrug also eschews subbing for other contractors because the accounts didn’t help grow his business.

In his experience, all the work was handled over the phone and via fax. Nothing in person, not so much as a handshake. The prime contractor simply called building service contractors out of the Yellow Pages until he found someone willing to do it for a certain low price, says Fahrenkrug.

Fahrenkrug also was not allowed any direct contact with the client because the prime contractor was afraid of losing business.

In the end, this weak business relationship didn’t motivate Fahrenkrug to demand exceptional service from his workers.

“I’d tell my employees to do a good job, but not to spend too much time there,” says Fahrenkrug.

Now, Fahrenkrug sticks to his own accounts.

“Why get paid a pittance when I can go out and get accounts for myself?” he asks. “[The large, national BSCs] act like they’re doing me a favor. Favors like that won’t keep me in business.”




POSTED ON: 3/1/2004