Despite subcontracts being at the heart of every contracting business, few companies (big or small) can claim to have truly efficient subcontracting processes. As this article explains, even small improvements in your subcontracting processes can lead to material improvements in overall efficiencies and company profitability.
How most contractors let subcontracts
For most companies, the process of letting a subcontract looks something like this:
- A junior coordinator produces an initial draft. Often this is generated from a Word template or a contract from a previous project.
- The draft is checked by someone more senior. It is then finalised by the coordinator and issued to the subcontractor (typically by email).
- A lot of the time, the subcontractor will sign and return the document (often in hard copy with a 'wet ink' signature). However sometimes the subcontractor will seek to negotiate changes.
- Where a subcontractor seeks amendments, this is normally dealt with on a case-by-case basis. Internally, junior people seek guidance from senior people, internal meetings occur, followed by negotiations with the subcontractor, some back-and-forwards, and then finally the document is signed.
- The subcontract is stored somewhere in the company's systems - although not always in the same place. (It is surprising how often signed documents seem to get lost.)
Where time is lost, and why it matters
At each step of the process described above, time is lost. This can occur in a variety of ways, including:
- a junior team member spending excessive time preparing documents because they lack the necessary expertise;
- a senior team member spending excessive time finalising documents (wishing they were doing something else);
- one team member waiting on another to respond (such as for an internal approval);
- your company waiting on the subcontractor to respond;
- senior team members having to spend time assessing subcontractor responses, spending time in negotiations and amending contracts (or paying money to lawyers to do so);
- someone trying to track down a signed copy of the document at a later stage in the project, to check what was originally agreed.
Considered in isolation, each delay might not seem like much - which is why most companies tend to tolerate, and are reluctant to make changes to improve their processes. However if you consider how much time team members are spending on these processes, across all of your company's projects, this can add up to a significant amount of time.
Your company should be asking the question - is every member of your team doing the most valuable work they are capable of?
For example, is it a good use of a senior manager's time to be checking and adjusting subcontracts, or would their time be better spent on (say) overseeing client delivery, client service, business development or something else that might be more valuable to your organisation?
If the answer is 'no', there may ways that you can improve your subcontracting processes to free up people's time, and allow them to spend more time doing more valuable work. Below are some examples.
1. Have a standard, easy to use, subcontract template.
Most companies will have a standard form of subcontract template. (If yours doesn't, that is an obvious place to start. Learn about our simple subcontract template here.
Two issues commonly arise:
1. Your team finds your subcontract template painful to work with. There might be a large set of questions to answer (most of which are the same on every answer), there might be numerous documents to attach, and there might be 'company standard' special conditions to be added, depending on the nature of the project.
2. Different team members have their own, preferred set of changes, resulting in inconsistencies across the organisation. This can then give rise to further time spent by senior managers or subcontractors having to consider different versions of the same contract, even though the projects are likely the same.
Standardisation is a key way to drive efficiencies.
- Does your company have a standard form of subcontract that everybody uses? If not, it should.
- Can you reduce the number of options that users need to manually complete, when they generate their subcontracts? If so, you may be able to create some immediate time savings. (Our subcontract template only has 13 particulars for completion.)
- Do all of your teams use the contract in the same way? For example, are they using the same attachments, and are they completed in the same way? If not, standardisation across the company will result in contracts being produced faster, and it will also give your teams greater confidence because there will only be one process to follow.
2. Make sure your contract terms are no longer than they need to be, and are not unduly onerous.
Although this sounds obvious, it's something that is often overlooked.
Obviously a long document takes longer to read than a short one. And even if your subcontractor has no plans on reading your subcontract, a lengthier document may create the impression of a more onerous contract (regardless of whether that is in fact the case).
A longer document can therefore slow the signing process, lead to unwanted negotiations, and result in subcontractors incorporating risk premiums purely based on the 'feel' of your document. AS 4906 is 34 pages long, even before any annexures are added. We often see subcontracts from large contractors which over 50 pages. Our simple subcontract template is only 15 pages.
And whilst virtually all principals/head contractors prefer 'firm' contracts, stretching things too far can lead to unwanted outcomes - generally in the form of higher subcontractor pricing, greater subcontractor resistance to terms and more time spent in negotiating.
Your company might be in a privileged position of feeling that it can dictate terms. Even if that is true, it is worth considering whether your subcontract terms are hindering rather than creating value.
To make sure that your contract is as effective and as simple as it can be, you will need to engage the help of a specialist construction lawyer.
3. Use technology to assemble your contracts
Most of the manual labour traditionally involved in assembling subcontracts can be replaced by technology. Further, recent advances in technology mean that automation technology that was once only available to larger contractors (through bespoke technology solutions) is now far more widely available.
For example, consider:
- How much data do you already have in your system that is currently being manually reproduced each time a subcontract is generated? For example, do the party details, project details and the agreed price appear in your subcontracts automatically, or are these typed in manually every time?
- To produce a document for signing, are you physically printing all of the relevant components of the document (or creating a PDF or other file with all of the different pieces), or are you using a document assembly technology platform to do the work for you?
- Are you using your current software applications to their full potential? If you're not sure, it could be worth speaking to your current providers to see if you're missing out.
- Are there other products in the market that could be used to your company's advantage? If you're not sure, it could be worth investigating. (This is a topic we will be exploring in further detail in future posts.)
4. Streamline your internal workflows and communications systems
Internal approval processes often fall down in two ways.
First, there is waiting time while one team member waits for another to respond.
This is a workflow management issue. There are a variety of internal communication systems and workflow platforms that companies (including small ones) are using to identify and remove internal bottlenecks. You may already have access to some of them. Consider whether your internal systems and processes are working as well as they can be.
Second, the approval process can sometimes require the reviewer to effectively look at the entire subcontract, rather than considering issues by exception. Here, standardisation and automation can help. If all teams are using the same documents, and if a lot of the key detail is incorporated into your subcontracts by technology, there is less scope for human error and there should be fewer items for a reviewer to consider.
5. Have standard responses, clause libraries and playbooks
If your subcontractors request changes to your subcontract terms, it will usually be around the same types of issue. These might relate to extensions of time, caps on liquidated damages, aggregate limits on liability, consequential loss exclusions, and so on.
There are two benefits of having standardised responses:
- It will reduce the time involved in responding because your teams will know exactly what to do.
- The quality of your response is likely to be better, . Where a standard response is available, your teams are far more likely to aim for the company's preferred position, and there is less chance of someone inadvertently accepting unfavourable terms.
The best way to produce the necessary documents is to involve a specialist construction lawyer. They will be able to quickly tell you what is normal (and what is not), what is material (and what is not), and they will be able to help you develop systems that are designed to consistently achieve good contract outcomes in the shortest possible timeframes.
6. Have a shared, easy-to-use, sensibly organised contracts database.
It shouldn't take anyone in your organisation more than about a 1 minute (at most) to find an important document, such as a signed subcontract.
Templates, clause libraries and other valuable resources should all be kept in places that are as easy as possible for your team to find. Avoid systems that allow individual users to save important documents locally.
If you use a company intranet for this purpose, make sure the navigation is easy and it's otherwise well organised.
If you don't have a document management system in place, consider getting one. These can provide huge time savings for people at all levels of your organisation.
And if you are reliant on a 'shared folder' system, make sure that:
- there are standard protocols for how documents are saved,
- these protocols are followed, and
- someone is responsible for monitoring the system to make sure that it remains up-to-date and remains well organised.
7. Assemble and sign your documents digitally
Technology developments and COVID have changed the ways that most companies do business. In contracting, one of the biggest advances is the move to digital contracts - even for large projects. Most jurisdictions in Australia will recognise digitally executed contracts.
There are two major benefits of digital contracts:
1. Digital contracts are signed faster. It's one thing for a large, hard copy bundle to be sent to a company for signing. Putting printing, binding and couriers to one side, it often takes time for a hard copy contract to find its way to the right person for signing. The benefit of a digital version is that it is sent immediately to the relevant person, right into their inbox.
2. Digital contracts are easier to store and easier to find. (Of course, this assumes that you have a well organised document management system, as discussed above.) Although many people will continue to prefer to work with hard copies, a move to digital will make it easier for your teams to find the document (in the office and when working remotely), it will free up storage and archival space, and overall lead to a less cluttered office environment.
There are now a range of technologies specifically designed for assembling and signing contract documents. (Docusign is just one of many.) We will discuss this in more detail in a future post.
8. Give your team the right training and support
Regardless of how good your systems are, they will only take you so far. Time can be wasted and mistakes can be made when a team member either:
- doesn't know what they're doing, or
- doesn't know who to ask for help.
It's also important to acknowledge that these problems can occur at all levels of your company, from the most junior person to the most senior.
Strong induction programs and regular, structured training are the best ways to bed down your systems. On-the-job training should support and be consistent with your more structured training programs. (If all of your training is 'on the job', you run the risk of inconsistent approaches throughout the organisation and senior management not being aware what is really going on.)
It's equally important to have clear escalation procedures, so that each member of your team knows who to call for help when they need it.
Although the vast majority of issues should be capable of being addressed by project teams and senior managers, there will be times when legal support is needed. Developing a close, ongoing relationship with a capable lawyer (whether internally or externally) is one way to ensure that your teams can obtain prompt support whenever required.
9. Constantly review your processes to find further areas for improvement
Companies striving for maximum efficiency are constantly re-evaluating their processes, to see if there are better ways they can do things. The three most common causes for further refinement are:
- Subcontractor feedback. If you are regularly having to negotiate the same issues with subcontractors, and if you are regularly having to make the same changes to your subcontracts, consider whether you should be amending (or replacing) your subcontract.
- Internal bottlenecks. Even if you don't have the technology to identify bottlenecks for you, speaking with individual team members involved at different stages in the process will often provide valuable insights on what is working, and what is not.
- Technology improvements. If you're not familiar with what systems are available, consider taking a look. Speak with suppliers, subcontractors and others in the market to see if there are solutions that could make a difference to your organisation.
Learn more about our subcontract agreement template here.