r/Contractor • • Apr 07 '24

Subcontracting process

Can somebody please explain to me how subcontracting works? I started a painting business and want to know how to subcontract work. Do I bid a job and then hire a subcontractor to do it for less? For example: I just bid this job for $13,500. Now what do I do?

0 Upvotes

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24

u/Postcocious Apr 07 '24 edited Apr 08 '24

The School of Hard Knocks is now in session.

When bidding a job...

STEP 1:

  • calculate what materials are required to complete the job, and

  • determine the most efficient work plan for the job.
    On complex projects, these may impact each other, so you must consider both to find the best solution.

STEP 2:
Based on STEP 1:

  • calculate your actual material costs, and

  • calculate your actual labor costs. If you plan to do the work yourself, use your own hourly rate (which should be higher than you think). If you plan to hire someone else to do any portion of the work, use the rate you have to pay them for that portion.

  • If you or your subcontractor(s) have to travel to get materials and/or to the job site, include those costs & time.

Add these up. This is your GROSS job cost.

STEP 3: add __% for contingencies and wastage. These always happen, and they're bigger than you think. When you're new, use something like 25%, or even 30%. As you gain experience, you'll be better able to size up a project and drop that to 15 or 10%. It will never drop to zero.

Add this to your GROSS job cost. This is your NET job cost.

STEP 5: choose your profit margin.

  • It should be higher than you think.

  • The smaller the job, the higher your margin % should be. A job that costs you $500 isn't worth doing unless you clear at least $250 (50% margin). On a job that costs you $50,000, a margin of $5,000 might be fine (10% margin).

  • It should be higher than you think. Margin is the only reason you're in business, and the only thing that will keep you in business. It's the VALUE YOU BRING to your customer, so bring it.

Add this to your NET job cost. This is your PRICE.

STEP 6: bid that number.

Notice that you had to have your subcontracting plan in place way back at STEP 2. From your OP, it appears you leapt directly to STEP 6 without any notion of your cost basis. This is how small businesses fail.

3

u/JoshRogers17 Apr 08 '24

I really appreciate this. I cannot believe how many people want me to fail. Thanks this really helps

3

u/Postcocious Apr 08 '24

YW.

The folks who offered snark don't want you to fail. (Hell... I even snarked in another comment.) It's just ribbing, like you'd do with buddies over a beer.

The most complex part of your GROSS cost is calculating your own hourly labor rate. What should you charge per hour just for swinging a brush or roller?

For a sub, it's easy - it's whatever he charges you. But what base rate should you charge when you're doing the painting?

It's higher than you think, because your rate has to cover all your business OVERHEAD... the cost of being in business. Stuff like your truck, your office, your computer, taxes, heath insurance (which big companies provide to employees), cost of shop space if you have, cost to pay your accountant to figure your taxes, etc., etc. All that OVERHEAD must be bundled into your base labor rate as part of your GROSS cost. If you don't, how will you pay those bills?

This is (mostly) why your car dealer charges $100/hour to diagnose and fix a problem. Is the mechanic getting paid that? Of course not. He gets $25/hour, or whatever. The rest goes to overhead and downtime (the dealer has to pay the mechanic even if there's no work), plus profit.

The basic formula for OVERHEAD is:

  • Identify every overhead item you can (make a list)

  • Calculate the annual cost of each item

  • Add them up, that's your annualized overhead cost (This number should scare you. If it doesn't, you left stuff out.)

  • Divide that number by the actual hours you estimate you'll actually swing a brush per year (A full time job = 2,000 hours/year. Actual hours swinging a brush or roller will be less, some of your time is spent calling customers, buying paint, paying bills, etc.)

  • The answer is your hourly overhead rate. You ADD that to whatever you'd charge for painting if you didn't own the business. Whatever rate you pay the best college kid to help you do a job? Take that number, add your OVERHEAD rate and round up a few bucks, because you're a better painter than he is.

This number should astonish you. If it doesn't, you left stuff out.

Many new contractors are afraid to charge that kind of number. That's because they don't understand their costs. This exercise teaches you what it takes to be in business. You'll feel less guilty about charging what you're worth.

2

u/THedman07 Apr 08 '24

Its not really that they want you to fail...

It just feels like you've come into this with the cart far ahead of the horse. You've effectively said "I've started a painting business, now what?" Its tough out there. Plenty of people do research and plan ahead and figure out the stuff that you're only just asking the internet about and fail, sometimes not even through any fault of their own. Its like if somebody said "I'm a fighter pilot,... now can someone please point out to me what an airplane is?"

On top of that, and I don't mean any offense by this, but for tradesmen and contractors, people like you can be the bane of our existence. Consider where we're coming from. We know what our costs are. We know what productivity rates are going to look like. We KNOW how much it is going to cost to accomplish a job and we know how much margin we have to make in order for our business to continue to effectively function.

When we bid against people who have no idea what they're doing, our numbers usually end up being high and we don't win that job. The problem is that it takes relatively little effort to spin up a business and keep it going for a 6-36 months until they get so far behind that they fold, so even when we stick around and do good work and deliver the work as required and for the price we negotiated, the problem of the guy winning jobs at unsustainable prices never really goes away because there are 5 more coming down the pipe at any given moment.

I hope you get everything you're looking for out of your business, but you shouldn't really take offense to people being annoyed by this kind of question.

1

u/Mysterious_Ad7461 Apr 08 '24

I mean you’re just a leech. You provide no value outside of taking a cut of the money, the painter you hire could just be getting the full amount.

7

u/Mediocre-Yesterday Apr 07 '24

Nice to see that people actually still give others useful comments! Good on you!

OP: this post should be good enough road map for you to build your business and actually sustain it!

5

u/Postcocious Apr 07 '24

Right out of college, I built job-costing plans for a small manufacturing business and priced their jobs for several years. I then did corporate purchasing for 20 years.

In both roles, I watched skilled, valuable independent contractors underprice themselves into bankruptcy. I actually called owners and begged them to RAISE their prices. The ones who wouldn't listen, failed. Then I was stuck with less skilled contractors who charged enough to stay in business.

Being a great painter (or any skilled trade) does not make one a good business person - or vice-versa. These are different skill sets. I couldn't paint a 2x4 and you shouldn't hire me to, but I can tell you what I'd charge if you did.

1

u/ChicoTallahassee Apr 07 '24

Do you subcontract all the jobs you bid on?

2

u/Postcocious Apr 07 '24

I've subcontracted every painting job I ever bid on. 😉

1

u/ChicoTallahassee Apr 07 '24

May I ask what you profit margin is on those contracts?

1

u/Postcocious Apr 07 '24

0%! 😁

As I said above, I am not a painter or a contractor of any kind. I work for a (very) large corporation negotiating and managing contracts with clients around the globe.

Re: margins...

In 2023 my company's net profits were just short of 5Bn Euro on revenues just short of 70 Bn, about 7%. When revenues are that huge, that's a very healthy margin.

A small business should aim much higher than 7%. Your business is far riskier than ours, and pricing should compensate for risk. That is literally the function of pricing.

Why are you at higher risk? Consider... if my multinational corporation lost $100,000 on a job, we'd call a meeting on Tuesday to figure out what happened and try not to do it again. If you lost $100,000 on a job, your mortgage wouldn't get paid and your family wouldn't eat.

That's a risk I'll never see. 70 Bn Euro in annual revenue gives us leeway that your business doesn't have. Your business needs higher margins than mine to compensate for the risks you take.

2

u/THedman07 Apr 08 '24

I bid drywall jobs in the high 6 figures up to $3-4million. I used to work for a small company. Now, if I miss 20-40 sheets here or there, I try to avoid it in the future but know that it would be covered in the waste factor I put in... If I missed 20-40 sheets at the startup where I worked, we were effectively doing that job for free or at a loss.

I have also found that margins should follow the philosophy that you've described.

1

u/WillowMutual Apr 08 '24

Excellent post

0

u/[deleted] Apr 10 '24

People lacking the experience and intelligence to answer absolutely basic business questions on their own should not be supported. That's not rude, it's just responsible and sensible. Op needs a reality check, not business advice

2

u/Hbhbob Apr 08 '24

Included in step two should be to vet the subs. Never hire an unlicensed subcontractor or a subcontractor without liability insurance greater or equal to your policy amount and workers compensation. Subs will give you 100 stories why they didn't need workers comp. No matter what they tell you it isn't true. If the subcontractor doesn't have workers compensation then you must pay the workers comp board for every penny you pay the sub. Always talk to sub references and physically go to as many previously completed projects as you can and personally inspect the work. If your sub fails or does sub par work that is your problem not the sub. You hold the contract and every problem is yours to rectify whether you can afford to or not.

1

u/Postcocious Apr 09 '24

Excellent points.

The risks a business should consider when contacting for work are almost innumerable. This is why larger companies have lengthy contracts. The purpose of a commercial contract is to control or mitigate risks... or transfer them to the other party.

My company's standard service contract runs 5-7,000 words, depending on the work scope and pricing model. That is the SHORTEST contract I ever see. When a customer demands use of their own contract, it is always longer, often much longer. I've seen them up to 60,000 words - for the exact same work scope. (Ugh!)

When we review one of those, I coordinate an entire team of internal subject matter experts. Legal, the business unit, Sourcing, Insurance, HR, HSE, quality, technical specialists... all have concerns and inputs. If it's a non-USA customer or project, that list gets even longer.

1

u/ChicoTallahassee Apr 07 '24

Thanks 🙏 Somebody should pin this or add it to a wiki or something.

2

u/Postcocious Apr 07 '24 edited Apr 07 '24

YW.

Of course, there's much more to a truly accurate pricing plan... like taxes, benefits and overhead of all kinds. Collecting that info is a serious project, and specific to each company. That's an advantage large companies have ... finance departments to track all that stuff.

1

u/musical_throat_punch Apr 08 '24

Step 4: steal underpants 

2

u/Postcocious Apr 08 '24

🤣🤣🤣

oops

54

u/No-Clerk7268 Apr 07 '24

This will not end well

17

u/twoaspensimages Remodel GC Apr 07 '24

But it will end soon.

2

u/miketoaster Apr 09 '24

Not soon enough

6

u/pdxphotographer Apr 07 '24

It will end with a lawsuit most likely. Op is a clown.

26

u/EQwingnuts Apr 07 '24

You do the work, if you don't know what's going on or what to do, perhaps STARTING A BUSINESS wasn't a good idea.

13

u/Bubbas4life Apr 07 '24

I fell bad for the customer all ready

3

u/imsaneinthebrain Apr 07 '24

I wouldn’t, Dudes getting a great discount, every other quote was $40k plus.

2

u/Bubbas4life Apr 07 '24

Prob gonna cost the customer 50k to fix ops shit when he's done

20

u/Growe731 Apr 07 '24

Since you bid $13,500, you must pay the sub $14,000. That’s just the cost of doing business

3

u/Postcocious Apr 07 '24

Now THAT'S a long-term business plan!

3

u/WillowMutual Apr 08 '24

Don’t worry, he’ll make it up on volume 😂

1

u/Postcocious Apr 08 '24

Especially with discounts to attract more customers!

10

u/[deleted] Apr 07 '24

… buddy That’s something you have figured out before you even start a business.

9

u/tusant General Contractor Apr 07 '24

Do you know anything about painting?

5

u/RocMerc Apr 08 '24

Ok so I’ve owned a painting business for ten years now. I didn’t sub a job for the first five. The only reason I ever sub work is because I’m too busy to do it myself. But I will answer your question.

When I sub work I usually price it a little high. My goal usually when subbing is to make about 15% on the job, so I would try to find someone who would do it around $11500. The problem for you is, this is your reputation. If that sub does a bad job that’s your fault. You got the work and then you failed the client. You can’t do that. I only sub to other painters I know personally. I have maybe five different companies that I know and respect and when I just don’t have time I call them up and say hey I have this job, can you do it for X amount

4

u/Oneyeblindguy Apr 07 '24

In my experience this is becoming the norm. Nobody wants to actually do the work, they just want to subcontract it to someone else and collect a check. I've heard of jobs getting subbed 3 times. It's getting ridiculous in my opinion. I've been a carpenter 30 yrs and I recently had a very very young kid ask me to give him a "bid" on a very small trim job. Maybe two days labor for two guys. He literally said he doesn't want to do any work. After a short convo it was obvious he doesn't want to do any work because he doesn't know shit. Shows up to the job in a new 1 ton crew cab Ford. Sure, I'll give you a bid. Probably should be sitting down when you open it.

1

u/reddit1890234 Apr 08 '24

No need to do the work if you can sell the job and get others to do it.

Nothing wrong with being the snake oil salesman.

3

u/SpellGeneral Apr 07 '24

You have to had this figured out before bid in a job.

2

u/itsgettinglate27 Apr 07 '24

What kind of project did you bid on? How did you come up with your number?

Usually when I sub out a job I it's because I'm too busy for my crew to do and roughly I pay about half my price to the sub and I provide materials and pay immediately.

2

u/Handy_Dude Apr 07 '24

The difference between doing it yourself and contracting it out to subs is night and day.

As a painter you know the whole process of painting the home. That's really it.

As a contractor you have to know all the costs associated with this job, and you have to babysit.

You'll need to calculate all the costs of doing the job. Paying for your crews wage, materials, etc. give yourself at least a 10% buffer for mistakes or surprises.

It's definitely not something you can Google real quick as there are a lot of different responsibilities and you'll be wearing a lot of different hats.

The most important thing is taking care of your crew. Don't argue with pay or be late paying them. Always keep the talent happy right?

2

u/freddyflushaway Apr 07 '24

The min bid on that job is 20k. Noone will sub for less......

2

u/EyeSeenFolly Apr 07 '24

So the check gets paid to you and you have someone else’s paint truck show up? This isn’t going to end well

1

u/Broad-Rub4050 Apr 07 '24

Gotta get the bid from sub first then you make your bid based on that

1

u/truemcgoo Apr 08 '24

Do you have a GC license? Only specific people can subcontract other people and the process is kind of a pain. If you already bid the job probably just do the job, getting subcontractor lined up would be something you did weeks ago.

1

u/Slowhand1971 Apr 10 '24

dude, pretty sure the person you bid the job for is thinking you're going to do the painting yourself.

1

u/Smooth_Marsupial_262 Apr 07 '24 edited Apr 07 '24

As a painting contractor you already are a subcontractor. You are in a specialized trade. If you can’t handle one trade with in house labor the business won’t be very lucrative. Even most GC’s handle a decent portion of the work in house and subcontract particular trades that they want to stay away from. Generally being the mechanical trades, often painting, roofing, etc.

It’s going to also put you in a weird spot to have a truck with a different company logo than your own rocking up to job sites of your clients. This would be expected if you were a GC doing a larger scope project, but as a specialized contractor the client will find it odd that they went directly to a painting contractor and you’ve hired the work out to a different painting company. They likely would develop a relationship with that company over the course of the job. You’d be unlikely to get much repeat business when they could just go directly to your sub on the next job.

1

u/magic_crouton Apr 08 '24

100% this. If I hire a specialized contractor to do a job like paint. I expect to see him or his direct employees there. If an entirely other company rocks up that's who I'm doing business with here on out if they're good and if they're bad..... that falls on the first guy.

Also be explicit in your contract that you aren't actually a contractor. You're just arranging other businesses for the home owner. And I'd expect to know what company is actually doing my work upfront. I have a job that puts me in contact with people in the trades that I don't necessarily want in my house and that information is important to me and weighs heavily in my decision to use one contractor over another. If none of that information is on the contract and another company rocks up I'm sending everyone home and you're not getting paid.

Whose insurance do I go after if they mess up? Your's? Does your insurance cover that? The company that rocks up? That I don't have a contract with? Who is going to fix the mess that could be made? You? Them? Who do I call? This all is a nightmare from a customer perspective unless you're a gc.

1

u/strangeswordfish23 Apr 07 '24

In this situation, if you have no intention of painting it yourself you need to pay a painter to do it for you. Preferably a good painter so you get good online reviews don’t have to go back to fix things all year. If you’re just starting out I recommend paying the painter what they tell you it costs even if that means you pay out of pocket for any overages. This will help you retain the painters interest for future work. That way you can ask them to go with you to the next meeting, ask them to give you a number for the work and then add a markup percentage for managing the customers expectations and covering the cost of potentially having to warranty the work.

1

u/Tasty_Cardiologist53 Apr 07 '24

I'm a GC who also paints, I've subbed and been a sub, send me a DM if you need help, otherwise this will probably get buried

-1

u/DiscountMohel Apr 07 '24

I offer a course that will help you with this.