# Sub contracts



## trekr (Jul 6, 2004)

When working with subs, do you include language in your contract to define who "owns" the customer? Specifically, the ability to solicit work in the future etc..


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## Grumpy (Oct 8, 2003)

Not a bad idea.


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## Mike Finley (Apr 28, 2004)

No. It's a free market out there. I have to compete with everybody else all the time, that shouldn't change. It shows a weakness in your business if your customer doesn't look to you to for future work. It is a short sighted sub that would go behind you.


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## Grumpy (Oct 8, 2003)

Mike, I think that your position and my position vary. The reason I say this is because when I sub some work out, though the subs are subs in every sense of the word there is a don't ask don't tell policy. This means we allow the home owner to assume they are employees, unless they ask.

It has happened to me that I had subbed some siding work, trying out a new sub, to a GC that I had done several jobs for. The GC called me and said... "I don't know who this guy is but he took me to the side and told me next time I need work to call him directly. I threw out his card but I wanted to let you know." Nedless to say I also threw out the guys card. He never did another job for me.

If I hire someone to do work, although they are a subcontractor, they are still a represenative of MY company. I don't allow them to put their magnet signs on their trucks (infact I don't hire subs with permenant lettering on their trucks), they can't have yard signs and when they ring the bell to start the work they say "I am Joe with Grumpy's Roofing". 

I don't have written in my sub agreements that they can't solicite to the customer but I have told them that if the customer ASKS them for any work they are to referr the customer back to me. Ya know how customers might say "Can you also put in gutter guards? Can you put on these shutters I just bought?"


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## trekr (Jul 6, 2004)

Grumpy, the situation you describe is exactly what i am talking about. Obviously, if a sub tries to do an end-around, i won't use them again, but I think I will add this item to the contract just to add a little insurance. 

I just had a very similar situation -sub indicating he could "save them some money on future deal". The only weakness I think this might show is in screening subs and/or communicating does and don'ts--which I'll be formalizing alot more.


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## Mike Finley (Apr 28, 2004)

Yep, your position and mine are completely different. I never pass off a sub as an employee to the customer, at best a sub is referred to as part of the 'team' that is going to get the job done to the homeowner, but that's would be as far as it goes. It matters little to me what the sub wears or drives, that's his business. I even go as far sometimes as to have the sub bill the customer directly if I can.

I can see how paper contractors get into a sticky situation when a customer starts assuming they are talking to an employee of the company they hired, the whole smoke and mirrors of it all could definitly make you guys want an agreement in the sub contract that clearly defines who ownes the customer. I doubt it could hold up if push comes to shove, a sub could probably laugh in your face if you tried to enforce it, but the whole idea is to put it in writing and get a gentleman's agreement in place, besides I'm pretty sure every sub realizes that the penalty for getting caught is losing the job opportunities sent by you and going to court over it is a long shot.

Long ago when I worked summers for a guy that subbed for a steel siding company and he used to rook all kinds of work behind the companies back. That was a nation wide company so I'm sure the sub agreement was 20 pages thick. The company who sold the original work never showed on the job site even once during the time I worked for him, I imagine you probably are a bit more involved, to say the least.


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## hatchet (Oct 27, 2003)

I'm with Mike on this. If you're hiring a subcontractor it's for a reason. One of 2 things - you just don't have enough manpower to do all the jobs you have or it's a subcontractor that does work you don't perform.
If it's situation one - don't take the job. Do the client and yourself a favor and just realize you don't have the time or workforce to do it. Either try and reschedule or refer them to someone else. If you don't have the workforce - meaning nobody will be onsite to supervise (most likely) then you're setting yourself up for failure. If you don't have the time.. well pretty much same situation.
If it's situation 2 - and if I was the subcontractor I wouldn't sign your agreement of no advertising. And if a GC ever told me that I couldn't advertise on my vehicles or business card I'd tell them to get stuffed. I'm providing a specialised service to you and you don't want me to advertise? Makes no sense.
IMO - subcontractors can make or break me. Why would I try and stifle their business? I've helped subcontractors out of holes before - because I know they are good but just hit a hard time. It's come back to me tenfold.


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## Mike Finley (Apr 28, 2004)

Uh-oh... you could almost make an arguement that Grumpy is acting exactly like those GC he hates so much, to his subs...


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## Mike Finley (Apr 28, 2004)

But Rich, Grumpy's situation is a bit different. He has no work force other than subs. It isn't like he is hiring an electrician to do some wiring which is going to bill as 5% of the project, his subs do 100% of the project so its a bit different. It really won't work as well if RA sold the job based on all their strong points, the customer puts his trust in RA the company and then Jose's Roof Rats, Inc. showed up to do the job, with a big mexican rat on the side of the truck and hats with wiskers on them, the customer would be wondering what the hell happened. Lots of companies use that model of business from decking companies, roofing and siding to HVAC. It really comes down to a non-compete agreement, I can sure see why anybody doing business as Grumpy is would want one. However, like I said I doubt the agreement would hold up to be enforceable. 

What really amazes me is how companies using that model of business can get away with it with the IRS, because it just doesn't seem possible that the subcontractor/employee test passes with what we know a guy running the company has to do to be successful.


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## Grumpy (Oct 8, 2003)

Mike Finley said:


> I doubt it could hold up if push comes to shove,


Exactly why I don't have my suba greement cluttered with it. if it can't be enforced, why bother. It's not a bad idea really, it can't hurt really, but as you all know I hate lengthy agreements.

You could make that argument but I could back up my end of the argument which states: my subs get paid weather I do or not, unless they really messed up the job. My subs bill me when the job is done, for what the job costs them to do, I don't ask for costs upfront. 

Mike I can pass the IRS. My subs are legitimate companies with their own insurance, vehicles, equipment, employees. I cycle through various comapnies to keep the schedule flowing, just like all my subs cycle through various customers like myself to keep their scheules flowing. My subs bill me with an invoice on company letterhead and are paid by check to their company name. Quite honestly if it wern't for this business model, I couldn't afford to run a business.

Now if I had one sub crew who drove my vehicles and used my quipment, that's just cheating the system! I truthfully don't have any plans of hiring any full rime employee crews any time soon, maybe a repair guy but that's it.

Company supervises the job and stands behind all the work, if the sub goes flaky or goes out of business... so they are placing their trust in the right place. I personally spend alot of time on my jobs, every free moment infact. I don't ask the customer for a penny until A) They are satisifed, and B) I am satisfied.


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## Grumpy (Oct 8, 2003)

LOL let me point out one more thing, you GC's would be suprised at hoe many of your Subs are really prime contractors subbing out what you sub to them. 

if I had a dollar for every guy who does that... middle men, it's the American way. 

There were jobs, at the last company I was with that went through 5 hands before they got to us. That was always interesting.


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## PipeGuy (Oct 8, 2004)

hatchet said:


> If you're hiring a subcontractor it's for One of 2 things - you just don't have enough manpower to do all the jobs you have or it's a subcontractor that does work you don't perform. IMO - subcontractors can make or break me. Why would I try and stifle their business?


Rich nailed it. I spent the better part of my first year doing 'overflow' work for other contractors. I know them and they know me. I would never try to snake one of their customers from them but when I pull on the job I'm ging to provide the highest level of service and workmanship I can and let the chips fall where they may. If their customer sends me an RFP...well I'll have to make a business decision at that point. And Grumpy, when your customer told you he threw away the sub's card, could you feel kind of a warm breeze swoosh across your backside? :cheesygri


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## Grumpy (Oct 8, 2003)

I don't think Rich nailed it at all. It's all about your business model. Even if I had employees, I see no reason why subs can't be used for overflow. One day I might have employees and I'll be damned if I will walk away froma job just because my employees are too busy. If "I" or my customer service team still has the time to privide proper service I am going to sell that job and hire a sub to install that job to my secification.


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## hatchet (Oct 27, 2003)

Exactly Grumpy - you ask that subcontractor to do that job for you because you've either seen their work before or somehow got a referral. I agree that the subcontractor should say 'hey this guy is giving me good referrals so I'm not going to take his business' but at the same time a subcontractor would be foolish to say 'I'm going to say I work for someone else' - that just seems ludicrous to me.


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## PipeGuy (Oct 8, 2004)

Grumpy said:


> I see no reason why subs can't be used for overflow. One day I might have employees and I'll be damned if I will walk away froma job just because my employees are too busy.


I don't think anyone has said that you shouldn't use subs to do overflow work. In fact, if you can get the work done properly by a good sub and effectively transfer any warranty risk to that sub then you're probably better off than if you did it yourself. 
But if I'm that "good sub" _standing behind the work I do_ I'm going to have a real hard time agreeing to some little non-compete scheme that you want to have because you're afraid I'm going to provide a better product than you would otherwise.
Now if you want to accept the warranty risk, place my employees on your payroll and have your insurance name me as an additional insured...well then there's something I'd have to think through.


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## Mike Finley (Apr 28, 2004)

I think Rich is right on the money in regard to the more traditional contractor/sub relationship that he is used to, but not in regard to Grumpy's situation. The traditional sense is using subs for a smaller percentage of the work, where you would have a lead carpenter system in place and use subs for specialized work or where prudent for financial reasons. Grumpy's situation is he basically is a clearing house for getting the work and uses hires subs 100% of the time to do the work for him and he takes the difference as his profit. It makes perfect sense for him to do everything he can to his advantage, one of those being to promote the don't ask don't tell technique in regard to keeping the customer in the dark in regard to the fact that the guys working on his roof he could have just hired himself directly and save a bunch of money by cutting out the middle man (grumpy). That goes on every day in similar business and deck building, fence building ect...

If he can get his subs to agree to his terms of no identifying markings to tip off the customer, more power to him.

.... of course some people could look at that as a bit draconian in nature and look at him as one of those GCs he hates... :cheesygri :cheesygri :cheesygri 

I just gotta throw that in there. :cheesygri


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## Grumpy (Oct 8, 2003)

I catch alot of flack from people thinking I abuse the system only because they don't understand my business model. 

It's funny really because we give work back and forth. There is a new sub I picked up that I met on another forum and like I said we give work back and forth. Sometimes he's the GC sometimes I am. 

Mike, I'd just like to point out that all the things I complain about I try hard not to reproduce with my own subs. I hate hypocrits and I try very very hard to always do waht I say, and never do what I hate. I sometimes make mistakes but I give 99% effort.


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## Mike Finley (Apr 28, 2004)

I know you do. Just given you a little shot, couldn't resist.  

Now what I would really like to hear about is do businesses that run on the subbed labor method look to do it this way forever? Or is there a goal to eventually bring it all in house with employees. Obviously in a start up the advantages of using subs are strongly financial. But down the road is there a time when there is a stronger pull to go to all employees for financial reasons?


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## Grumpy (Oct 8, 2003)

Mike there are advantages and disadvantages. I worked for a company, as a scheduler, and this company did 10 roofs a day. They ran a hot tar flat roof crew and subbed out about 6 shingle roofs, 2 gutter jobs per day. 

I think when you are running numbers like that, ~10 crews per day, the administrative paperwork would be killer, not to mention equipment and vehicle accounting... and unemployment insurance? Whoa nasty stuff. I would be willing to debate that the savings from running employees are negated by administrative overhead managing those employees. 

I base my business model on their model, however since I have seen several different models from 100% employee to all sub, to various hybrids; I have taken the best of all and incorporated them into my business model.

I see no reason why I can't thrive on 90% sub labor from now until eternity. Will I change? Maybe.


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## trekr (Jul 6, 2004)

Grumpy, I would have thought the opposite would be true in your example. In other words, it seems like if you had the organization and personnel to manage 10 subs per day, you wouldn't add that much overhead from the administrative side if taking them on as employees. Insurance would certainly be another matter.


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