Dealing with Problematic Suppliers and Subcontractors


By Eric Halsey

As contractors’ projects grow increasingly complex, networks of suppliers and subcontractors have grown. When difficulties arise, the added complexity can create added headaches. Worse, the subcontractor or supplier can file a claim on your bond. So what can you do about problematic suppliers and subcontractors? Here are our top tips for avoiding potential hassles and getting on with running your firm: 

1. Start With a Firm Understanding of Your Surety Bond and Obligations – Start by understanding your contract and surety bond. A misunderstanding over the contents and obligations of either will likely lead to problems. Begin by taking a look at a detailed surety bond description to ensure you’re familiar with the ins and outs of your bonds. You need to use conflict management and early actions to avoid having a claim filed on your bond at all costs. If a claim is filed successfully, you may not be able to get bonded again, putting your business at risk. Additionally, you’re responsible for paying that claim – a key difference between a surety bond and insurance. This also applies to all other bonds: you may have several on a single project. For more details on each of those bond types, you can reference this comprehensive contractor license bond guide.

2. Make Your Subcontractor Relationships a Priority – Simple things like the tone of your interactions can also have a real impact. When you’re choosing a bid, you’re choosing a company to partner with. Treating that company as a partner and not as another employee can help set a positive tone and set of expectations from the start. For more tips on building those relationships, check out Tim O’Brien’s advice. Keeping your payments consistent and predictable makes an enormous difference. Starting with a good contract goes a long way towards making payments and the process for unpaid payments predictable. But if your own unpaid invoices are forcing you to delay payments to subcontractors, you have other options, such as invoice discounting or factoring. This allows you to sell an unpaid invoice to a third party in exchange for most of the money upfront. If this can allow you to greatly reduce turnaround and keep your income consistent, it can more than make up for the fees involved.

3. Review Your Contract Carefully to Prevent Conflict Before It Occurs – You can start by reviewing this in-depth article explaining the ins and outs of commercial (as well as some relevant residential) construction contracts. In there, you’ll find some great tips for using legal tools like flow-down provisions to ensure that the legal expectations you’re placing on your suppliers and subcontractors are clear from the beginning. Clarity improves greatly when you’ve developed good relationships with everyone involved, from the lawyers drafting the contracts to the suppliers and subcontractors themselves. What kinds of problems have you experienced with suppliers and subcontractors? What could have prevented them?

Eric Halsey is a historian by training who’s been interested in U.S. small businesses since working at the House Committee on Small Business in 2006. Coming from a family with a history of working on industry policy, he has a particular interest in the surety bonding industry with a focus on construction and shares his knowledge for JW Surety Bonds.

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