Consider the following situation:
Two different general contractors are about to be contracted to
perform work in the same locale for an owner (two separate but similar
projects). The owner identifies that he can achieve cost savings by
asking the two general contractors to communicate together and
identify opportunities to use sub-contractors from one general
contractor's bid on the other's project as well. Both general
contractors will still be contracted to perform the same projects with
the same scope, but now the overall contracts are lower because the
sub contract costs have been optimized.
What are the ethical considerations of this scenario? Are there any
relevant case studies or examples that aid in the development of a
point of view? Ethically, if the owner is a public company, doesn't
it have the obligation to find the lowest cost for its shareholders? |
Request for Question Clarification by
umiat-ga
on
30 Apr 2004 13:10 PDT
Hell, rsilvers-ga!
Since my husband is a building contractor, your question has piqued my interest.
You have stated "Both general contractors will still be contracted to
perform the same projects with the same scope, but now the overall
contracts are lower because the sub contract costs have been
optimized."
Since the subcontractors still have to do the same amount of work,
even though the localities are closer together, in what way do you
feel the subcontract costs will be lower? Where will the savings come
from? The subs will still want to be paid for both jobs, regardless of
proximity.
Also, general contractors often have their own particular subs that
they trust and use time and time again. I can't tell you how many
times my husband has had to clean up and fix problems after a
subcontractor he did not want to use was requested by the owner
because he could "save money on the bid." In the long run, my husband
had to correct messy work and deal with an angry owner because the
subcontractor my husband did not want to hire did not finish that
portion of the job in a decent or timely fashion. Ultimately, it ends
up coming out of my husband's pocket as the general contractor.
Again, how would sharing subs save in costs? And how can an owner
expect two different general contractors to benefit from using
subcontractor's they might prefer not to utilize due to a insider
knowledge about their work habits?
umiat
|
Clarification of Question by
rsilvers-ga
on
01 May 2004 12:21 PDT
In the example scenario, assume that General Contractor 'A' (GC-A) has
secured top quality (yet lowest cost) electrical and tile subs while
General Contractor 'B' (GC-B) has used different electrical and tile
subs, but found a carpentry sub who is great quality/low cost. The
owner discovers that GC-A never bid to the carpentry sub that GC-B
used and likewise GC-B never bid to the electrical and tile subs used
by GC-A. The owner believes that the costs of the two projects will
be lowered by asking the GCs to "communicate" between each other and
see if the electrical and tile can come down on GC-B's project by
potentially bidding to the elec and tile subs used on GC-A's project.
(and vice versa for the carpentry on GC-A's project).
Additionally, the owner believes that the costs could further be
lowered through the increased volume for the subs that would be shared
across projects (assuming the sub-contractors have enough staff or
that the schedule allows for the subs to finish project A before
starting project B)
I totally "get" the idea of 'risky' sub-contractors and the
implication to the GC (having to repair the mess they leave behind).
For this example, assume that all of the sub-contractors have been
fully qualified and are all above average players. Lets' simply
assume that the reason the GCs did not bid their work to the lower
cost subs was that they simply did not know of them.
This is where some of the ethical questions may arise. Is the GC's
success (in general) due to the the subs that they find and "keep
secret" from their competitors? Or, just the opposite, does the GC
have the obligation to try and find new competitive subs (even if it
means sharing their list with their competitors)? From the owner's
perspective, the sub-list is not secret and the owner himself could
simply disqualify the higher cost subs of GC-A and ask GC-A to bid to
GC-B's subs. I know this is not a black and white ethical dilemma,
but it poses an interesting set of concerns (from the owners'
perspective) and being in the owner's shoes, I am trying to make the
best decsion for all parties involved: shareholders of the owner's
company, the GCs, and the sub contractors.
Thanks,
rsilvers
|
Request for Question Clarification by
pafalafa-ga
on
01 May 2004 13:00 PDT
rsilvers-ga,
I've been reading the postings here with interest, but quite frankly,
I don't see what the ethical dilemma is.
You have a scheme that you feel could benefit the subs, save the GC
some money and a headache or two, and lower the owner's overall costs.
As they say in the biz, "Make me an offer". Or in this case, make
the GC's the offer.
Tell them your idea, tell them you think it would save at least $X
thousand, and that they should implement it, and pass along $Y
thousand to you in lowered cost.
Maybe they'll accept it.
And if they don't, it's certainly fair for you to ask their reasons
for not accepting it. There may well be considerations you haven't
quite, er, considered, yet.
This doesn't seem like ethics. It seems more like haggling (in a good way!).
Am I missing something?
pafalafa-ga
|
Request for Question Clarification by
umiat-ga
on
01 May 2004 13:14 PDT
I must say I agree with Pafalafa! There is absolutely nothing wrong
with trying to save costs, and if the contractors want the jobs, they
will try to accomodate your requests. Otherwise, if one is adamantly
against the idea, they may pull out, and you can give both jobs to one
contractor!
"Is the GC's success (in general) due to the the subs that they find and "keep
secret" from their competitors?" I have rarely known general
contractors to keep their subs a secret (and gain extra money from
their work). Primarily, they try to develop a good working
relationship with a subcontractor they trust and can rely on to place
a priority on one of their projects if push comes to shove.
I think you have a very reasonable request, and it is likely that both
contractors will agree to accomodate your desires. There is no harm in
asking, and contractors are known to share subs quite often,
especially when they are in the same proximity. This is not an ethical
dilemma at all.
However, I sure wish there were more concerned owners who treated
their generals and subs as decently as you seem to be doing! You sound
like a wonderful client to work for!
umiat
|
Clarification of Question by
rsilvers-ga
on
04 May 2004 06:49 PDT
I tend to agree with the comments posted by umiat, pafalala, and
neilzero. However, when I posed this same scenario to the contractor
community, here are some of the responses I received:
"...Getting into the ethics of it - if it were me I wouldn't release
my subcontractors to another GC "
"I wouldn't share proprietary information with my competitor, the
other GC. Not unless it was in the contract and agreed upon before
hand... which I wouldn't agree to. My relationships with my subs have
been built upon for years. They work for me."
This is where I am "hung up". When I pose the question to objective,
unbiased, third-party individuals, I get the answer that there is no
ethical dilemma and that it would be an appropriate path to follow.
When I pose the issue to Construction Managers and Contractors, I
receive the opposite answer.
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Request for Question Clarification by
umiat-ga
on
04 May 2004 07:54 PDT
Hi again, rsilvers,
I have a couple of questions.
Are you involved in a large company on the order of Ivory Homes or
the like, so that contractors would be highly protective of their bids
and overly-sensitive to the competition? There is no such thing as a
"formal statement of contractor ethics." Rather, it is more a figure
of speech used to a contractor's advantage when they don't like the
arrangement of having to cut their bid to reach your standards. And
you can hardly blame them. Secondly, there also many subs that don't
want to work for a certain general contractor due to shoddy work or
business practices. The equation works both ways. I don't know that
you will find two general contractors that will agree to your
scenario, unless they are brand new and willing to fight for
business....in which case you might not want them anyway!!!
At this point, is there any other way you believe we can help you?
umiat
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