This Month's Lesson: “Be Careful What You Wish For”
I wish that…
We have all heard the phrase, “Be careful what you wish for” and unsurprisingly, there is a lot of truth to this saying. Some subcontractors wish for piece-work rates and believe it to be the answer to their problems. Piece rates fix concerns and risks on costs of goods installed. Piece-work is also fair, as it punishes slow workers, rewards high producers and eliminates bidding risks. It seems that this is the way to go and superior to the traditional practice of hourly wages. However, there is a flip side. After having experience in the piece-rate world, most might want to re-think this seemingly simple and easy path to prosperity.
A specialty subcontractor should have the knowledge and skill of their specialty craft. These experts—through decades of experience—can evaluate workers, spot problems and adjust to situations all the while optimizing production to deliver a quality project for the owners and a decent profit for themselves. The more skilled and experienced the subcontractor, the better they are than the competition. This is the reward for being a pro, a master at your craft, and utilizing your specialty trade knowledge. At least this is what should happen. Although, all those years you spent gaining knowledge and experience could become a moot point in a piece-work world.
A Piece-work Reality
In the piece-work world, a general contractor calls the subcontractor demanding crews on site. The specialty subcontractor arrives in advance to find that the site is not ready. His price and production rates were set on factors of readiness. As the specialty expert, you not only see the obvious issues but even other potential problems. Working in those conditions is inefficient and a risk for poor quality, which wastes time and money. The general does not care and directs you to proceed. Since workers are paid hourly and it will cost you, you fight for yours, his and the building owner’s benefit.
In the piece-work world, the set-up is the same but what happens can be very different. You have a set and agreed price with your workers. You do not need to go to the job site—you send the crews. You shifted productivity to them. You just need to walk through the final phase of the work. The piece workers show up and may or may not spot the issues or defects. They only get paid for putting up units and start working, covering up everything. They get paid, you get paid and everyone is happy. But the future holds a few surprises.
Since piece-work has fixed prices for all to know, bidding becomes ultra-competitive. One solution is to lower the rate paid to workers. However, competitors do the same. The general contractor enjoys the benefits of the stupid priced bidding wars. You may be better at supervision, troubleshooting and arranging production but no one cares. It is about the super low bid. You must look to other cost-cutting measures. Materials are next in line. Dealers must shave prices to the bone. Material manufacturers also feel the pinch. They too cut costs. Steel studs get thinner to save money, the wire is cheaper, and the list goes on.
Down the Rabbit Hole
Ultimately, you end up a broker of labor and materials but assume the risks. Your specialty expertise, knowledge and skills are of little value. So, you got your dream. You finance the project for a few pennies. Things are bad and about to get worse.
Because trade expertise is now gone, production and quality drops. Defects and poor quality overwhelm you. You hire more supervisors, who likely lack the education and knowledge to catch errors or solve problems. It is not their fault; it took you decades to learn this trade and you had hourly skilled workers at hand—they have piece workers. Things get worse with compressed schedules and trade stacking. While most are working on razor thin margins, hidden or latent defects mount.
You seek solutions to this problem. You decide to use systems that require less skilled workers for installation of systems. The final chapter is a success, you as the specialty subcontractor have overcome all these issues. You have an in-house quality control program with an easy-to-follow checklist. You have value engineered out the skilled work tasks, you have implemented pre-unitization to reduce cost for skilled labor. All is good, you cut costs, reduced the need for skilled labor and minimized the risks.
Congratulations are indeed in order—you have made it.
But now, the final kick to the groin: The general contractor has noticed what you did. In fact, they think, “We can do this too.” They may even run your plan as well as you can or even better. The industry calls this “self-performing” and it really irritates subcontractors. This is because you eliminated the specialty part. So, maybe we should be careful what we wish for? W&C