29th February 2016

Subcontractor management: your defence against rising labour costs?

It’s no secret that labour costs in the UK construction industry are rising quickly, thanks in no small part to the ever-worsening skills shortages that the sector faces. 

Subcontractor management: your defence against rising labour costs?

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With labour costs cutting into margins and dissuading firms from taking on less profitable jobs, skills shortages are a real problem – not just for construction companies and the sector as a whole, but also the government’s plans to kick-start housebuilding and ease the housing crisis.

While you almost certainly don’t have the resources to launch a nationwide recruitment campaign to train the next generation of bricklayers, electricians and quantity surveyors and influence the national labour market, there are still some steps you can take to shield your company from the worst of the cost increases.

Value vs. cost

It’s tempting to search for subcontractors who will accept the lowest rates, particularly when you’re managing an SME that needs to operate with an extremely limited cash flow. However, it is less experienced subcontractors who are more likely to work for below the market rate, and this can create other costs further down the line. There may be more mistakes during construction, leading to a lower quality end product. Additionally, tasks may have to be carried out multiple times until they’re completed to the right standard, costing you time and money. Although you may still want to take a risk and opt for a less experienced subcontractor, it may be wiser to consider the value subcontractors bring instead of their cost.

Affording experienced subcontractors

Increasingly, subcontractors can take their pick of the jobs, almost always opting for the work that offers the best rate. However, there is another way you can make your company more attractive to subcontractors, even if you can’t offer the best rates. You can build up subcontractor loyalty by paying rates on time. In an industry where late payment affects the whole supply chain, prompt payment (in full) can’t always be assumed. Additionally, many smaller construction companies lack an organised subcontractor verification and payment system, meaning that some invoices inevitably fall through the gaps and end up being paid late.

Subcontractor management software

Today, software exists that can help you minimise human error during subcontractor management tasks, allowing you to complete CIS300 verification automatically in just a couple of clicks and view all subcontractor details through a digital subcontractor ledger. Contact details, agreed rates and past invoices can be accessed and viewed quickly and easily. The software should also contain robust payment authorisation options, so payment can be signed off swiftly by the relevant parties when work is completed.

An organised subcontractor management system will not only reduce confusion and chaos in your business – your subcontractors will appreciate it too. This may contribute to winning their loyalty and persuading them to work for you again in the future – even if you can’t match the highest bidders on price.

Of course, this measure may only make a small difference to your outgoings, and with no end to skills shortages in sight, rising labour costs are a factor that you must plan for for the foreseeable future.  Ensure you have full visibility of your company’s finances by using accounting software to track payments and outgoings in real time. With subcontractor management elements integrated with your accounts, Integrity Software’s Evolution M system is perfect for construction SMEs. Contact us to learn more.

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