PJM wk5-rt- Subcontracting Analysis- revision due in 8 hours

Subcontracting Analysis- Project Management

Project Management is the handling of a project to ensure successful completion, through the discipline of controlling, initiating, planning and execution, as well as closing a team’s work in order to achieve specific goals or successes. The primary challenge is usually achieving the goals within the constraints given. Subcontracting analysis, therefore, refers to the analysis done by subcontractors and the processes involved within or around the act of subcontracting in a certain project.

Construction contracts are usually not complete because of random shocks that affect them, such as design deficiencies, unknown site conditions and environmental factors (non-contractible events). These are thus taken into account when making subcontracting and bidding decisions. Decisions on incomplete contracting are based on the potential for holdup costs and incentives to cost-save. Those on subcontracting arrangements have an advantage in that costs are kept down by high-powered incentives. Holdup problems may, however, be more severe. Subcontracting is construction Achilles’ heel.

Subcontracting is under the procurement process, after design. Contractors and subcontractors look at blueprints to predict the cost, then subcontracts are signed. Subcontracting arrangements are chosen, tasks and costs identified then subcontractors are matched with primary contractors (Miller, D. P., 2014). The project is then awarded to the winning contractor and subcontractor. Bidding and building are then done. if a project is not subcontracted, prime contractors work with direct input suppliers such as laborers. Sometimes this is preferred because prime contractors exercise monopsony to get price concessions from subcontractors. It was first adopted in California, and ten other states have since done the same.

There are differences in subcontracting and in-house contracting. Subcontracting pricing terms are a fixed unit price bid, and provide subcontractors with incentives for making of non-contractible specific investments into cost production. Other performance terms are not as simple, such as schedule coordination, assignment of monitoring duties, preparation mechanisms and conflict resolutions. The downside of subcontracting is that renegotiations during revisions dissipate surplus and also diminish the incentives that allow the creation of relationship specific investments. In the case of in-house contracting, inputs are rented at a cost by the prime contractors, added to a negotiable mark-up. There is less incentive to reduce cost, and they are more flexible when accommodating revisions. Contingencies are spelled out with a less upfront cost. Bargaining frictions provided by long-time business relationships enhance the cost reducing incentives.

An example is the Minneapolis 35W Bridge, which had an unaccounted for the drainage system that made the whole construction have to be moved away by twenty feet. This led to increased costs of construction. The project was complex because it was located in an urban area that was full of debris from the fallen bridge. The plans were incomplete because the project was fast-tracked. Superstructures were redesigned to bear a longer span load. These plan changes were outside of the control of all the involved parties. The most common cause of plan changes is seen here, which is the differing conditions of the site.

Size of changes in projects is measured in four categories: small changes, medium changes, large changes and the perfect design category, which means no change at all occurs. It corresponds to no changes. Overrun and underrun distinctions allow distinguishing between different types of hold-up problems, related to different factors such as scheduling and work pace acceleration.

In bidding, bidders usually select bids of unit price, which best respond to the equilibrium of the opponents’ bids distribution. Bids choice are usually in two parts; whereby the bidder chooses the optimal score that best responds to the rivals’ scores. The second part is when bidders provide a unit price which is subject to constraints summed to the original score. Actual quantities are similar to the quantities of the engineers for lump sum tasks but vary for variable quantity tasks.

Subcontractors play a very important role in every construction project, and also have a lot of importance and therefore should not be overlooked in any project. This is why they are not chosen based on price only. The roles they play include delivering projects within the allocated time frame, in good quality and following all the safety standards. A good one is able to stick to all these requirements. They also serve the role of being the ‘extension’ of the main contractor. Subcontractors, however, face problems when their contractors do not guide them or when their roles in the projects allocated are not well-defined, leading to them being blamed for anything that goes wrong in the project. The subcontractor is given information access early enough to avoid delays.

The importance of subcontractors is that they are some sort of ‘bridge’ to the primary contractor. Also, he or she provides drawing according to the schedule of the project, allowing required approvals to be obtained from the clients or the prime contractor. They also take action immediately an issue arises, meaning the projects gets to continue running smoothly. Failure to do so could cost a lot to the project, and the subcontractor would be in trouble. Regular invoicing of charges by the subcontractor prevents being back-charged by the prime contractor during a job or a project Gutierrez, G. and Paul, A., 2012).

Therefore, despite some projects not having subcontractors (which means they do not carry out subcontracting analysis), subcontractors are important to any project they are assigned to. They, however, need to be managed by the contractor to ensure all rules and regulations are followed to the maximum.

References

Miller, D. P. (2014). Subcontracting and competitive bidding on incomplete procurement contracts. The RAND Journal of Economics, 45(4), 705-746.

Gutierrez, G., & Paul, A. (2012). Analysis of the effects of uncertainty, risk-pooling, and subcontracting mechanisms on project performance. Operations Research, 48(6), 927- 938.