Diversity and Inclusion

Perspective from a Trade Subcontractor

By:   PEOPLE of Construction

In contemplating this perfect “jobsite culture” we have been reading about, I pondered the diversity situation from the perspective of a trade sub-contractor.  As I think about it, the prime trade sub, asked to mentor and guide and assist a minority sub, is carrying the heavy load of diversity and inclusion on major projects.

Here are some thoughts we need to consider in our consideration of BEST PRACTICES:

• The prime trade subcontractor is being asked to disrupt the normal flow of their business when asked to divide up work that they would normally perform themselves by contracting a portion of the work to a minority firm.  This costs money, dilutes profits, adds a great deal of risk and, in certain situations, contributes to creating a competitor for the next project down the road.  If you think about it, this is a tough ask and perhaps an unreasonable expectation of the owner and the GC.

• The initial business reaction of any change in a normal flow of business is to protect your assets and continue to take all measures to protect your profit.  If all things were equal, the prime sub does not want to give up any of their work.  If they are asked to partner with a minority firm for a portion of the work, the first thought is to minimize this portion of work and minimize the deterioration into their overhead and profit line.  This leads to minimal profits for minority firms as well as the least desirable work scopes.

• Often it is difficult to segregate work scopes and create a clear and understandable path for the minority firm.  This causes confusion to the field personnel and often leads to gross misunderstandings when counting up the dollars at the conclusion of a project.  The typical bidding procedures of most major prime subs is to list a percentage of the work that they are willing to dole out to minority partners, but the scope and amounts have not been clearly defined.  This could be due to timing or the inability of the selected or preferred minority partner to sit down and accurately estimate a scope of work.  This causes a problem at contract time in that the scope may change dramatically, and the dollar amount may vary significantly from the time of bidding.

• The prime sub really does not want to mentor a minority partner.  I mean truly mentor and teach.  Most contractors are highly protective of their “secrets” and procedures and policies and ways of doing business and really do not want to share or put them out on the street.  Is it fair for the industry to ask them to do this?

• This thought of creating a competitor is a prevalent thought of most prime subcontractors—is it a valid concern?  Maybe the minority partner is not competing next month or next year but isn’t the hope and desire of the industry to build the capacity of the minority firm so they can someday compete on a level playing field, regardless of minority status?  Certainly TD-4; BRK; BAM; Carr Flooring; Mechanical Solutions; Waterhout; and others compete today against those that helped them yesterday.

• We ask the prime subcontractor to take all the risks of working with the minority firm.  The owner does not want any risk and fully expects the GC to manage the process.  The GC prefers the minority subs work as second tier under a prime sub and fully expects the prime sub to manage the costs, schedule and quality of work of the minority sub.  Certainly, the GC and the owner do not accept less than the highest quality of code and specification complying work by any party, inclusive of the minority firm.  How does the prime subcontractor get compensated for this added risk and added responsibility?  They put themselves in a competitive disadvantage to adjust their final proposal on bid day for this risk.  I doubt seriously if any money is added to consider the added risk.  Is it fair for the industry to expect the prime subs to accept a lesser amount of profit and overhead due to the dividing of work and the extra management costs and extra risks of taking on a minority partner?

• Would it make sense for an owner and/or GC to have a contingency line item in every contract to help manage the financial risks of dividing up scopes of work and working with minority firms on a mentoring and teaching basis on major commercial projects?  Or do we continue to bury our head in the sand and act like this is not a problem and continue to lay our heavy expectations on the prime sub?  I realize that no one would ever understand this suggestion.

• Where does the responsibility lie to work out an acceptable payment plan for the undercapitalized minority firm?  Is it with the owner?  The GC?  The prime subcontractor?  I propose that this is a valid question that should be answered.

• One would think that a smart and forward-thinking prime sub would select a minority partner and work with them to develop a good and responsive and professional team.  Help them with their accounting, estimating, cost accounting, project management, field labor and develop a model for others to emulate.  This would put the prime sub in the enviable position of being ready to pounce on all the major commercial projects that are coming to this city.  Where are the examples of this?  Guarantee Electric did that with TD-4.  Engineered Fire Protection is trying to do that with Ardor Fire.  Some of the major painting firms have somewhat done this with Two Hills Painting.  But the examples are few—why is that?  Is it the “competitive” thing?

As we struggle to define best practices on major commercial job sites relative to diversity and inclusion in our marketplace, it is important for us to hear the voices of the major prime subs.  I would love to establish a group to study and develop best practices by talking to and listening to all the major players, inclusive of the prime trade subcontractor.

We have a lot to talk about and a lot of issues to sort out.  Until we define the problems and set expectations for the managing of the risks and the extra dollar costs involved, we will make very little forward progress. When THE EDGE opens for business, I will set up this “BEST PRACTICES” group and we will start these important discussions.  In the interim, I would lov