Markup on subcontractor work

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brantmacga

brantmacga

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Former Child
Want to talk about O/P on subcontractor work.

I'm working on bids for a couple of projects that would be at the top end of what we could safely handle, and we'll need to use subs for some of the work like FA and lightning protection systems. I've kept my pricing for as much of the LV as possible in-house.

One project has about $400k in subcontractor work. On certain projects in the past I've gone with our full profit margin on top of their quotes and got the job, but on these jobs in particular, based on previous experience, I know if I do that I'll be too high as I have to assume I'm also competing against larger EC's that keep everything in-house. We have one local, for example, that will probably bid against me on one of these jobs and they have a division for everything. They also turn about 10x the volume we do.


I could make up some random number to put on it like 5% or so, but is there a better approach at determining what my actual margins should be on sub work?

In theory it should be mostly hands-off, but in reality, there are times we end up doing some financing on jobs where we have to keep the subs paid while waiting on a check from the GC. And while that shouldn't happen, sometimes it does. There's always some logistical work on my end as well in coordinating with subs, and we obviously need to compensate ourselves for that.

My head says that in the end, I'm not doing the work or buying the material, so if I just put say 5% profit on it, it's just extra money in the bank, and I'm still competitive and will make money off the work we're actually doing. But my gut says it's too little money for the effort involved, and for the challenges I think we could face by not being fully in control of every aspect of our contract.

I think in the end I'm just feeling out what other guys are doing to see what the market norms are.

Any thoughts are appreciated.


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Subs get marked up just like everything else.

When everything comes to the bottom line....

Materials+Labor (incl burden, supervision, managemnt)+Job expenses+Subs = $_______________ + OH&P

Subs have to be supervised, scheduled, coordinated (meetings, drawings,etc) and they are subject to the same retainage withheld until final payment.
 
Follow your gut. Especially, if the subs are not ones you have used before. Better to lose the job and not make money than to get the job and lose money.
 
petersonra said:
if you start with the premise that you have to reduce your profit/margin to get the job you will underbid the thing.
Click to expand...

Yeh I get that, but my reasoning was that if I'm bidding against EC's that do the work in house and I stack my O/P on top of the sub's O/P it's going to be considerably higher.

Thanks for all the responses


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brantmacga said:
Yeh I get that, but my reasoning was that if I'm bidding against EC's that do the work in house and I stack my O/P on top of the sub's O/P it's going to be considerably higher.

Thanks for all the responses
Click to expand...

well, you are accepting a liability, as they are your sub.
if they screw up, and disappear, you own this.

do you want to take on that liability for free, especially
if the total job cost is at the top end of your comfort range?

often, folks with 10x your volume have economy of scale
working for them, other times they just have a huge backoffice
nut to make every month.....

when you think you've hooked a whale, now is not the time to
start doubting your rod and reel. what you've been doing has
got you this far safely. and you will continue on, with or without
this job.

when the job moves to the "oh my god" level, and that is different
for all of us in dollars and cents, but not in reaction, it's not the
time to throw your business plan under the truck.

good luck with however it turns out.
 
Fulthrotl said:
well, you are accepting a liability, as they are your sub.
if they screw up, and disappear, you own this.

do you want to take on that liability for free, especially
if the total job cost is at the top end of your comfort range?

often, folks with 10x your volume have economy of scale
working for them, other times they just have a huge backoffice
nut to make every month.....

when you think you've hooked a whale, now is not the time to
start doubting your rod and reel. what you've been doing has
got you this far safely. and you will continue on, with or without
this job.

when the job moves to the "oh my god" level, and that is different
for all of us in dollars and cents, but not in reaction, it's not the
time to throw your business plan under the truck.

good luck with however it turns out.
Click to expand...


Yeh..... you're making sense to me. Thanks


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brantmacga said:
Yeh I get that, but my reasoning was that if I'm bidding against EC's that do the work in house and I stack my O/P on top of the sub's O/P it's going to be considerably higher.

Thanks for all the responses


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Click to expand...

What are they doing in-house? How many subs are on this job, because the other EC's can't do them all.
I'll do a turnkey sub than in-house every time for liability reasons.
 
cdslotz said:
What are they doing in-house? How many subs are on this job, because the other EC's can't do them all.
I'll do a turnkey sub than in-house every time for liability reasons.
Click to expand...

On this job, fire alarm, structured wiring and networking, and lightning protection. Some do it all.


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If I needed ten of something but bought a case of dozen and sold two of them at or below cost, I saved money as long as price per item on the ten pieces I needed ends up being less. That bigger company buys more from subs so they're probably able to negotiate better pricing.

If the additional hassle increases work load on your office your cost didn't go up. Also, if you sub something out to them at cost, it keeps their gears turning even if you made no markup. If they utilize you sometime down the road, you benefit from that too.
 
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