INTRODUCTION AND BACKGROUND Jamieson et al. (1996) also attributed the increased use of
subcontractors to the increased complexity of both the
Importance of Improved Subcontracting construction of buildings and the organizational relation-
The contribution of specialist and trade subcontractors ships.
to the total construction process can account for as much However, this increase in complexity, the oversupply
as 90% of the total value of the project (Nobbs 1993), of specialist firms, and the declining construction output
while the incidence and importance of subcontracting in has cultivated an adversarial atmosphere, which has had
Hong Kong is similar (Matthews et al. 1997). Nobbs a negative effect on the main contractor-subcontractor re-
(1993) attributed the increased involvement of subcon- lationships. As main contractors have realized that the
tractors to the shift away from the traditional craft base, greatest potential for cost savings lies with subcontractors,
to a greater reliance on increasingly sophisticated tech- the extent of unfair contract conditions, ‘‘Dutch auction-
nology-based products. Matthews et al. (1996) believed ing,’’ and other onerous practices has increased (Corrup-
that the increase in sophisticated technology-based prod- tion 1992; Matthews et al. 1996; Jamieson et al. 1996).
ucts has required a high degree of design, manufacture, Subcontractors have also caused problems. With easy
installation and commissioning skills that have not been entry into the construction market place in the U.K., sub-
readily available to the industry’s clients, as the skill base contractor organizations have been established with very
has moved away from the main contractor’s organization. little capital investment. Many of these subcontractor
This has resulted in main contractors concentrating their companies do not have the necessary expertise to under-
efforts on managing site operations rather than employing take work satisfactorily and, as a consequence, are unable
direct labor to undertake construction work. By contrast, to give their clients the service they require. Moreover,
many of the bad traits common to the main contractor–
1
Assoc. Prof., Dept. of Civ. Engrg., Univ. of Hong Kong, Pokfulam subcontractor relationship are also common to the sub-
Rd., Hong Kong SAR, China.
2 contractor–sub-subcontractor relationship (Matthews
Res. Fellow, Dept. of Constr. and Real Estate, Univ. of Hong
Kong, Pokfulam Rd., Hong Kong SAR, China. 1996).
Note. Discussion open until November 1, 2000. To extend the clos-
ing date one month, a written request must be filed with the ASCE Importance of Improved Subcontractor
Manager of Journals. The manuscript for this paper was submitted for Relationships
review and possible publication on April 6, 1999. This paper is part
of the Journal of Management in Engineering, Vol. 16, No. 3, May/
Hinze and Tracey (1994) described the findings of ex-
June, 2000. 䉷ASCE, ISSN 0742-597X/00/0003-0047–0057/$8.00 ⫹ ploratory research undertaken in the United States in or-
$.50 per page. Paper No. 20666. der to identify how subcontracts were placed. They put
JOURNAL OF MANAGEMENT IN ENGINEERING / MAY/JUNE 2000 / 47
proving subcontractor selection. ment bodies, for example in Queensland and South Aus-
Palaneeswaran et al. (1999) highlighted some of the tralia (Palaneeswaran et al. 1999).
emerging ‘‘best practices’’ principles, such as
Human Resources Teamworking, Partnering, and
1. Seeking value for money, public accountability, Subcontractors
transparency, and open and fair competition; While the human resource itself and human resource
2. Incorporating indicators to evaluate responsive- management were commonly considered criteria in the
ness, responsibility, and competency of builders; contractor evaluation systems surveyed, only a few of the
and systems specifically invited attention (1) to the potential
3. Incorporating ‘‘performance ratings,’’ for example: for partnering; and (2) to subcontractor teams. For ex-
(a) the ‘‘prequalification rating,’’ formulated by the ample, ‘‘subcontractors and consultants’’ are briefly listed
West Virginia Department of Highways, based on as a factor under the ‘‘technical capacity’’ criterion group
past performance, net current assets, insurance, line recommended by CIDA in Australia, as mentioned in the
of credit, and equipment availability factors; and above paragraph. In an example from the United States,
(b) the PASS (Performance Assessment Scoring the Utah Department of Transportation (I-15 1997) doc-
System) of the Hong Kong Housing Authority that umented how (1) a requirement that prime contractors
involves detailed evaluation of the performance of perform at least 30% of the work was waived on the I-
registered contractors on their ongoing projects, 15 Corridor Reconstruction Project; (2) ‘‘partnering was
which is then fed into their PASS scores that would not only desirable, but a must for the project;’’ and (3)
in turn entitle contractors with higher scores to subcontracting opportunities for local contractors and
more bidding opportunities for future projects (by suppliers were encouraged/facilitated.
including the better-performing contractors in Baxendale and Greaves (1997) while recounting the
shortlists that exclude the poor performers). increasing popularity of client–main contractor partner-
ing, also showed how both subcontractors and main con-
Russell (1996) discussed the merits and methodolo- tractors would benefit from incorporating subcontractors
gies of contractor prequalification in greater detail, while within the partnering orbit and processes. Conversely, a
Hatush and Skitmore (1997) reported on a Delphic study case study of a partnered project in Hong Kong that did
that investigated perceived relationships between 20 not involve the many subcontractors revealed resulting
contractor selection criteria (CSC) currently in use in the inadequacies in the expected partnering, leading to the
U.K. and project success factors (PSFs) in terms of time, conclusion that ‘‘partnering begins at home’’ in team-
cost, and quality. Dominant CSCs perceived to affect all work within the contracting team itself (Dissanayaka and
three PSFs were found to include past failures, financial Kumaraswamy 1997).
status, financial stability, credit ratings, experience, abil- It appears that despite the significant extent of sub-
ity, management personnel, and management knowl- contracting in most construction industries, the evalua-
edge. tion of proposed subcontractors has not yet featured
These critical criteria/factors also need to be incor- prominently in contractor selection criteria and meth-
porated in measurable indicators/parameters, for exam- odologies. While some contractors require that subcon-
ple via transformed financial ratio models for improved tractors be approved by the client, this may not be an
contractor evaluation as demonstrated by Edum-Fotwe appropriate/adequate check in a pressurized operational
et al. (1995). On the other hand, contractors who are phase when delays in agreeing on a series of subcon-
‘‘registered’’ (for longer-term prequalification with large tractors may be counterproductive. It also may not be
client organizations) or prequalified (for specific jobs) possible to probe (at that stage) into the multiple layers
may be banded into groupings that would help determine of sub-subcontractors (and below) that eventually
the maximum dollar value of work for which such a emerge on Hong Kong construction sites, for example.
contractor may be allowed to bid. In the United States, Therefore, when evaluating potential contractors at
various states have developed their own rating systems tender stage (or even at registration/prequalification
with classified and well-defined limits such as ‘‘maxi- stages, if feasible) provision should be made to assess at
mum capacity rating’’ for the total value of uncompleted least (1) the proposed subcontractor selection method-
JOURNAL OF MANAGEMENT IN ENGINEERING / MAY/JUNE 2000 / 49
partnering relationship. This section does not seek to be firms use partnering on a long-term basis to undertake
exhaustible in discussing these trends, as much work has more than one construction project, or some continuing
been undertaken in this respect by other commentators, construction activity (Trusting 1995). However, Kubal
such as the Reading Construction Forum (Trusting 1995; (1994) and, more recently, the Reading Construction Fo-
The seven 1998), the Construction Industry Institute (In rum (The seven 1998) discuss partnering at an industry-
search 1991), the National Economic Development Of- wide level. Kubal (1994) notes that although partnering
fice (Partnering: Contracting 1991), Crowley and Karim is practiced on fragmented projects, it required national
(1995), and the Associated General Contractors of Amer- lobbying in order for partnering to be used across in-
ica (Partnering: A concept 1991). However, the follow- dustry under the correct circumstances. In the U.K., the
ing will highlight the main relevant themes and points Reading Construction Forum (The seven 1998) develop
that were, and should be, borne in mind when develop- this point further by stating that new initatives in part-
ing partnering relationships and subcontractor selection nering have enabled ‘‘second- and third-generation part-
criteria. nering’’ to evolve. Watson (1999) reported that second-
The adoption of partnering into the construction in- generation partnering was underpinned by the ‘‘seven
dustries of the United States, Australia, and the U.K. can pillars’’ of partnering (The seven 1998), these being strat-
be attributed to the fact that relationships in these in- egy, membership, equity, integration, benchmarks, pro-
dustries were commonly lacking trust, respect, and hon- ject processes, and feedback. In the third generation of
esty between professionals, main contractors, and sub- partnering the construction firm should be building vir-
contractors. This had led to procurement problems, with tual organizations with its supply chain to provide a
claims, litigation, and unsatisfied clients being common. complete service that is efficient, creative, and innova-
The 1994 report on the U.K. construction industry by tive (Watson 1999).
Sir Michael Latham, entitled Constructing the Team (La- Table 1 compares four studies on partnering under-
tham 1994), provided an impetus to improve the rela- taken between 1991 and 1996 in the United States and
tionships between all parties involved in construction the U.K. It highlights the main elements of partnering
procurement. Partnering was seen by many as the key to as identified from these studies.
achieving this improvement. Sir John Egan advocated Such consideration of the main elements of both proj-
the use of partnering in his more recent review of the ect and strategic partnering has been commonplace
U.K. construction industry, Rethinking Construction within the partnering literature since its first implemen-
(Egan 1998). He wrote that partnering through the sup- tation in the late 1980s and early 1990s. Many com-
ply chain is a critical approach with which the U.K. con- mentators [for example, Cook and Hancher (1990), Part-
struction industry can drive innovation and sustain in- nering: A concept (1991), Mosley et al. (1991), Sanders
cremental improvement in performance. and Moore (1992), Harbuck et al. (1994), Larson (1995),
Walter (1998) reported that partnering has been pop- Trusting (1995), and Matthews (1996)] have discussed
ularly adopted in the U.K., with national contractors now partnering elements, but very few have discussed part-
prepared to work in a climate of cooperation fostered by nering in the context of the main contractor–subcon-
partnering arrangements. Walter found that many firms tractor relationship.
were expecting partnering contracts (whether formal or Baxendale and Greaves (1997) noted in their survey
informal) to account for over two-thirds of their work- of U.K. main contractors that several companies had
loads in the financial year 1998 to 1999. identified that they were adopting, or going to adopt,
One of the most commonly cited definitions for part- partnering relationships with their subcontractors in or-
nering is that of the Construction Industry Institute (In der to improve service and reduce costs. They also note
search 1991): ‘‘a long-term commitment between two or that many main contractors in the U.K. were at the time
more organisations for the purpose of achieving specific expressing their intentions (within the trade press) to
business objectives by maximising the effectiveness of partner with subcontractors, a view supported by Watson
each participant’s resources. This requires changing tra- (1999). Love (1997) points to an episode in the United
ditional relationships to a shared culture without regard States that clearly shows how partnering can facilitate
to organisational boundaries. The relationship is based project performance within the context of the main con-
on trust, dedication to common goals, and an under- tractor–subcontractor relationship. However, it can be
50 / JOURNAL OF MANAGEMENT IN ENGINEERING / MAY/JUNE 2000
Cooperation
concluded by a scan of the partnering literature that the contractors from the main contractor’s perspective in or-
impact of partnering on the main contractor–subcontrac- der to ascertain how the operations of each could be
tor relationships has largely been overlooked. This paper improved, and also at obtaining a holistic view on how
will seek, in part, to overcome this weakness and discuss practices and approaches, including those of subcontrac-
the impact of partnering on subcontractor selection. tor selection, between the main contractor and subcon-
tractors could be improved and what features of their
METHODOLOGY OF A U.K.-BASED relationships were perceived to be important or unim-
EUROPEAN CASE STUDY portant.
Introduction Examples of open-ended questions asked include
The main contractor who initiated this study believed
that in order to perform more productively it had to work • ‘‘What characteristics of a subcontract firm can
more closely with its subcontractors and also improve have a detrimental effect on the relationship be-
working relationships. The main contractor formulated a tween it and the main contractor?’’
research strategy aimed at identifying how to create an • ‘‘How do you think the precontract/contract/post-
environment on-site where it can be clearly demon- contract phases of the main contractor’s subcon-
strated that their subcontractors perform more cost-ef- tract process could change to make an improve-
fectively in meeting customer needs than they can when ment on the way the main contractor deals, selects,
working on sites of other main contractors. and communicates with subcontractors?’’
of this main contractor, and to improve subcontractor score (⫹%) indicated its relative importance, whereas a
relationships by taking into consideration the findings of negative score (⫺%) indicated its relative unimpor-
the first three stages. The particular requirements of the tance].
main contractor were as follows: Open-ended questions were analyzed by using a con-
tent analysis identification test. All responses to ques-
tions were recorded using, where possible, a tape re-
1. The main contractor did not want to commit to corder. Answers to questions were then incorporated into
long-term relationships without fully understanding a computerized database. The database allowed answers
the practicalities of what they were undertaking. to questions to be recorded in a systematic way that, in
They required, in the first instance, an approach of turn, facilitated the overall identification of those issues
developing relationships for a project-by-project that were found to be the most and least prevalent.
basis only.
2. The main contractor required an approach that pro-
vided both time and cost savings. Development of Questionnaires
3. The approach to partnering required an element of The designs of the questionnaires were based on es-
price competition. This competition was seen to tablished principles, for example derived from Sinclair
provide assurances that any price quoted by a sub- (1975) and Oppenheim (1966). All questionnaires and
contractor was representative of the current market interview instruments were developed by means of a test
price. and revision process. This process tested the content and
4. The new approach would allow the use of more understanding of the questionnaires.
than one tender subcontractor, as well as employ Basic subject areas were identified before questions
their specialist knowledge during all stages of the were formulated. Within all the research stages, the fol-
project. lowing were identified by industry experts as being im-
portant.
FIG. 1. Pro Forma Employed for Subcontractor Interview (Each Subcontractor Is Marked from Total Score of 10 for Each Cri-
terion. Also, Each Criterion Could Be Weighted Depending on Its Relative Importance, if Required)
whilst the second was used to hand over pricing docu- they had consciously reduced their pricing levels by an
mentation. The aim of this interview is to give both the average of around 10% (varying only within a close
main contractor and the subcontractor the opportunity to range), in recognition of savings that they anticipated
discuss the tender and check for compliance and accu- from the improved working relationships and arrange-
racy following the return of the tender documentation. ments. These enhanced operational efficiencies were ex-
pected to arise from the partnering arrangements. Con-
Subcontractor Selection fidence in such direct and tangible benefits from
The final decision on what subcontractor was to be partnering was perhaps inspired by (1) acceptance of the
employed was left primarily to the main contractor, al- main contractor’s philosophy that industry needed a rad-
though the client’s quantity surveyor had the opportunity ically changed approach to doing business; (2) increased
to raise any relevant issues. acceptance of partnering principles in the industry in
The selection was made on the criteria communicated general; (3) benefits that were seen to have emerged
to the subcontractor during the first interview. The se- from such client–main contractor partnering; and (3)
lected subcontractor was informed by the project esti- commitment to main contractor–subcontractor partner-
mator that the main contractor wished to work with him/ ing demonstrated by this main contractor in the prelim-
her on the project. An indicative price and budget rates inary meetings and throughout the entire selection pro-
were agreed upon based on the clients’ cost plan. cess.
Follow-up interviews with over 40 project participants
CONCLUSIONS
(30 were formal, while about 12 were informal) also
Twenty separate debriefing interviews with both suc- elicited a general consensus of much better working re-
cessful and unsuccessful subcontractors revealed that lationships between and within teams having been gen-
JOURNAL OF MANAGEMENT IN ENGINEERING / MAY/JUNE 2000 / 55