Sub Specialty Contractor

I work for a HVAC Mechanical subcontractor.  In many of our projects we are required to get a second tier subcontractor on the project.  Many of the projects require certified payroll and are part of an OCIP, CCIP, PLP, PIP and POP.

Some specialties are obvious, we would sub to an insulator.  But sometimes there is a gray line.  Normally my decision is based on there being someone else's employees on sight doing work.  This can get gray also.  What about delivery of cement in the cement company's truck.  Normally the driver gets out of the vehicle and directs the pour.  Is this a subcontractor or delivery of material?  What about a crane operator?

I know the final decision will be directed by the owner. 

Where do you draw the line?

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Ralph Perko
Air Systems
Sacramento CA
(916) 368-0336
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I'd base it more on how your contracts with these vendors are set up than anything else.  Generally if you have a vendor billing you on progress bills, then it's likely to be a subcontractor.  That's not a 100%-perfect rule, but a decent rule of thumb.

I'd also watch for indicators such as bonding, competitive bids, personnel at job site, for more than delivery purposes, etc.  If you're on prevailing wage jobs and are required to do certified payroll, then whether a vendor is required to also certify payroll would be an indication too.

Hope that helps,

Chris

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Christopher Henderson BSBA, CCIFP, CPA, CITP
Controller
Energy Control, Inc.
Albuquerque NM
1-505-803-8117
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Original Message:
Sent: 11-27-2012 18:25
From: Ralph Perko
Subject: Subcontractors

I work for a HVAC Mechanical subcontractor.  In many of our projects we are required to get a second tier subcontractor on the project.  Many of the projects require certified payroll and are part of an OCIP, CCIP, PLP, PIP and POP.

Some specialties are obvious, we would sub to an insulator.  But sometimes there is a gray line.  Normally my decision is based on there being someone else's employees on sight doing work.  This can get gray also.  What about delivery of cement in the cement company's truck.  Normally the driver gets out of the vehicle and directs the pour.  Is this a subcontractor or delivery of material?  What about a crane operator?

I know the final decision will be directed by the owner. 

Where do you draw the line?

-------------------------------------------
Ralph Perko
Air Systems
Sacramento CA
(916) 368-0336
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Hi Ralph,

PCS is a drywall and interiors subcontractor; we employ other subcontractors, suppliers and service providers.

I understand that it is sometimes difficult to identify whether we should issue a subcontract (including the requirements for certified payroll, etc) or a purchase order for the work to be performed.  I think that the determination is on a case by case basis; our insurance broker provided some great insight though.  If the product from the third party is just materials delivered to the site then delivery is only incidental and a purchase order is appropriate.  For other services consider a subcontract first and ask yourself the question "Why not?".  Usually a subcontract and related reporting requirements also requires insurance coverage for the work to be performed, warranty information, project specific requirements, bonding considerations, etc.

The subcontract provides more protection to the contracting parties than a mere purchase order.  I would recommend that you visit with your insurance and/or bonding broker and seek their advice for your specific company.

Good Luck,
Therese

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Therese Litton CCIFP
Chief Financial Officer
Pacific Construction Systems, Inc.
Woodinville WA
(425) 462-8268
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Original Message:
Sent: 11-27-2012 18:25
From: Ralph Perko
Subject: Subcontractors

I work for a HVAC Mechanical subcontractor.  In many of our projects we are required to get a second tier subcontractor on the project.  Many of the projects require certified payroll and are part of an OCIP, CCIP, PLP, PIP and POP.

Some specialties are obvious, we would sub to an insulator.  But sometimes there is a gray line.  Normally my decision is based on there being someone else's employees on sight doing work.  This can get gray also.  What about delivery of cement in the cement company's truck.  Normally the driver gets out of the vehicle and directs the pour.  Is this a subcontractor or delivery of material?  What about a crane operator?

I know the final decision will be directed by the owner. 

Where do you draw the line?

-------------------------------------------
Ralph Perko
Air Systems
Sacramento CA
(916) 368-0336
-------------------------------------------

Ralph,

A rule of thumb that I learned while working for an electrical sub is, will the employee be spending more than 15 minutes on the jobsite?  Over 15 minutes, he is a subcontractor (or works for a sub).  In your example, the concrete guy is a vendor supplying materials & the crane operator is a sub.

The example that I learned from was with a delivery of materials.  If the driver drove to the site, and the truck was unloaded by others - or he was there less than 15 minutes - he was a supplier.  But if he unloaded the truck himself, he was a sub.

Beware, some vendors may attempt to be treated as subs, so they can then have lien rights on a project, whereas a supplier may not. 

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Darrell Robinson BS Accounting
Controller
Zavala Corporation
Portland OR
(971) 998-5451
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Original Message:
Sent: 11-27-2012 18:25
From: Ralph Perko
Subject: Subcontractors

I work for a HVAC Mechanical subcontractor.  In many of our projects we are required to get a second tier subcontractor on the project.  Many of the projects require certified payroll and are part of an OCIP, CCIP, PLP, PIP and POP.

Some specialties are obvious, we would sub to an insulator.  But sometimes there is a gray line.  Normally my decision is based on there being someone else's employees on sight doing work.  This can get gray also.  What about delivery of cement in the cement company's truck.  Normally the driver gets out of the vehicle and directs the pour.  Is this a subcontractor or delivery of material?  What about a crane operator?

I know the final decision will be directed by the owner. 

Where do you draw the line?

-------------------------------------------
Ralph Perko
Air Systems
Sacramento CA
(916) 368-0336
-------------------------------------------