Managing Subcontractors

With each passing year, ST’s State of the Industry Reports show that quantity builders increasingly dominate the signage market. Economies of scale stemming from greater automation provide key advantages for large builders. But making this technological edge count requires more than just high-quality products or an aggressive sales force. Because customers invariably judge a sign company’s performance by end results, successful builders must also develop comprehensive and professional project-management capabilities. When I first entered the sign business, oil firms and certain other nationwide retailers often maintained storage depots at their local and regional plants. This enabled the firms to store large quantities of signs to meet projected needs. In those days, the sign builder’s work often concluded when the signs were shipped. The user would then assume responsibility to arrange for installation and maintenance. Today, however, sign manufacturers typically shoulder complete responsibility for executing new sign programs. Considering that some rebranding programs involve thousands of locations throughout the nation, quantity sign builders face some difficult challenges in meeting their clients’ expectations. Whether you use installation subcontractors every day or only occasionally, project management is crucial to your company’s success. Dealing with short lead times One thing hasn’t changed in the sign business: pressure from customers. Once they decide to kick off a new identity program, customers rarely provide much advance notice to their sign vendors. In fact, "yesterday" seems to be the typical sign user’s preferred deadline. For this reason, project managers must notify installers immediately when a new sign program is in the pipeline. Give your installers a clear picture of the tentative scope of work, plus a timeframe for completion. Early notification not only gives installers time to investigate sign permits and prepare for the big push, it also deflects the common excuse: "You didn’t notify us until the last minute." Next, you must determine whether the program’s requirements will overload your installers in various areas. For example, if your customer has 25 locations in Chicago, and the deadline is 60 days after the signs are shipped, you must determine if your local installer can handle this workload. Assuming you’re dealing with a competent and reliable subcontractor, get a realistic commitment for a specific number of projects to be completed within the allowed timeframe. Make it clear that you need a realistic, conservative estimate based on your installer’s available resources. If a new sign program exceeds your installer’s capabilities, you’ll need a reliable "Team B" to handle the overload. For this reason, when establishing a national installer network, always cultivate relationships with two or more installers in each territory. This practice not only alleviates handling big workloads, it also provides a necessary backup if "Team A" experiences unforeseen problems. Unfortunately, you can’t always rely on installers to realistically assess their capabilities. Fear of losing business to a local competitor may prompt an installer to promise more than can be delivered. To discourage inflated promises, the sign manufacturer must establish that, regardless of circumstances, the sign program will be completed according to the customer’s schedule. Installers must understand that the manufacturer will monitor their progress and, if necessary, bring in another installer to meet the deadline. Stiff penalties for failing to complete sign programs on time, often written into manufacturers’ contracts, discourage foot dragging. When I was an installation contractor, new customers occasionally approached my company because other installers couldn’t complete the work on schedule. I recall when a local sign company went out of business during the course of a major identity program. Make it clear to your regular installer that you want him to handle as much of the work as possible, and assure him that, if a "Team B" is necessary, it won’t affect his status as your preferred contractor. Conversely, your "Team B" contact should understand that he’s only handling an overflow situation. An ambitious installer will understand your circumstance and recognize a good opportunity to get his foot in the door for future business. Finding reliable installers Because nationwide sign rollouts are dominated by relatively few quantity manufacturers, many small sign companies today specialize almost exclusively in installation and maintenance services. When establishing a regional or national network of subcontractors, therefore, installation specialists often are the best candidates because they devote most of their resources to field projects. A local installer who builds signs will normally give priority to his own projects. Quite simply, the sign builder invests substantially more money in a fabrication project than in one he simply installs. Cash-flow requirements dictate, therefore, that installation-only jobs take a backseat. Generally, the higher the percentage of installation specialists in your subcontractor network, the better response your company will receive. When establishing installer networks, arrange initial visits to prospective subcontractors’ shops. Installation companies generally aren’t distinguished by beautiful facilities, but you can estimate the level of service by observing the company’s employees, business office and equipment. It’s also important to get a good feeling about your principal contact. For an effective network, there’s simply no substitute for forging personal relationships based on mutual trust and respect. In fact, some of quantity sign builders’ most costly and serious failures have occurred by neglecting their subcontractor network. This doesn’t mean high travel expenses to "babysit" installers. But it’s a good practice, whenever you’re traveling, to arrange face-to-face meetings with installers. These are good opportunities to renew personal relationships and uncover any potential problems before they affect your business. Cellular phones have eliminated many former excuses for poor communications from subcontractors. However, if you constantly have trouble contacting an installer, perhaps someone else should handle your business. Because customers frequently demand immediate answers, your installers must understand the critical role of reliable communications. Money talks As an installation contractor, I sometimes struggled with certain manufacturers’ payment terms. Typically, when we handled quantity projects, our payments were withheld for at least 60 days after project completion and acceptance. In some cases, we waited as long as 90 or 120 days to receive payments. While I never knew whether end users or manufacturers dictated these policies, slow payment often causes problems in any national installer network. This is particularly true during major identity programs, when installers handle several projects simultaneously. Because installers’ employees are usually paid weekly, and local suppliers expect payment within 30 days, a big sign program can cripple an installer’s bank account. My former company split its business approximately 50/50 between projects performed directly for end users and those performed for quantity builders. We frequently relied on revenue from our net-30-day accounts to finance our work for manufacturers. So, basically, some manufacturers received interest-free loans, courtesy of our company. Having compared notes with installers in other areas, I found similar practices, because they didn’t want to lose the manufacturers’ business. In the long run, however, a slow-payment policy can undermine a manufacturer’s entire network. For example, a subcontractor principally or largely dependent on projects received from manufacturers may experience sharp pressures to cut costs. These measures can adversely affect project quality. In extreme cases, the installer may simply suspend all of the manufacturer’s projects until all outstanding accounts are remitted. This can cause the manufacturer to miss a customer deadline. When a manufacturer successfully bids a major identity program, the customer’s payment terms must enable a prompt flow of payments to installers. But, if either the customer’s or manufacturer’s policies dictate slow payments to installers, this can jeopardize the entire identity program. Establishing and managing a nationwide or regional installer network challenges any quantity sign builder. This demands careful selection of installers and close monitoring of field operations, as well as making the financial arrangements necessary to expedite, rather than impede, the program’s completion. This tough, but necessary, juggling act is the key to successful project management. Eight Tips for Effective Project Management