Amount and Quality of Subcontracting

Amount and Quality of Subcontracting

 

When a contract has been awarded to a supplier (the prime contractor), the supplier frequently subcontracts of the work required to complete the job. The supplier’s subcontracting decisions are important to the buying firm because they may involve a large percentage of prime contract money. The first decision a prime contractor must make regarding subcontracts is which items should be made and which items should be bought. If the prime contractor decides to buy some of the items that could be made more efficiency, and vice versa, the buyer will suffer financially. Even if the prime contractor makes the correct “make” decision, it is responsible for selecting the subcontractors that are needed for the “buy” items.

Subcontractor prices and performance directly influence the prices the buying firm pays the prime contractor. Hence, the prime contractor’s skills in both making and administering its subcontracts are of great importance to the supply manager. For this reason, supply managers must review their major suppliers periodically to ensure that they have effective supply management and subcontracting capabilities of their own.