FACTORS AFFECTING RELATIONSHIP BETWEEN CONTRACTOR AND SUBCONTRACTORS

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 9, Issue 3, March 2018, pp , Article ID: IJCIET_09_03_014 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed FACTORS AFFECTING RELATIONSHIP BETWEEN CONTRACTOR AND SUBCONTRACTORS Abhay Tawalare Assistant Professor, Department of Civil Engineering Visvesvaraya National Institute of Technology, Nagpur, India Sudhir Reddy M. Tech Student, Department of Civil Engineering, Visvesvaraya National Institute of Technology, Nagpur, India ABSTRACT Subcontractors play crucial role in successful completion of construction projects. However, many issues involved in subcontracting practices are not acknowledged in Indian construction industry. This paper aimed to examine the relationship between main contractor and subcontractor by finding the important factors which govern quality relationship between them. The relationship factors were identified through literature review and discussed with five highly experienced industry experts to understand their significance with Indian context. Based on the opinions of these experts a questionnaire was developed. The questionnaire was sent out to project managers from both contractor and subcontractor organisations. In total 81 completed questionnaires were retrieved. The data was analysed by using software SPSS. The top three factors affecting contractor subcontractor relationship were found to be operational relationship, Quality and Flexibility in resolving disputes. All the top ranked factors were categorised under four dimensions by factor analysis using varimax rotation of principal component analysis. The four categories are subcontractor attributes, Quality and cost management, Communication related factors and Time related factors. These findings will help to identify area for improvement in the relationship between contractor and subcontractors. Key word: Relationship factors, Sub contractor relationship, Factor analysis, Indian construction industry. Cite this Article: Abhay Tawalare and Sudhir Reddy, Factors Affecting Relationship Between Contractor and Subcontractors, International Journal of Civil Engineering and Technology, 9(3), 2018, pp editor@iaeme.com

2 Factors Affecting Relationship Between Contractor and Subcontractors 1. INTRODUCTION The main contractor has to carryout subcontracting for procuring raw materials, machinery, finance, technology and the most important, human resource. Apart from this subcontractors are used for work where main contractor lack the expertise. It enables them to limit their risk exposure [1]. Since subcontractors secure virtually all their work through general contractors, the success of the typical subcontractor depends directly on the relationships established and maintained with main contractors. Once the relationship is established, most subcontractors work with the same main contractors on a regular basis and they tend to maintain the relationship over time [2]. But due to transactional nature of relationship, contractors and subcontractors may not cooperate in a highly recurrent way. Due to which this sector has disputes and litigations [3]. Relations between subcontractors and main contractors are often strained and prone to disputes due to a poor sense of fairness and a misunderstanding of each other needs [4]. There are numerous factors that affect the relationship between main contractors and subcontractors. However, no such kind of study is conducted in India though industry is growing rapidly since last two decades. Therefore, this paper aimed to answer the research question What are the factors govern the relationship between main contractor and subcontractor in Indian construction industry. 2. FACTORS AFFECTING RELATIONSHIP The literature review was focused to identify the factors governing the successful relationship between contractor and subcontractors. Hinze & Tracey [5] found that bidding practises like invitation to tender, letter of interest or request for information, request for proposal, request for quotation, request for standing offer, request for supply arrangement are important factors. These practises divulging a contractor s or subcontractor s bid to other prospective contractor or subcontractor before the award of a contract in order to secure a lower bid [6] This may result in faulty quotation of tender prices by subcontractor affects the contractor and subcontractor relationship [7]. Failure of the subcontractor in implementing quality assurance and quality control program, job safety regulations and improper planning causes delay of critical activities. This may result in delay in completion of project [7]. Unavailability of planned resources on subcontractors side, also affects the schedule [8]. Improper communication between the contractor and subcontractor during different activities of the construction process could not achieve progress as per planned schedule. Subcontractors unplanned work at contractors site which might affect the other works going on in the site affect the relationship between contractor and subcontractor [9]. The delay results in claims from main contractor like retainage of certain percentage of bill, compensation for damage or loss based on a contractual agreement and cropping up previous claims [6]. This ultimately affects the financial stability of subcontractor [10]. If there is less flexibility and cooperation in resolving dispute due to claims then it results in failure of relationship [7]. Moreover, the subcontractors inability to employ project managers with good administrative skills and people management skills, the unfair transaction made by the project manager between main contractor and the subcontractor hampers the relationship [6]. 3. RESEARCH METHODOLOGY The study used mixed methods to seek the answer of research question What are the factors govern the relationship between main contractor and subcontractor in Indian construction industry. The relationship factors were identified through content analysis of published literature in various reputed journals. Thus, 41 relationship factors between contractor and subcontractor relationship identified through literature review. These factors were discussed editor@iaeme.com

3 Abhay Tawalare and Sudhir Reddy with five highly experienced industry experts to understand the relevance of each factor with Indian context. All the five experts were having more than 25 years of industry experience. Through this discussion, 31 important relationship factors were identified for development of questionnaire schedule. Respondents were requested to rate their degree of agreement against each of the identified factors according to a five-point Likert scale with reference to a particular project they had been involved in. The questionnaire was mailed to project managers of contractor companies and their subcontractors in India during the period of February 2017 to April In total 81 responses retrieved against the 325 mailed. The response rate was 25% which was consistent with the norm of 20 30% with most questionnaire surveys in the construction industry [11]. The average experience of all the respondents was 18.5 years. The obtained raw data from the online survey were analysed using Statistical Package for Social Sciences (SPSS) software for reliability, ranking and factor analysis. This is discussed in next section. 4. DATA ANALYSIS AND RESULTS For testing of reliability of a scale Cronbach s Coefficient Alpha was used to examine internal consistency of the factors. The result of Cronbach s Coefficient Alpha in this survey is which is greater than 0.7 this provides evidence that all the factors have a high internal consistency and are reliable [12]. The Relative importance of the 31 factors was found out based on responses. This type of scale has been found to be satisfactory in several construction management researches. The top eleven ranked factors having mean value more than 4 are presented in Table 1. The Spearman s rank correlation test was used to examine the general similarity on the rankings between respondents from contractor and subcontractor companies. The analysis resulted in correlation coefficient (r) of the pair of respondents as between respondents from Contractor and Subcontractor companies. These statistical results indicated a general harmony on the rankings of the factors among different groups of respondents at 5% significance level. Designation Relationship Factors Table 1 Top ranked relationship factors Mean Std. Deviation Rank R1 Operational relationship R2 Quality of work R3 Flexibility and cooperation in resolving disputes R4 Planning of work R5 Failure to complete contract within cost R6 Lack of trust R7 Miscommunicated tender price R8 Lack of technical knowledge R9 Management of resources R10 Delay in completing work R11 Flexibility in critical activities Factor analysis was used to identify a relatively small number of factor groupings that can be used to represent relationships among sets of many inter-related variables. The top ranked eleven factors were used for factor analysis. Correlation matrix was generated using SPSS and most of the values in the correlation matrix were found to be larger than 0.3, means the Bartlett s test of sphericity was significant at 5%. The value of the KMO index was and above 0.6, suggesting the data set was suitable for factor analysis. A four component solution was produced based on varimax rotation of principal component analysis. These four factors grouped as eigenvalues greater than with % of the variance. The extracted components are (1) Subcontractors attributes, (2) Communication related factors, (3) Quality editor@iaeme.com

4 Factors Affecting Relationship Between Contractor and Subcontractors and cost management, and (4) Time related factors. The Table 2 shows the results of factor analysis. Table 2 Results of factor analysis Components Eigen value % of variance Component Subcontractors attributes Communication related factors Quality and cost management Time related factors Factors Factor loadings R R R R R R R R R R R DISCUSSION The results of factor analysis are discussed below Component 1: Subcontractors attributes The factors under this particular component are trust, planning and technical knowledge. Main contractors must be extremely careful while selecting the most appropriate subcontractor for a certain part of the work or the entire project. A major requirement for success in a contractor and subcontractor relationship is trust. Trust increases with number works successfully completed by subcontractor under the particular main contractor. If sub-contractor is working for several years with main contractor then trust develops between contractor and subcontractor. Also, reference from other contractor regarding quality of work carried out by subcontractor can initiate the trust development. Realistic planning of the work provides a base, against which pro-active control and re-active control can be carried out to ensure timely completions of the work and technical capability of contractor. The contractor can with subcontractor for realistic planning if he has worked with him in earlier projects and knew his strength and weaknesses in technical and managerial capability of sub-contractor Component 2: Communication related factors The factors under this particular component are operational relationship, flexibility in resolving disputes and miscommunicated tender price. The tender price offered by the subcontractor should be precise and estimated according to exact specifications. Faulty quotation of price due to miscommunication may lead to the disputes between the parties and hence hampering the relationship between them. The effective communication increases the project performance. A balanced flow of information between main contractors and subcontractors is necessary for a smooth execution of the project activities. It results in better co-operation, better team spirit, fewer claims and litigation and fewer disputes. The behaviour of contractor s project manager is important for effective communication. If project manager treats sub-contractor more humanly by eliminating master slave concept then communication becomes two way. In presence of master slave concept project manager tries to dominate the sub-contractor which results in difficulties in operational level editor@iaeme.com

5 Abhay Tawalare and Sudhir Reddy 5.3. Component 3: Quality and cost management The factors under this particular component are quality, management of resources and failure to complete contract within cost. Quality plays an important role in governing the subcontractors credibility thereby affecting the relationship with the main contractor. It is necessary to verify the previous work quality by sub-contractor. This can be done by referencing from old clients of sub-contractor as well as the previous sites can be visited by project manager before allotment of work. Similarly, ability of subcontractor to complete the work within quoted cost is also important. The quality of work and completion of work within cost govern by how effectively subcontractor manages his own resources as well as resources provided by main contractor effectively. If subcontractor fails to provide desired quality within specified cost and resources then disputes may arise thereby hampering the relationship between them. For quality and cost management, sub-contractor has to manage his material, labour and machinery resources in coordination with project manager as per planning. At the same time, contractor needs to pay time to time so that sub-contractor will able to maintain his cash flow and investment in material, labour and machinery Component 4: Time related factors The factors under this particular component are flexibility in critical activities and delay. How can the subcontractor deal with the critical activities during the construction stage is very important. The flexibility available to a particular activity by which the schedule of the project can be affected should be taken care. The subcontractor should plan precisely in order to avoid any delay in the critical activities failing to which relationship with contractor may get hampered. The proper management of resources like material, labour, machinery and money is important for subcontractor to meet the schedule. Also, he has to coordinate project manager on daily basis to maintain the pace of work and for removing the hurdles in decision making. 6. CONCLUSIONS This paper aimed to identify factors governing the contractor subcontractor relationship, and explored their ranking and underlying relationship. The main contribution of this study is identifying an ordered and grouped set of factors which govern contractor subcontractor relationship in construction projects with Indian context. The top five factors are operational relationship, quality, flexibility in resolving disputes, planning and failure to complete contract within cost. The top ranked eleven factors are grouped in four components like subcontractors attributes, communication related factors, quality and cost management, and time related factors. This grouping provides a framework for effective contractor subcontractor relationship in construction projects in India. These findings will help to identify area for improvement in the relationship between contractor and subcontractors. REFERENCES [1] Gould, F.., & Joyce, N.. (2009). Factors affecting the operations and performance of Subcontractors in the construction industry. Construction Project Management 3rd ed. Upper Seattle River, NJ:Pearson Education, Inc. [2] Kale, S., & Arditi, D. (2001). General contractors relationships with subcontractors: A strategic asset. Construction Management and Economics, 19(5), [3] Holt, G. D., Love, P. E. D., & Jawahar Nesan, L. (2000). Employee empowerment in construction: an implementation model for process improvement. Team Performance Management: An International Journal, 6(3/4), editor@iaeme.com

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