It has been my experience that subcontracting can be an excellent way for MWBE firms to increase market share while gaining valuable experience and past performance that is often required to do business with government agencies and large corporations. That said, when I suggest subcontracting to my clients, I am often met with resistance and hesitation. One of the most common reasons that small MWBE firms are reluctant to subcontract is because of concerns about getting paid. Unfortunately, there are no guarantees about anything with anyone. The best we can do is take action that will increase the probability for a successful relationship and mitigate risk. Here are my top five tips:
- Develop Relationships with Prime Contractors: take the time to form relationships with prime contractors where both parties bring value to the relationship. Don’t focus on MWBE goals exclusively. There has to be more to the relationship than just meeting MWBE goals. In developing a relationship, I also suggest starting off with smaller projects to see how the relationship progresses before working on larger projects.
- Review Solicitation Documents: read bid packages in their entirety before providing quotes. It’s important that you understand what your obligations are as well as government payment cycles, escalation clauses, wage/hour, invoicing and reporting requirements. I have seen payments to contractors both prime and sub delayed due to compliance issues and a lack of understanding about the process for submitting invoices.
- Conduct Due Diligence: almost every prime contractor I know has a pre-qualification process for sub-contractors, yet often times as subs, we blindly go into relationships with primes without conducting any form of due diligence. At minimum, I recommend checking payment history, supplier payments, experience working with other MWBEs and history successful past performance with the government.
- Formal Agreement: once you agree to work with a prime contractor, the terms of the agreement should be outlined in a formal agreement that is prepared by an attorney. The agreement should clearly outline payment terms and remedies in the event that the prime contractor defaults obligations or payments.
- Stay on top of invoices and payments: make sure that you are on top of all payments and required supporting documents. Submit invoices in a timely and efficient manner. Track invoices ensuring that they have been received by the prime and follow-up. You should also track payments to prime contractors by reviewing information on government websites. Tracking and follow-up are essential.
In the event you are not paid in a timely manner, be sure to make the appropriate notifications to the prime contractor and take immediate action as outlined in your agreement. Don’t wait. This is one of the reasons, it is very important to have an attorney prepare your agreement.