A contractor is an individual or a corporation that is licensed by the state in which it operates, to perform work in its particular field of expertise. A building construction project is awarded to a GENERAL CONTRACTOR who oversees and is responsible for the entire project.
Most of the work involved in building construction is subcontracted out to SPECIALTY CONTRACTORS. Many specialty contractors are small businesses which specialize in one or more trades.
They keep operating costs down by hiring workers and purchasing materials on an as-needed basis. Once a job nears completion, the work force may be reduced.
The subcontracting system remains prevalent in the industry for many reasons; The most important of which concern:
FINANCING: Much of the burden of financing is deferred to the many subcontractors doing the work.
MATERIALS PROCUREMENT: Each subcontractor bears the responsibility of procuring, storing & delivering their materials to the job site.
WORKFORCE: Each subcontractor is responsible for providing the skilled labor necessary to perform the task to which it has been assigned.
Subcontractors meet with the general contractor periodically to discuss scheduling and to resolve any problems or conflicts which inevitably occur throughout the course of the project.
3. How are building construction contracts awarded?
Generally contracts are awarded to those who submit the lowest bid. Qualifying general contractors are allowed to examine the project's plans and specifications. Their engineers and estimators spend many hours examining these plans, and perform many calculations in order to come up with what they hope will be a competitive bid.
Their bid must be low enough to beat out their competition, but yet high enough to turn over a reasonable profit for the company. All bids are sealed and kept confidential between the developer and the contractor. This prevents a bidding war between contractors, which could result in unrealistically low bids.
4. How stable is the building construction industry?
The building construction industry is one of the most volatile in our nation's economy. It is usually one of the first industries to suffer as a result of economic downturns and one of the last to recover when the economy improves.
Some factors which may affect the building construction industry are:
SUPPLY AND DEMAND: If there is already a high vacancy rate in commercial real estate, there is no incentive for developers to build.
INTEREST RATES: High interest rates on construction financing greatly discourage real estate development.
WEATHER CONDITIONS: In many parts of the nation, harsh winters or other adverse weather conditions may temporarily halt current and future construction projects.