Survival Factors for Subcontractors in Economic Downturns
Publication: Journal of Construction Engineering and Management
Volume 140, Issue 3
Abstract
This paper analyzes key issues facing subcontractors in the context of a severe economic crisis, aiming to detect the factors that are critical for the survival of the subcontractors. Although previous research efforts have analyzed factors related to subcontractor performance in regular financial conditions, there remains only sparse knowledge of how subcontractors are to survive when economic conditions become dire, as they have in recent times in the Spanish construction market. In this research, in-depth interviews with managers of relevant Spanish subcontracting companies were carried out, resulting in the identification of eight factors for subcontractor survival: project delivery method, demand, financial capital, relationship assets, managerial assets, human assets, legal framework, and geographic scope. The project delivery method used by the owner and also by the main contractor is mainly based on price. As a result, the subcontractors’ bids get lower, making them unsustainable in the long run. Furthermore, subcontractors do not get financial support from banks easily to cover their additional financial costs. These facts push subcontractors to get a guarantee of payment by the main contractor, and subcontracting companies may even ask for payments in advance. Subcontractors also seek long-term relationships with the contractor. These trusting relations are very often a prerequisite to qualify and bid for contracts. Subcontractors have to continuously improve, plan ahead, and adapt quickly to the new environment. Therefore, subcontractors must remain flexible and maintain a lean hierarchical organization. Doing so makes it is easier for subcontractors to compete in both their native markets as well as abroad. To this end, the most successful subcontractors have become international during the expansion phase of the economic cycle; many of them went abroad with the help of a contractor from their home country.
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Acknowledgments
This research was partially supported by Santander Universidades (Becas Iberoamérica Jóvenes Profesionales e Investigadores 2012) that funded a visitorship for Ricardo Oviedo-Haito. The authors are also indebted to all the participants in this research, as well as to Dr. Debra Westall and Dr. Nathaniel Sobin for revising the manuscript. Finally, the valuable commentaries and suggestions of three anonymous reviewers are also highly appreciated.
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Journal of Construction Engineering and Management
Volume 140 • Issue 3 • March 2014
Copyright
© 2013 American Society of Civil Engineers.
History
Received: May 10, 2013
Accepted: Oct 24, 2013
Published online: Dec 3, 2013
Published in print: Mar 1, 2014
Discussion open until: May 3, 2014
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