Subcontracting is a popular option that is available to most businesses. It is also a good way to enter government supply chains if you cannot tender to large projects on your own but have a compelling piece of expertise, technology or trade that is required.
Government buyers seek value for money from their procurement activities. They often tender to larger businesses and expect smaller businesses to play a part in delivering these contracts, usually as a subcontractor. It may be that the main contractor is looking for specialist skills or experience that you are able to provide.
Remember, subcontracting can have implications for your business. You will need to carefully weigh up the pros and cons before making a decision to subcontract.
Most Government Tenders have provisions for the Contractors to engage subcontractors, which is a good thing and it allows the Contractors to expand their capacity and the Subcontractors to get into business which they would otherwise not have access to on their own.
Advantages of Subcontracting
- You do not have to invest significant resources into preparing a tender response.
- For many smaller businesses, subcontracting can be the first step in gaining tendering experience. Many opportunities require previous tendering experience and subcontracting helps solve this ‘catch 22’ (i.e. even though you may lack experience or skills in tendering, you can still gain access to the contract).
- Private sector contractors may be keen to partner with you to help increase the level of potential social impact within the tender response.
- You can negotiate intellectual property rights with the lead contractor and buyer.
Disadvantages of Subcontracting
- Depending on your position in the supply chain, there could be problems managing your cash flow, particularly if the main contractor is experiencing delays in payment.
- Often the main contractor will introduce clauses into the subcontracting agreement, which may ban you from carrying out any direct business with the end customer.
- The main contractor may include clauses that prohibit you from entering into similar subcontract relationships with one of their competitors for a specified period of time.
- You may have to cut your margins to deliver better returns for private companies.
- You may not gain any practical experience in developing a tender.
- As you are not the ‘lead partner’ or main contractor, there may be no brand recognition for your business.
- You may have different business values and ethics from the main contractor, which could cause friction.
- There may be a breach of contract by the main contractor that will impact on your business.
- If you fail to deliver on your subcontract, the main contractor may take legal action.
- You may not be in a position to become involved in negotiations or management discussions about the tender, but your business will be impacted by these decisions.