We recently had a client suggest that an element of the build was provided by a separate supplier independent of the main contractor. He was quite reasonably trying to save money. He had a price from the separate supplier to do one thing. He knew that if the supplier became a subcontractor, then the main contractor’s margin would apply and, the cost to him would be higher.
He was also shopping around which we encourage all our clients to do. We can work with any supplier, we are committed to creating the house exactly as our clients want it, and we are also committed to helping them get the best possible value for money.
So why did we have to tell him it was a bad idea? Why is it a good idea to have a single main contractor with all the suppliers being subcontractors to that main contractor?
There are a number of reasons practical, financial, and legal.
Practical Reasons
A big part of the main contractor’s role is organisational. It’s logistical. It’s about project management. They have to coordinate all the trades so that they start and finish at the right time. One job can’t start until the other has finished. So if you mess one up one job then another job down the line gets messed up. Many suppliers have commitments to other projects. If they miss the slot on your project then they might not be back for weeks causing delays and resentments.
Now if one of the suppliers is beholden not to the main contractor but to the developer directly, perhaps a non-professional foreign developer who is absent from the site, then they might not feel quite the same obligation to turn up at the allocated time (……the car broke down, my mother in law had to go to hospital, the cat died and so on). I am afraid these relationships matter when coordinating something as complex as a building site.
Shared resources: Another part of the contractor’s job is to provide waste removal, scaffolding, and other shared resources. How are these costs to be shared if independent contractors arrive at the site and take advantage of these resources that the main contractor has supplied and paid for. We were involved last year in a nasty situation that became litigious because of these kind of problems. There was a main contractor and around 3 or 4 substantial but separate contractors.
Legal Reasons – There are also very good legal reasons for having a single main contractor. From the developers point of view it is very clear who is responsible. Let me give you a recent example.
A client contracted the Upvc windows directly from an installer because their quote was lower than the contractor quote. The painter took weeks to remove the adhesive strip that he put around the windows to stop them getting paint on them. With the summer heat, the adhesive became very hard to remove from the upvc windows. So he to get rid of the adhesive tape he used a product that made a yellow stain on the beautiful white upvc windows. Who is responsible? The windows were the client’s responsibility. The painter is the main contractor’s responsibility. In the end our building team replaced all the windows at their own expense when they were excluded from the margin that covers overhead and allows for a profit and accounts for business risk. It doesn’t seem just.
Breakages: These are quite common on a build. If all the trades have been separately contracted and an expensive window, perhaps costing thousands, gets broken then everyone seems to suffer memory loss about who was where when and what happened.
If you have one main contractor is very clear that they are responsible for breakages and mishaps. There are no misunderstandings, no resentful feelings, no forgetting what happened and no litigation because it’s very clear.
Health and Safety: The main contractor will have insurance that covers every worker on the site under their control. The formal report will be drawn up. The site manager is responsible for its implementation and insurance in place. Separate suppliers may not be covered or paid for. This is often overlooked but it’s a serious business. Ultimately the promoter (you the client) could be held responsible for Health and safety breaches where you have contracted with a separate contractor.
You may unwitting assume the legal responsibilities of the contractor. You may also unknowingly be liable for other matters such as workers social security payments because, if there are several independent contractors perhaps coordinated by you, then in the eyes of the law you become the main contractor and will be held liable for all sorts of bureaucracy and things you are not aware of.
If you’re like me you may be tempted to roll your eyeballs at the tedious Spanish bureaucracy that prevents a thrusting entrepreneur from giving people jobs and building useful houses. But pause for a moment and remember that in our society buildings almost never fall down killing people and workers rarely get injured on construction sites. That is a good things and some of it at least is because there are bureaucratic controls.
Financial
You pay less VAT. When the contractor invoices you they add 10% VAT which, unless you are a company, you cannot recover. So this is 10% added to all materials, labour, overhead costs that the contractor provides you. If you contract something independently you pay 21% not 10%. So shop around, find out what you want, negotiate the best deal if you like, and then let the contractor buy the material or the material plus installation.
The kitchens is the one thing that may not be covered by this. We had a dispute with the tax authorities a few years ago over whether the kitchen could be included in the main contract and with VAT charged at only 10%. Also kitchen suppliers work with scaled drawings in well-defined spaces and are pretty independent. And of course kitchens are very personal. It is normal and quite possible for you, the developer, to choose and contract the kitchen independently but lest see what the VAT regime looks like at the time we decide.
Author: John Wolfendale
Bio: John is a founder of Eco Vida Homes and is passionate about bringing modern design and construction practices to Spain. He believes a home which is warm in winter and cool in summer is largely a matter of design and selective use of materials. He is British and a Chartered Surveyor with over 24 years experience living and working in Spain.
Author: Eco Vida Homes is a team of Architects, Technical Architects, Builders, an Engineer, and a Chartered Surveyor. We help people design and build beautiful energy efficient home, designed for Mediterranean living, in Marbella and Southern Spain. There are two things that make us stand out: a sharp focus on our clients’ needs and everything we build is comfortable and energy efficiency………..It’s like Grand Designs………… only without the drama.
