How to Assure Quality Imports From China - Part One - Inspecting Subcontractor Factories

As you visit each of your factory's various departments, you may learn a portion of the production is subcontracted to other factories. Unless special circumstances apply, the subcontractors are usually near by.

The factories find this to be a sensitive issue and may be reluctant to disclose it.

They may try pretending the other factory belongs to them and is an extension of the production of the factory you are in. There is probably nothing further from the truth. Often, relatives of your factory's owner run the other factories and they doing each other favors. It is very common in China.

The problem you are looking to uncover is if the subcontractor has a totally different quality standard (if they have one at all). That means whatever quality assurance the factory has given to you may be contradicted or jeopardized through their cooperation with subcontractors.

The main reasons factories use subcontractors are:

To save money by squeezing the subcontractor to accept lower prices than they are capable of achieving themselves
To overcome a temporary production capacity shortage
To do a favor for a friend or relative that does not have enough orders to run their factory efficiently
Cover-up labor rights violations
Access to production equipment such as injection machines, spray-painting, and mold shops that they do not have

The problem is you have no idea how well or poorly the subcontractor's factory is managed without visiting. Your factory might not make this visit easy but you should insist.

Possibly your factory has several subcontractors. The more subcontractors, the more risk you will be taking that some of them have quality problems. This is a very good reason to insist on visiting them.

You cannot simply go wandering into the subcontractor's factory. You are going to need cooperation from your factory. Most likely one of the staff will accompany you and your visit will probably be limited to the area of the subcontractor's factory that is performing work for your factory.

Be sure to apply the same stringent quality and performance requirements as you did to your own factory. It is the only way you can protect your own business interests and to assure the quality of your imports from China.

Klaus-Dieter Hanke is a professional exporter/importer for more than 2 decades. He is the author of a successful eight ebook series "Importing from China".
His company WebMediaBiz provides consultancy services to worldwide importers.
Claim his free eBook "7 Tips to more Successfully Import from China" from his website ==> http://www.webmediabiz.com now.

Subcontractor Retentions - "Your Fruit" on "Their Sideboard"

If you are a contractor or a subcontractor in the building & construction industry then you probably have Retention clauses in your contracts.

This means that as a contractor, your client will withhold a percentage of your claim and if you engage subcontractors then you will be deducting a similar percentage from the monies you pay them. The amounts deducted are termed RETENTIONS and their payment is delayed, with typically half paid after the Practical Completion Date and the remainder released after the Defects Liability Period has elapsed and then only if their workmanship is classified as satisfactory. Otherwise, some of the money will be used to bring the work up to "standard".

The Retention rates themselves can vary, but 5% is typical and this is a significant sum on a commercial development.

Its your "Fruit"

Retentions by their nature have an immediate effect upon cash-flow and if they are never released for payment then they will also impact the profit on the job and 5% of the contract value is a significant share of the profit margin. Even if you are satisfied with what you have received from the job to-date this money is "the fruit on the sideboard" and it should be on your "sideboard" not theirs.

What's the Date?

The Payment of Retentions, as we have said, is linked to two key dates - when the project has achieved Practical Completion and when we have reached the End of Defects Liability period. So it's highly desirable for your Construction Accounting Software to be "project date aware" then you can avoid becoming become one of the many Subcontractors who simply doesn't claim their Retentions.

Keeping Track of Retentions

Despite their significance, Retentions are often not recorded in the accounting software used by the business - instead are "tracked" in a spreadsheet. Firms who are serious about their liquidity and profitability use specialised Construction Accounting Software which handles Retentions as part of the normal processing.

Contractors using General Accounting software often have to use "workarounds" to handle Retentions. And in some accounting systems the Retentions can't be rolled over to the next financial year - which is a concern.

But either way, your software should record the Retention amount against the project and display it prominently in reports so it is not "forgotten". This means that Accounts Receivable Trial Balance and Management Reports should ideally have a separate Retentions column.

In a similar fashion the Retentions you withhold from your Subcontractors should be clearly identified as such on the Remittance Advices and for your benefit should be shown on Accounts Payable Reports because you need to be aware of this future liability.

In fact you really need an Project Payables Report - because the payments are due based on an invoice date plus 30 days - but rather when the project reaches milestones.

Calculating Retentions

If your software does handle Retentions and if you are a Contractor, then it's probably better for your software not to calculate the Retention Amount automatically when you are preparing Progress Claims. Instead you can allow your Project Managers to calculate them to your advantage - not the clients. When it comes to calculating the Retentions for YOUR subcontractors, then of course you want the software to calculate it accurately - not a Dollar more nor a Dollar less than what they are entitled to. But of course you hope that they forget to claim it later so it can be your "Fruit on the Sideboard".

The author Ronald Skeoch is managing director of Muli Management Pty Ltd, an Australian software developer, specialising in Construction Accounting Software.

The flagship product, Muli, has an integrated Retention facility.

Video demonstrations of Muli processing RETENTIONS is accessible via the company website.

Federal Government Contracting: 7 Characteristics of a Successful Subcontractor

Prime contractors that pursue and win major service contracts with the Federal Government often form teams with smaller companies as subcontractors. They do this to broaden their technical offerings, take advantage of subcontractor customer domain knowledge and develop an extensive pool of qualified engineers and technical specialists.

Assembling a winning team however requires experience and skill and prime contractors look for subs that meet certain defined criteria. Seven subcontractor characteristics are critical in developing a winning team.


Unique or Exceptional Skills Desired by the Customer

Each customer requirement is unique and in order to develop a winning proposal the team must identify and include team members with the skills the customer requires. Special skills could include expertise in cyber security, advanced software development techniques or system engineering skills.

Examples of this are defining systems requirements for over 8,000 requirements on a major program, utilizing a special Extract Transform Load tool to solve a software development effort and developing a PKI cyber system for a classified customer.


Possess Extensive Customer Domain Knowledge

Knowledge of the customer, its mission and personnel are mandatory prerequisites to winning. It cannot be over emphasized that intimate understanding the customer organization and operations offers tremendous advantages.

When a multibillion dollar contract award was made to a large team from a major intelligence agency, special knowledge and relationships of the subcontractor was a major success factor for the team.


Extensive Proposal Preparation Skills and the Ability to Clearly Write and Persuade the Customer

Proposals are a prerequisite to winning a contract and proposal preparation is both an art and a science. In the Request for Proposal (RFP) mandatory requirements are detailed and evaluation criteria are established.

Concise and persuasive proposal writing is required because customer evaluators receive a large number of proposals and summary checklists are often used to score winning proposals. Since proposals often have a number of authors that write in different styles and voices, a subcontractor with strong editing skills can be especially valuable to the team.

The customer, through the proposal process, demands clear and concise solutions and a well written proposal that meets the customer's needs is a winning document. This can be seen in a recent large IDIQ contractor where the subcontractor wrote one major sample task order (T/O) and edited a second winning T/O. As a result, the team won a major intelligence agency contract award.


Support the Proposal Process and Meet All Data Calls

Value added subcontractors actively support the proposal process by participating in writing technical and management volumes. The process is complex and requires the collection and evaluation of large amounts of data usually developed through data calls on all teammates. The best subcontracting teammates respond to data calls timely with accurate information.

This is particularly true when the proposal is a response to a major multiyear effort. Subcontractors who always respond before the data call due dates generally gain a larger percentage of work share. Subcontractors with a reputation for performance on data calls are often invited to join teams for new projects.


Develop Aggressive Pricing

Large government projects are competitive and all teammates need to develop aggressive pricing.

Fringe, overhead and G&A forward pricing must be carefully and accurately developed and the customer usually reserves the right to review prices and cost buildup. The best subcontractor teammates understand government pricing models and requirements and eliminate excess costs from their proposals.

One successful subcontractor offers separate benefits packages based upon market demands that allow aggressive pricing and a more competitive cost proposal. This strategy has resulted in a number of team wins.


Use Customer Knowledge to Shape and Win Task Orders

For many large contracts of the IDIQ (Indefinite Delivery, Indefinite Quantity) type, competitive task orders are released that winners must also bid on. The most effective way to win task orders is to interface with the customer, understand its needs and influence the specification of the requirements in a way that teammates can best respond and win.

Subcontractors with marketing knowledge of the customer requirements and who interface regularly with the customer are able to raise the win percentages (PWIN) for awards.

As an example, one small contractor was so entrenched with the customer base of a large intelligence agency that a large contractor bought the company and, as a result, won a multibillion dollar contract award.


A Teammate must be an Aggressive Recruiter

For services contracts the subcontractor must be able to recruit and hire the best qualified individual quickly and cost effectively.

One example of a successful recruiting partner is a subcontractor that has invested in recruiting technology and personnel that enable the building of an available pipeline of skilled candidates with required clearances for contracts with the Intelligence Community.

Those teams that add subcontractors that add real value have greatly improved chances of winning major contracts.

Large government contracts are competitive and winning proposals can be very costly. The best winning proposals are a team effort and the best subcontractors on the team meet or exceed the criteria detailed above.

Jon M. Stout is Chief Executive Officer of Aspiration Software LLC. Aspiration Software LLC is an Information Technology/Cyber Security services provider focused on the Intelligence Community (IC). For more information about Federal Subcontracting and Employment Opportunities in the Intelligence Community go to http://aspirationsoftware.com

Construction Estimating Labor Using a Subcontractor Lump Sum Quote

This discussion assumes that you are acting as a General Contractor, Home Builder, or Construction Manager that does NOT self perform labor in specific areas of work.

This process is very similar to the Subcontractor System unit cost approach. However, in this discussion, you have absolutely NO pricing histories from Subcontractors, just a Lump Sum quote, making it almost impossible for you to qualify the quote. Possibly, the only way to qualify quotes, is to compare quotes across all Subcontractors in a specific specification section or category hoping that none of the subcontractors or vendors left something ( material, equipment or labor) substantial out of their Lump Sum quote. Another MAJOR concern is, what happens when you do not get any or enough quotes in a specification section or category? Needless to say, this method is very risky for your company. Whereas, in the Subcontractors System Unit cost process, you could possibly have some pricing histories from some subcontractors who have bid to you in the past for specific types of work of past performance. But equipped with only system unit pricing histories from those or some contractors probably will not provide you the time or pricing analysis to help reduce risk to your company or make your bid more competitive. That is mainly due to your mindset being in the Lump Sum quote expectation mode, in lieu of thinking about or preparing your analysis in a scope or system outline.

Now don't be offended here, but this process is probably one of the most used processes, so it is highly suggested that you explore a hybrid estimating process, scope estimating process, or subcontractor system unit cost process. Those areas expand on the concept of checking Subcontractor quotes in a little more detail that will help you to qualify quotes. One of the reasons this Lump Sum Quote process is so popular is not because it is efficient or accurate for that matter. It is strictly a time saver, since you are just soliciting for quotes or bids from vendor or subcontractors. So this process does not allow you to have an understanding of (what is in the job or bid) the bid items (or complexity of the project) or of the way you expect bids or quotes are going to be coming in to you in the last two hours or twenty minutes of a competitive bid to an owner. So essentially, most people land up taking the low subcontractor lump sum quote without really understanding the extent or scope of the quote, where the volatile risk to your company is really high. Some would agree that bidding like that is just like flying blind, so please research the other estimating processes mentioned above.

http://www.asktheestimator.com/ls-quote-construction-estimating-software-contractors/ addresses all these issues in depth and in video format, all for FREE. The posting of your questions and our video responses are a FREE service as well. There are various postings that cover how to review a construction estimating software program based on the 12 AskTheEstimator estimating processes. So please visit http://www.asktheestimator.com/ to get you onto the right track to Consistent, Profitable, and most importantly, Competitive estimates. Toll-Free 1-888-552-2520