SUBCONTRACTING

Done By: Neha Rajpal

S.Y.BBM-IB. Roll No: 55
 Subcontracting is a type of work contract that seeks to outsource certain types of
work to other companies. This is a step down from general contracting, which is a
contract overseeing a much broader project in many cases.
 Subcontracting is done when the general contractor does not have the time or skills
to perform certain tasks.
 When a building is being constructed, subcontracting becomes a major deal.
 Larger contractors may be able to handle the plumbing and electrical work as well,
without subcontracting. However, these companies are rare not only because of the
expertise involved, but the desire to focus primarily in one area.
 If a contractor has too many disciplines, the thought may be that it is not clearly
focusing its efforts on quality in one particular area.
 In some cases, a general contractor may only be used as the construction manager
or supervisor. In that case, subcontracting accounts for all of the physical work done
on the premises.
 The general contractor's only responsibility is to approve the contacts, keep the
project within budget and inspect the work.
 Subcontracting, while prevalent in the construction industry, is also used in
a number of other industries.

 Subcontracting is also important for manufacturers making a number of

products from complex components.

 Subcontracting offers a number of advantages:

 First, it allows work on more than one phase of the project to be done at
once, often leading to a quicker completion.

 Second, because subcontractors already have the expertise and equipment

to provide the service. it is often much cheaper for them to do the work
than a general contractor who may not have that special expertise.

 Finally, the subcontractor is usually able to work with a general contractor

on more than one project, thus creating a savings for both in the long run
as a relationship is formed.
THE BENEFITS OF SUBCONTRACTING TO MAIN CONTRACTORS:

A. Cost reduction: There are a number of reasons motivating companies to subcontract as

part of a new mixture of overlapping strategic priorities.

B. Higher Quality: Secondly, the search for higher quality products with high reliability in
a growingly sophisticated environment pushes companies to subcontract.

C. An efficient mechanism to respond to demand fluctuations: Thirdly, the availability of

products/raw materials is an additional reason why companies decide to source
internationally.

D. Accessing regions with potential growth prospects: Finally, international subcontracting

offers commercial opportunities by penetrating markets with growth prospects.
THE BENEFITS OF SUBCONTRACTING TO SUBCONTRACTORS:

A. Higher productivity and efficiency: The benefits of subcontracting are also plentiful for
subcontractors, especially those of developing countries.

B. Economies of scale: By concentrating on a single and specialized activity or discipline,

subcontracting service providers can gain economies of scale whilst at the same time
further the cost advantages they offer to original equipment manufacturers (OEMs).

C. Technology transfer: Subcontracting arrangements act as very efficient mechanisms

and tools for the technological enhancement of small and medium-sized
enterprises. By engaging in an active collaborative agreement with specific
customers, suppliers and subcontractors benefit from a large amount of
technology transfer.

D. Risk mitigation: The most recent thinking concerning subcontracting relates to risk
mitigation. It is argued that one of the reasons for engaging in subcontracting
arrangements is rooted in the need to reduce business risks.
CASE STUDY:
THE INDUSTRIAL SUBCONTRACTING AND PARTNERSHIP
EXCHANGE (SPX) OF PUNE has a wide variety of 359
subcontractors and suppliers registered in its database. The
breakdown is as follows:
 1) AutomotiveComponents(10)
 2) SheetMetalIndustries-PressParts(56)
 3) MachiningIndustries(44)
 4) ForgingIndustries(11)
 5) CastingIndustries(11)
 6) MetalWorkingIndustries(65)
 7) ManufacturingofMachinery&Equipments(53)
 8) RubberIndustries(27)
 9) PlasticIndustries(29)
 10)Electrical & Electronics Industries (50)
 11)Miscellaneous (3)