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Paper Contractor: A person who makes a construction contract with the customer and hires subcontractors to perform the complete scope of work.

 

Can it be done? Yes, but not by you.

Sorry to break the news.

 

First lets start with the difference between a construction manager and a paper contractor.

In my mind a construction manager is not-at-risk. Much like a consultant they offer service and advice. However they do not sign contracts with the subcontractors directly. They merely manage the construction process through a fixed fee. This is a great way to make money because when an unexpected job expense occurs they simply tell the owner to write a check so they can hire someone to come fix it. If you sincerely want to avoid an actual work then this is the way to go.

A paper contractor on the other hand signs a contract and attempts to make a difference in the “arbitrage” between the subcontractors price and his own. I’m not saying the paper contractor isn’t charging management fees, what I’m saying is that a paper contractor is signing the subcontractor agreements. If something goes wrong they are 100% responsible. They are buying the labor/materials and reselling it. They are an integral part of the supply chain.

 

Why paper contracting is harder than it seems.

-Your bids will be less competitive. You as a paper contractor are paying retail prices for your work and then charging a variety of management fees, paperwork fees, insurance fees and profit on top of that. This is completely understandable but unless you have multi-million dollar projects lined up you may hit a snag. If your like most new contractors you will be starting on smaller projects. This means its easier for the customer to hire vendors and attempt the project themselves. The customer can also hire a project manager who is not-at-risk for much less to manage the project.

-Your bids will be too competitive ( I see this all the time). Even worse you make a mistake bidding and underbid a section of the work. Now you are facing the potential to make zero money on the job. What will you do? Like most beginning contractors you will go out and solve the problem yourself. Now you are no longer a paper contractor. Many, many times I have been called out by paper contractors who have attempted a job and are now working late into the night installing materials to save their profit margins. I applaud there effort and commitment to the customers project but if they think this is the last time they will ever make that mistake they are only kidding themselves.

-Subcontractors are slow and unreliable. When you sign a contract with a customer they will likely have few thoughts as to how you got this done. They are trusting you to handle the situation and your reputation is on the line. So what will you do when a pipe springs a leak in the late afternoon and your plumber won’t pick up the phone as the customers office start to fill with water? Or what will you do when your subcontractor suddenly can’t make it on the job for an extra week? Sure it’s easy to say that you have insurance to handle these issues. I doubt your customer will appreciate that response when their trying to run their business or business on their front lawn!

-Most paper contractors aren’t completely qualified. If your doing million dollar projects steadily you can afford to hire some general labor and carpenter or two at minimum. So you are not a paper contractor. If you are doing small jobs and are attempting to relying on subcontractors completely then its probably because you don’t understand the work enough yourself. Personally I know that I can outperform almost anybody a subcontractor send to my job. Subcontractors are merely a convenience. When a paper contractor is attempting to win a job against myself they can only do so by offering a lower price for their own services. The customer will ultimately realize that they know less than me and they will ultimately spend more to complete the project because they rely solely on vendors. This two pronged factor will push their earnings down. Really the only offset to these factors that I’m aware of is to be a designer and be valued for artistic ideas rather than project performance.

 

This is not meant as a means of discouraging you but rather a friendly warning to be prepared. You’ll be trading in that car for a truck sooner than you think.

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