Subcontracting and its ramifications: A survey of the building industry in Hong Kong
Section snippets
Introduction – subcontracting and project management
In Hong Kong perhaps as elsewhere, there is a large presence of building subcontractors. They are typically very small firms but collectively undertake most of the works. The extent of subcontracting is even larger when “latent” subcontracting is taken into account: the further subcontracting down the stream by subcontractors with or without the knowledge or consent of the contractors or the clients. The proliferation of subcontracting and contractors’ exploitation of small craft-based
Subcontracting and the case in Hong Kong
The seminal papers by Eccles [13], [18] explain the widespread practice of subcontracting in the construction industry. Eccles [13] argues that subcontracting is the result of project complexity & size and market extent, rather than seasonal variability as previously claimed. According to Eccles [13], specialization of building skills is the source of complexity. Likewise, Williamson [19] concludes that subcontracting is a response to uncertainty arising from complexity, given bounded
Increasing extent of subcontracting
Table 1 shows that the proportion of subcontracted works increased steadily all through the 21 years between 1983 and 2003. Column “G” shows that, in 1983, about 47% of the total value of building and civil engineering contracts was subcontracted out. In 2003, the proportion increased to almost 60%. The proportion of subcontracted works in the building sector is most probably more than this average of 60%. As aforementioned, a civil engineering or infrastructure contractor could not subcontract
Elemental cost analyses
Elemental cost analyses of a total of 62 institutional buildings completed between 1998 and 2003 were obtained from the ASD. The buildings were classified into four types: schools, offices, domestic buildings and hospitals. The total building cost is made up of 26 elemental costs. Costs of the element “air-conditioning” vary a lot. It could be as low as 1.2% of the total cost on average in the case of domestic buildings, and as high as 14.5% in the case of hospitals. To highlight the more
Small firms
In 2003, the top 1.4% of all contractors (268 in number) altogether employed about one-third of all persons working in the construction industry [26]. Such a contractor employed an average of 158 persons. Most of these larger firms were approved contractors for public works. The remaining majority had far less people. There were 16,661 contractors (85% of the total number) employing a total of 41,080 persons, or less than 2.5 persons per each contractor [26]. Many of the smaller contractors are
Weak bargaining power
In 1997 soon after the Asian financial turmoil had taken its toll on the property and construction markets, various tender price indices in Hong Kong fell swiftly but the Consolidated Labour and Wage Index (prepared by the ASD) continued to rise for three more years until it peaked in the last quarter of 2000. It then started to drop only slowly. As tender prices plunged whilst factor costs continued its upward trend, it was the subcontractors who had taken most of the blunt. Benefiting from a
The road ahead: technology development
Whilst we cannot say that the dismal performance of the building industry in Hong Kong is caused by subcontracting, we have presented enough evidence, though a bit anecdotal, to argue that the small size of subcontractors, and the large scale and labour intensity of subcontracting are major areas for concern. However, building construction could not afford to be labour-intensive for much longer. The population in Hong Kong is not only getting better educated but is also ageing. It will
Conclusion
Building technology is generally undemanding. Its labour intensity has given rise to low barriers of entry, and made subletting to small, and often labour-only, subcontractors not only possible but also essential so that contractors can save on construction costs to compete on price. The plentiful supply of low-priced subcontracting services down the value chain has also perpetuated the labour intensity of traditional building technology, thus protracting in return the already increasing extent
Acknowledgements
This study is based on a research project funded by The Hong Kong Polytechnic University (Project Account G-T462). We are grateful to the Architectural Services Department for their data and the anonymous reviewers for their comments.
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2019, Safety ScienceCitation Excerpt :Subcontracting undoubtedly offers substantial benefits for companies; that is why it is so widely practiced in projects (Dainty et al., 2001). However, many studies have shown that subcontracting has adverse effects on occupational safety (e.g., Chiang, 2009; Lingard et al., 2010). Subcontracting is a special system with a payment-by-results function: that is, payment is made according to how much work is done rather than how long it takes to do the work.
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2015, Journal of Cleaner ProductionCitation Excerpt :Here, the Pareto “20-80 rule” applies: 20% of the maintenance items account for 80% of the costs. Chiang (2009) analyzed elemental costs of 15 residential buildings, and found that four major building elements (structure, walls/doors/windows, finishes, and fittings/fixtures) represent 60% of the total cost. The most cost-significant element is the work of the builders.
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2015, International Journal of Project ManagementCitation Excerpt :Inefficient communication, subcontractor insolvency, and substandard work quality are also other consequences of subcontracting that negatively impact on the supply chain relationship (Love and Li, 2000; Yik et al., 2006), with poor communication and lack of a common understanding between main contractors and subcontractors during one-off type projects cited as a key reason for poor quality work (Chiang, 2009; Lin and Gibson, 2011; Yik et al., 2006). Poor health and safety compliance by subcontractors (see Ankrah, 2007; Arditi and Chotibhongs, 2005; Chiang, 2009; Manu et al., 2010), particularly subcontractors' disregard for H&S regulations, also impact negatively on the supply chain relationship. These subcontractor related problems can also influence the extent to which sustained supply chain relationships and any associated improvements in performance can be achieved on projects.