What Went Wrong with Tutor Perini
Tutor Perini, a major construction firm, found itself on the hook for $42.4M in a dispute over a Philadelphia hotel project. The issue? Cost overruns and subcontractor-related complications that escalated into a legal battle. According to Construction Dive, the dispute revolved around unpaid change orders, delays, and claims of improper billing. This isn’t just a Tutor Perini problem—it’s one every contractor risks when subcontractor management goes off the rails.
Let’s break this down. Contractors often rely on subcontractors for specialized work, but when those relationships aren’t managed properly, you get disputes, delays, and ballooning costs. In my experience, subcontractor issues almost always stem from weak workflows: unclear scope, poor tracking, or rushed procurement. Let’s dive deeper into why these problems occur and, more importantly, how they can be avoided.
Why Subcontractor Management Breaks Down
Subcontractor headaches usually start with procurement. Many contractors still choose vendors based on price alone. It sounds logical—lowest bid wins, right? Wrong. The cheapest bid often hides higher risks: missed deadlines, poor-quality work, or even safety violations.
Tutor Perini’s case illustrates this perfectly. They faced claims of unpaid bills and disputes over work quality, which could have been mitigated with stricter upfront controls. But this isn’t an isolated case—many contractors fall into the same trap when they fail to prioritize a holistic evaluation of subcontractors.
Key Reasons for Subcontractor Failures
- Selecting the Cheapest Bidder Only: While cost is critical, it’s rarely the sole indicator of a subcontractor’s reliability. Low bids can mask hidden costs, such as delays, rework, or quality-related issues.
- Poor Qualification Processes: Without a proper prequalification system in place, contractors may onboard unproven subcontractors who lack the skills or resources to deliver.
- Miscommunication of Scope and Expectations: When subcontractors don’t have a clear understanding of deliverables, timelines, or quality requirements, confusion and conflict are almost inevitable.
- Inadequate Compliance Monitoring: Overlooking certifications, insurance, or safety records can lead to violations, work stoppages, or even legal liability.
Actionable Steps for Better Subcontractor Procurement
A structured procurement process can save you millions in disputes. The key is to approach subcontractor selection as a strategic decision, not just a cost-cutting exercise. Here’s how:
- Develop a Prequalification System: Use a checklist to ensure subcontractors meet your standards for experience, certifications, and financial stability before they even bid.
- Evaluate Total Landed Costs: Look beyond the bid price. Factor in mobilization costs, potential delays, and payment terms when comparing bids.
- Use a Vendor Management Tool: Tools like JobNext or Procore help you automate evaluations, track historical performance, and ensure compliance.
- Hold Pre-Bid Meetings: These provide an opportunity to clarify scope, expectations, and contract terms before work begins.
The Ripple Effect: Change Orders and Cost Overruns
Change orders are another common dispute trigger. In Tutor Perini’s case, unpaid change orders added fuel to the fire. Change orders aren’t inherently bad—construction projects evolve. But when change orders aren’t tied to budgets or tracked against BOQs (Bill of Quantities), things can spiral out of control.
Even small missteps—like failing to document a change order properly or skipping an approval—compound into massive issues when your project is already under pressure.
Why Change Orders Cause Problems
- Lack of Pre-Defined Processes: Without a clear process for submitting and approving change orders, they can pile up and derail the project budget.
- Inadequate Tracking: If you’re not reconciling change orders against your budget and original scope, it’s easy to lose visibility into their cumulative impact.
- Disputes Over Scope: Without clear documentation, contractors and subcontractors often disagree on whether a change order was necessary or justified.
Steps to Avoid Change Order Chaos
You can’t avoid change orders entirely, but you can manage them effectively:
- Create an Approval Chain: Every change order should follow a formal workflow that includes budget sign-off, scope alignment, and documentation of cost impacts.
- Use Digital Tools: Platforms like JobNext or Procore allow you to track and attach photos, drawings, and notes to change orders. This eliminates ambiguity and provides a clear audit trail.
- Reconcile Cumulative Totals: Regularly update your project’s financials to account for approved change orders. This ensures you don’t unknowingly exceed your budget.
- Communicate Early and Often: As soon as potential changes arise, discuss them with all stakeholders. Surprises are the enemy of effective project management.
| Common Change Order Mistakes | Better Approaches |
|---|---|
| No formal approval process | Require documented approval before any work begins |
| Lack of detailed scope and cost impact | Include specific scope, cost breakdown, and justification |
| Failure to track cumulative totals | Reconcile change orders against overall project budget |
| Delayed communication with stakeholders | Communicate changes immediately and transparently |
What Contractors Can Learn from This
So, what’s the fix? Contractors need to stop treating subcontractor management as an afterthought. Instead, focus on creating traceable, auditable workflows. Here are practical steps:
- Evaluate Beyond Price: Don’t just chase the lowest bid. Look at technical capability, compliance, and past performance.
- Track Compliance Continuously: Use tools that flag expired certifications or incomplete safety records.
- Document Everything: From RFPs to work orders, leave an audit trail. This is critical if disputes arise.
- Control Change Orders: Set strict approval workflows and reconcile them against budgets.
- Invest in Technology: Digital tools like JobNext or Procore are built to simplify compliance, tracking, and documentation, saving you time and money.
Ignoring these steps isn’t just a theoretical risk; it’s a financial one. Disputes drain cash flow, waste time, and damage client relationships. Tutor Perini’s $42.4M dispute is a stark reminder of what’s at stake.
FAQ
How do I evaluate subcontractors effectively?
Use structured criteria: total landed cost, past performance, technical capability, and compliance. Digital platforms like JobNext or Procore can automate these evaluations and help you ensure you’re making informed decisions.
What’s the best way to handle change orders?
Create formal approval workflows and reconcile every change order against your budget and BOQ totals. Use technology to document and track all changes to avoid disputes.
What if my subcontractor refuses to comply with safety requirements?
Don’t proceed. Non-compliance with safety requirements is a red flag that could lead to accidents, work stoppages, and legal liability. Prequalify subcontractors to weed out risky candidates before they’re hired.
How do I avoid disputes over completed work?
Measure promptly, attach evidence (photos/sketches), and reconcile cumulative totals against your work order. This creates a clear, defensible position if disputes arise.
Is investing in digital tools worth it?
Absolutely. While there’s an upfront cost, tools like JobNext or Procore save money in the long run by reducing disputes, streamlining processes, and improving compliance.
The Bottom Line
If you’re dealing with subcontractor management headaches, JobNext’s tools can help. From procurement workflows to measurement controls, it’s built for contractors who want fewer disputes and better margins. Get started free →
