Why prime-sub relationships fail

It seems that everyone has either heard the stories of partnerships gone bad, or has one of their own.

And in today’s market of budget cuts, delayed projects and general uncertainty, the pressure is on when it comes to the partnership between prime contractors and their subs.

As we developed our research for our second WT Insider Report with our partner Lodestar, we wanted to explore this question, so we asked if the primes thought the relationship was getting harder or easier.

A solid 51 percent said they thought the relationship hadn’t changed, that it had stayed about the same.

And there is more good news. Twenty-three percent said it had become somewhat easier, compared to 18 percent who thought it was somewhat more difficult. Only 3 percent thought it was much more difficult, compared to 6 percent who said it had become much easier.

The easy conclusion to draw is that partnerships are in good shape, but I’m not sure we can put all 51 percent of those saying the relationship had stayed the same in the positive category. A certain percentage may think the relationship hasn’t changed, but they certainly don’t think it is a good relationship.

The reason I’m comfortable saying this is because the open-ended question on this topic pulled in 100 responses.

A few point the finger at the subcontractors:

• Have learned more about the weaknesses/shortcomings of the subcontractor over time.
• Less working together as strategic partners…less long-term patience.
• Subcontractors are more demanding in regards to commitments, but not willing to be as accommodating when offering reciprocal commitments.
• Less loyalty to you as prime.
• More and more, they do not fully understand nor fulfill some of the documentation requirements.
• More demands…less cooperation.

But I have to say, the complaints directed at subcontractors represent the minority of the comments.

In many ways, the comments are a harsh critique of the current market conditions, including the budget, compliance requirements, delays and uncertainty.

“Many subs are less flexible now because of the overall downturn in the economy. Relationships and agreements are more 'make or break' than ever before,” wrote one commentator.

The problems with the budget are at the heart of many of the comments, including concerns about cost and pricing pressures, budget uncertainty, economic pressures, fewer opportunities and, of course, sequestration.

According to Lodestar’s analysis of the written comments, 25 percent blame market forces and the budget, 24 percent blame government administration and compliance, and 24 percent blame pricing, costs and work share.

Only 15 percent of the comments blamed declines in subcontractor performance. Another 12 percent of the comments went into the miscellaneous bucket.

If you’d like a copy of all the comments, let me know, and I’ll email them to you.

The high ranking for compliance was a surprise to me, and fits with many of the conversations I’ve had with executives around the market.

It seems any effort these days to reform the procurement process actually increases the compliance burden because more reporting requirements are heaped on agencies and contractors.

As I heard one person describe it, Congress loves reporting requirements because it shows they care.

And finally, to revisit the theme of using these reports to your strategic advantage, I think the written comments highlight several areas that subcontractors can focus on if they want to be a preferred partner.

One is compliance and understanding how, as a subcontractor, you can support the prime.

There were several comments focused on being flexible, though this could be the primes' code for the need for subs to take less work.

There also are comments that indicate some of the critical skills that primes are looking for, which include business development, proposal writing and human resources support.

Competition is intense for skilled niche providers, so understanding your business and developing unique technical competencies are another way to make your company stand out.

Next, I’ll look at the bright side of the equation, and explore what the primes say is working well in their relationship with their subcontractors.