The economic implications of subcontracting practice on building prefabrication

Abstract

Pressured by labor shortage, quality requirements and tight construction schedules, building constructors are seeking innovative technology to tackle these unfriendly conditions while achieving the targeted profit. For the past decades, technologies related to building prefabrication are being incorporated into conventional construction methods for producing more favorable results, when building prefabrication method is adopted, the organization of the construction team, particularly related to the subcontracting practice, is also subject to change. This paper examines the impact of such changes due to the adoption of building prefabrication technology. This paper first reviews the subcontracting practices in the construction industry. Then, a conceptual economic model of the contractor-subcontractor relationship is developed and is used to explore the economic implications of prefabrication to the subcontracting practice. In the section that follows, a summary discussion on the cost structure and risk sharing nature of building prefabrication is provided. The major conclusion in this research is that the general contractor can not maximize its benefit by conventional subcontracting practice, since the basic elements of the contractor-subcontractor relationship are changed. Based on the analysis and the case study in this paper, it is inferred that in order to achieve maximum benefits through prefabrication, vertically integrating or internalizing the prefabrication subcontractor into the general contractor's organization is preferable.