Conducting due diligence on Subcontractors takes time, effort, and resources, making it tempting to focus only on key trades. While some due diligence is certainly better than none, limiting assessments to only the largest Subcontracts can create dangerous blind spots. A common misconception is that only large Subcontracts can have a significant impact on a project, but in reality, default risk often accumulates across multiple smaller Subcontracts in ways that go unnoticed until the damage is done. Overlooking these seemingly minor risks can leave a project vulnerable to costly delays, unexpected expenses, and logistical headaches.
Smaller Subcontracts can present a higher likelihood of complications—not just inconveniences, but real financial drain on time and personnel. These challenges don’t always appear as a single catastrophic event but instead erode general conditions budgets through incremental inefficiencies. Even if a Subcontractor isn’t on the critical path, their default can trigger rework, replacement costs, and additional coordination efforts, amplifying the burden on the project team. Without analysis, there’s no way to confidently determine when a non-critical-path Subcontractor presents little to no risk. By skipping due diligence, a Construction Manager or General Contractor (CM/GC) may unknowingly carry more risk than necessary—or, conversely, overestimate risks and misallocate resources.
It’s easy to categorize Subcontractors into critical and non-critical groups, such as core and shell versus interiors, but every trade is interconnected. A Subcontractor that doesn’t appear on the critical path at the outset may still become a bottleneck as the project nears completion. Overlooking a seemingly minor trade today can create major headaches tomorrow. Limiting assessments to just a handful of trades may only capture about 20% of a project's Subcontracts, leaving the CM/GC exposed to hidden risks that manifest in increased coordination efforts, accelerated work, and unanticipated cost overruns. Developing a due diligence strategy that considers the total impact of minor trades and aligns with risk tolerance, rather than making blanket assumptions about what’s “too small” to impact the project, is essential to safeguarding project success.
Ultimately, a CM/GC must balance due diligence with available resources. When demands exceed capacity, the choices are clear: conduct no due diligence, attempt to assess everything but with poor accuracy, or selectively analyze risks while maintaining a high standard. The third option is the most effective—prioritizing quality over quantity ensures meaningful risk mitigation though it still yields gaps in analysis. When internal resources are stretched thin, third-party analysis can be a valuable solution, providing broader visibility without sacrificing accuracy. The more comprehensive the due diligence, the clearer the project’s risk profile becomes.
A well-structured due diligence approach is not just a precaution—it’s a necessity for managing Subcontractor risk effectively. Ignoring smaller Subcontracts or assuming they pose minimal risk can lead to unexpected financial strain, schedule delays, and operational disruptions. By recognizing the interconnected nature of all trades and tailoring due diligence efforts to align with both risk tolerance and available resources, a CM/GC can enhance project stability and avoid costly surprises. A strong project risk management strategy is effective due to overarching comprehensive insights, not just individual subcontract analyses.
Completely Unrelated Trivia Treasure: Japan has the most vending machines per capita, with 4.1 million machines as of July 2024. That’s one for every 30 people.
Maple Insight helps CMs and GCs proactively identify and quantify subcontractor default risks across all trades, providing data-driven insights to prevent costly disruptions and optimize risk management strategies.