Why Understanding Contractual Hierarchy is Vital in Construction

Canada, Australia, New Zealand, we can see the type of company that do well and the type of company that goes out of business. And what actually has happened is in the construction industry, you've got what we call the contractual hierarchy, which means that there's going to be someone on the top of the food chain, the owner, who wants to build whatever it happens to be. In your case, it might be a luxury home, or it could be a bridge, or it could be a skyscraper, whatever. He then contracts it out to a GC, someone who's going to do the work. Typically, GCs don't do any work at all. They will subcontract contract out all the actual work to the suppliers, to the subcontractors who do the work. Now, as you move down that contractual chain, the contracts get more and more aggressive because the GC wants to protect himself up the line. He wants to push the risk down to the subcontractors because if anything happens with the subcontractors, he still wants to get paid by the owner at the end of the day.