Self-performing vs Subcontracting: What Should You Do?
The age old question – should I self-perform a particular function or sub it out to a qualified vendor? Let’s consider the benefits and drawbacks of each.
Do you already have the internal human capital to perform the function? i.e. Do you have the HR staff on hand with the bandwidth to handle benefits tracking, employee onboarding, recruiting, etc.? Or are you understaffed in that department with an urgent need? Do you even have an HR department yet?
Similarly, in construction, do you have access to qualified electricians to self-perform electrical work on a job, or are you short handed without an available talent pool for immediate hiring?
You can apply this scenario to dozens of functions – design, engineering, manufacturing, installation, construction, operations and maintenance, finance and accounting, etc.
Financially, there’s reasons to go both ways. If the job is done right the first time, chances are good that you’ll be able to do it cheaper if you self perform. You’re not paying subcontractor markup on similar labor and burden rates.
On the flipside, from a cash flow perspective, having payment term flexibility on a subcontractor is an incredible advantage over being locked in to fixed payroll schedules on your employees if you self-perform.
Additionally, through self-performing you take a larger portion of the risk should something go wrong. It’s your insurance policy and guarantee to complete the work as specified that’s on the line, vs holding a subcontractor accountable and passing off liability onto them.
Also consider if there is a capital investment to be made into self-performing. Do you need to build a facility? Buy equipment or software? Invest in training? These are items that can be avoided through subcontracting.
So depending on your situation, you’ll need to weigh the financial implications of both scenarios along with your current available labor pool to make the right decision.
Do you have a strong feeling one way or another? I’d love to hear about some of your experiences.