ISSN 1816-6075 (Print), 1818-0523 (Online)

Journal of System and Management Sciences

Vol. 1 (2011) No. 1, pp. 46-58

Implementing supply chain quality management in

subcontracting system for construction quality

Lin Lin1, Peter Gibson1

1
Faculty of Engineering, University of Wollongong, Northfields Avenue, Wollongong, Australia
[email protected], [email protected]

Abstract: Achievement of high-quality performance can provide a potential

competitive edge in construction industry. Subcontracting has been identified
as a source of poor quality and overall poor business performance of projects.
The aim of this paper is to shown that modern ideas in Supply Chain Quality
Management (SCQM) can positively impact quality problems caused by
subcontracting. SCQM integrates quality management into the construction
supply chain and is considered an effective method to overcome quality
problems in construction subcontracting systems. Based on two case studies,
this paper shows that quality improvement can be achieved through adopting
SCQM. The relationship between enhancement of quality and SCQM is not
examined directly in this paper. However, it provides a perspective that
SCQM could address the poor quality performance caused by subcontracting
and should be adopted much more widely in construction industry.
Keywords: Quality, Subcontracting System, Construction Industry, Supply
Chain Quality Management

1. Introduction
The construction industry has been criticised for its less than satisfactory
performance, in terms of quality, productivity and safety (Hoonakker et al.,
2010). Nowadays, with an extended definition of construction quality and
increasing expectations from clients, therefore, quality improvement is required.
The subcontracting system in the construction industry has been described as
the contractual process that main contractor subcontracts parts of projects to
other construction firms (Chiang, 2009). The aim of subcontracting is to
optimize the resource (Parrod et al., 2007), share the project risks (Yik et al.,
2006), and avoid changeable market demands (Ng et al., 2009). However, the

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negative impact caused by subcontracting has been overlooked in previous

research. Most studies focus on analyzing the poor quality caused by
fragmented and complex nature of construction industry, numbers of
stakeholders, unilateral quality, etc.(Karim et al., 2006; Hoonakker, et al., 2010).
According to Karim et al. (2006) there may be as much as 90% of the work
carried by subcontractors, and consequently subcontractors can seriously impact
construction quality. To solve this problem, integrating quality management into
construction supply chain has been discussed as an effective approach (Egan,
1998; Kuei & Madu, 2001; Robinson & Amphora, 2005). This integration has
been defined by Kuei&Madu2001 and Robinson &Amphora2005 as the term of
SCQM. In this paper, SCQM as a quality improvement method will be
discussed. The primary focus will be to examine how SCQM could address
some of the problems of quality resulting from less than satisfactory
subcontracting.

2. Subcontracting System
The nature of construction industry requires larger numbers of specialists
working together. Most of time, workers are specialized in a unique aspect of
construction processes, and it is quite rare that workers possess multi-skills
across the whole project (Yik et al., 2006). Subcontractors that offer various
equipment, materials, skilled workers and know-how directly carry out the
project, while main contractors are responsible for managing these works to
ensure the work could satisfy clients’ requirements.
Main contractors adopted subcontracting because it could ease their financial
and workload pressures, especially, when several projects operate
simultaneously. The subcontracting allows subcontractors to focus on
developing their unique skills which leads the work to be accomplished high-
effectively (Reeves, 2002), and these repetitive works could impact learning
curves in a positive way. Though the construction industry has taking advantage
from subcontracting systems, it does not mean this system is free of problems
(Reeves, 2002). The aim in next session is to analyse the problem of quality
caused by ineffective subcontracting in construction industry.

3. Quality in Subcontracting System

Quality in construction is difficult to define and previous research has not
provided a definitive definition of construction quality. The majority of research
simplifies construction quality as ‘meeting expectations of the customer’

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(Palaneeswaran et al., 2006), ‘reduced defects’ or ‘repeat business’ (Karim et al.,

2006; Chiang, 2009). While Barrett 2000 defined construction quality in a more
complete way which is quality not merely requires satisfying the final customer,
but needs to meet the requirements from interacting stakeholders as well. These
stakeholders include a large number of subcontractors who assist main
contractors to complete projects.
However, main contractors tend to adopt the lowest bidder in selecting
subcontractors. Furthermore, as is the nature of projects, the majority of the
relationships between main contractors and subcontractors are ‘one-off’ and so
establishing a long term financially efficient, quality-focused relationship is not
a priority. The research conducted by Tam et al. (2011) illustrated that because
of ‘the improper work’, ‘limited profit’, the subcontractors can erode quality.
Karim et al. (2006) stated that subcontractors needed to take more responsibility
for quality.

3.1. Main Contractors And Subcontractors

Yik et al. (2006) illustrated that main contractors considered subcontracting as a
procurement method to acquire different specialists, therefore, transaction cost
is a dominant factor when main contractors select subcontractors, which
contributed the view of ‘lowest-bidding’. In general, main contractors are larger
hold ‘power’ positions compared with subcontractors. To protect their own
profitability, main contractors tend to believe they must choose subcontractors
who offer the lowest prices. This cost-orientated approach may foster self-
protection, but not customer satisfaction focusing (Eriksson, et al., 2007). It also
forces subcontractors to adopt the same value-orientation to evaluate their
following subcontractors and suppliers. In other words, the cost cutting is a
potential factor leads poor quality.
In addition, subcontractors who are competing with each other lack of
bargaining power (Chiang, 2009). From the motivation of potentially acquiring
repeat business from main contractors, the unreasonable low price can be
accepted. However, this limits profit which forces subcontractors to sacrifice
quality in order to maintaining their own profits. Low margins, high risk and
destructive competition add further fuel to the fire.
The poor communication and lack of common understanding between main
contractors and subcontractors is another reason. Additionally, as this is often a
one-off relationship, contractors and subcontractors are lack of clear
understanding of each other. Without any clear and direct control or supervision,
subcontractors sometimes cannot complete the work following clients’

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requirements. Moreover, due to the unbalanced power position between

subcontractors and main contractors, subcontractors are ‘bullied’ and ‘treated
with little respect’ by their main contractors who have ‘arrogant attitudes’,
‘short-term focus’ and ‘narrowly win-lose attitudes’ (Packham et al., 2003; Xue
et al., 2007). Thus, subcontractors do not necessarily have significant
motivation to solve problems from the view of main contractors or the clients.
According to Yik et al. (2006), subcontractors are not educated or motivated to
work precisely and creatively by adherence to requirements of clients/main
contractors. They may simply complete works as functions and do not pursue
excess clients’ expectations or excellence.

3.2. Subcontractors
The self-restriction of subcontractors, in some degree, leads to potential quality
issues. Most subcontracting companies are small in size and they do not have
enough knowledge and resources to adopt modern quality management. The
high mobility in the subcontractor firm leads subcontractors to develop a
negative attitude about training. These improper trained workers may increase
the possibility of defects during the work. As a consequence, lack of quality
management awareness and less qualified workers, subcontractors do not
consider quality is an essential factor when they work with main contractors.
The other barrier to quality improvement is the traditional working style
among different subcontractors. During the construction processes, different
subcontractors only consider their own interests when they collaborate with
other subcontractors. They do not consider their following trades as customers
(Egan, 1998). Moreover, they ignore the fact that defective work done by them
could impact following subcontractor trades (Karim, et al., 2006). With no
direct communication and information sharing with other subcontractors (that
forms the foundation of modern supply chain thinking) can make them less
familiar with other trades’ quality codes. It means that any improper actions can
become the root cause of poor quality for following subcontractor trades. For
example a poorly laid concrete slab can create numerous problems for following
electricians and plumbers. Quick ‘work-arounds’ are the usual solution to these
issues but such strategies usually lead to further quality problems for the next
trade subcontractor, the main contractor and client and do not encourage the
originator of poor quality work to improve.

3.3. Clients and Subcontractors

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Indirect communication between clients and subcontractors could be another

reason that leads to poor quality. Main contractors are those who are responsible
for fulfilling the client’s requirements and have formal contracts with clients.
On the other hand, it is the subcontractors normally do not have any formal
contractual relationship with the client but carry out the work (Tam et al., 2011).
Most of time, the subcontractors only take responsibility for the specific work
task allocated to them from their main contractors. This again is in stark contrast
to modern supply chain thinking where a collective focus on the clients’ needs
is developed by directly linking and creating an interest in contractors in relation
to the affects their work on the client or main contractor. In current construction
supply practices, there is little interest from subcontractors, and/or stick and
carrot motivation, to providing an excellent outcome for the client. In many
cases, due to inefficient communication between subcontractors and clients,
subcontractors are not always fully aware of, or interested in, the client’s
requirements, leading to defective or abortive work (Chiang, 2009).
From the analysis above, to eliminate the negative effects caused by poor
collaboration, to encourage the development of subcontractors, to address
ineffective communication among different subcontractors, could enable
construction quality to improve. Additionally, reducing the number of
subcontractors (processes re-engineer) could address the quality problem as well.
All of these, point to the concept of supply chain management. SCM has an
ability to establish the sense of collaboration among different parties and
optimize the process. Therefore, in the fourth section, the purpose of
implementing SCQM and the definition of SCQM will be presented.

4. Supply Chain Quality Management

According to Egan (1998), Wong and Fung 1999, Barret2000, Kuei and
Madu2001, implementing quality management only in a separate area or one
party cannot enhance quality from a client perspective. In other words, in the
construction industry, separately control of quality in main contractors and
subcontractors could not achieve the goal of improved quality. To enhance
quality, the concept of quality needs to be integrated through the whole supply
chain, and involve all employees from top to bottom. Supply chain management
is a set of principles and practice aimed at managing and coordinating entire
supply chains from raw material suppliers to the end customers, and emphasizes
the importance of collaboration with every participant across the entire supply
chain (Vollman et al., 1997). Construction supply chain management requires
establishing mutual interests between the main constructor and the

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subcontractor, discarding the short-term considerations, and then delivering

maximum value to clients.
Wong and Fung 1999 concluded that SCM would help the main contractor
better mange subcontractors and suppliers through working closely and
cooperatively. A suggestion by Ehan(1998) that building a unified team with
clients, designers, main contractors and subcontractors could better delivered
value to the client. The new approach of establishing qualified partnering with
main contractor and subcontractors through the supply network can significantly
improve quality (Humphreys et al. 2003). Traditional quality programs should
now take a view from a supply chain perspective in order to improve quality and
satisfy requirements of the marketplace (Robinson & Amphora, 2005). Kuei and
Madu2001 concluded that the quality-based paradigm has shifted from the
traditional company-centred to involvement into supply chain systems.
Some studies now define this integration between quality management and
supply chain management as the concept of SCQM. From the aspect of quality
management, construction supply chain could be recognized as delivering
quality products and services across every organizations in the supply chain, to
clients’ expectations. Kuei and Madu2001 defined SCQM used three simple
equations. Robinson and Malotra2005 provided a more detailed definition. It is
SCQM is the formal coordination and integration of business
processes involving all partner organization in the supply channel to
measure, analyze and continually improve products , services, and
processes in order to create value and achieve satisfaction of
intermediate and final customers in the marketplace.
Thus, adopting SCQM in construction industry seems to have a positive
influence on quality improvement. Firstly, SCQM can build the common senses
of quality for every participant in the supply chain without being restricted by
the boundaries of organizations. Secondly, effective value-add deliveries of the
components of construction and services can be achieved by adopting SCQM
through process re-engineering and client focus. Moreover, SCQM offers a
scope of ‘big picture’ and is an effective way to overcome the nature of
fragmentation and the weak linkages among supply partners in the construction
business. Last but not least, SCQM is an approach that could help quality
decisions be made wisely by considering whether processes can add value to the
end product and not to sacrifice the interest of other participants, especially
subcontractors. The aim of following section is to investigate whether there is a

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positive link between implementing SCQM and quality enhancement in

construction subcontracting systems through case study.

5. Case Study
Two case studies based on the research from Wong and Fung 1999, and Tam et
al. (2011) will be discussed as follow.
The first case study is ABC Construction Company. It is one of the successful
construction companies in Hong Kong. It adopted ISO and TQM in the early of
21st century for ensuring a high construction quality. Wong and Fung 1999
from a supply chain management and total quality management perspectives
analyzed how main contractors managed subcontractors and enhanced the
quality of work.

Fig. 1: The ABC’s business structure.

Source: Adapted from the website of ABC company.

Inter-organization, the company restructured the organization for better

cooperation with subcontractors. Teamwork and open discussion became the
core factors in the company. They ensured the company and its own
subcontractors could collaborative effectively, and assist the subcontractor to
understand the requirement from clients. There are different types of meetings
between the company and the subcontractors, which involved the majority of
the employees from managers to site staffs. Through these meetings, the
message of TQM spreads to every subcontractor from top to bottom, which
ensures subcontractors have a better quality performance during the work.
In evaluating the relationship between the subcontracts, ABC Company has
its own considerations. Nowadays, partnership has been labeled as the best way
to overcome the problem of quality (Errasti et al., 2007). A company did not
specifically pursue partnerships with every subcontractor, but chose the ‘right’

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relationships with its subcontracting partners. From the concept of supply chain,
the company carefully analyzed the trade-off when choosing different levels of
partnership it needed to establish. There are several levels of relationships. For
example, there are long-term subcontractors which have more than 10 years
business and personal relationship, while the one-off relationship also could be
found. As properly evaluating collaborative level with subcontractors, the
company could maintain flexibility and profitability. Moreover, the lowest-
bidding is not the only way to select subcontractors in this company. Sometimes
they consider ‘soft parameters’ (Eriksson, 2010), which in some degree avoids
the poor quality works by subcontractors due to limited opportunities profits and
direct cost pressures.
The other case is a survey conducted by Tam et al. (2011) aimed to examine
the relationship between poor quality performance and multi-layer chain
subcontracting in Hong Kong. There are six factors that were defined as the
reason lead to the issue of quality. The reasons can attribute clients’
dissatisfactions are, for instance, ‘extra cost’, ‘communication errors’,
‘unrealistic contract time’ and so on, all of these may be solved by ensuring
high quality standards, establishing long-term quality commitments between
main contractors and subcontractors (Briscoe & Dainty, 2005), developing
channel quality performance measurements and standards (Robinson &
Malhotra, 2005), sharing the data of quality inspection, process integration, etc.
When comparing the structure of ABC Company with poorly performing
construction companies, a clearly beneficial feature is indicated: ABC plays a
role of supplier, developer and contractor within the scope of the Group
Company, which establishes better communication channels and shares the
common goals among the participants in the supply chain. Therefore, to some
degree, ABC integrates quality into its supply chain. What is more, ABC is thus
able to nurture a long-term, closed relationship with its subcontractors, which
additionally develops effective quality linkages in the downstream of the supply
chain.

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Fig. 2: The structure of multi-layer subcontractor.

Source: Adapted from Yik & Lai 2008.

On the other hand, some construction companies excessively rely on their

‘lowest bidding’ subcontractors and suppliers. The same situation happens to
their subcontractors also, which leads to uncontrolled multi-layer subcontractors,
Figure 2. Consequently, serious quality problems develop in many projects.
Thus, this weak linkage, lack of trust, information sharing, short-term
perspective of various quality goals and measurement systems combined with
price orientation within the subcontracting systems can be seen as a major
limitation in quality performance in the construction industry ， while the
concept of SCQM promises to address these situations from linking all
participants within the scope of a supply chain and building a common goal.
When SCQM becomes widely accepted, the construction process, value chain,
and the ability to achieve high quality deliveries can be achieved.
These two cases did not directly examine the way SCQM could address the
problem of poor quality. However, they offered a predictive view about
integrating quality management into construction supply chain that may
improve poor quality performance. Although there are scant objective measures
of improvements and evidence presented is largely rhetorical and/or anecdotal.
Further, it appears that there are cultural barriers to improving quality by
integrating supply chain thinking. Many of the practices that are evident prior to
attempts to improve quality by the case study companies have evolved over
many years and resulted in entrenched negative quality practices amongst
contractors and subcontractors. Overcoming these cultures by implementing
modern supply chain cooperative practices will be a major challenge for
construction industry worldwide. It will be interesting to attempt to objectively
measure this aspect and progress made in the next few years in these companies.

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6. Conclusions
This paper has highlighted the relationship between subcontracting and poor
quality performance in the construction industry. SCQM as a new concept was
presented, which supported by two cases. From the case studies, it appears that
the spread the concept of SCQM across construction supply chains, especially,
between the main contractors and the subcontractors will offer a positive impact
to quality enhancement but there may be problems in doing so.
The cases did not examine the relationship between SCQM and quality
improvement in the subcontracting system directly, but, they provide an
acceptable prediction that SCQM could be an effective approach to address the
issue of quality incurred by subcontractors. SCQM emphasizes the importance
of communication, building common quality goals, maintaining the proper
relationships and most critically assisting the construction industry building a
‘big picture’ image. SCQM wisely and smoothly links previous uncontrolled
and unpredictable quality performance by different construction organizations
formed into a supply chain. SCQM will contribute more satisfactory quality
performance and also help high quality projects to be delivered effectively and
creatively.
There is a great deal of future research potential to study SCQM in
subcontracting system and the authors are developing a hypothesis that whilst
this seems to be theoretically possible, there may be serious cultural barriers to
meeting its full potential. The authors are concerned that much of the rhetoric
provided by companies such as those studied here, may be little more than that
and there needs to be serious attempts to measure the real effectiveness of
integrated supply chain principles, which take into account long established
cultural barriers to cooperation between subcontractors in construction
industries. The breakdown of traditional cultural barriers to implementing
SCQM between main contractors and subcontractors needs to be examined in
the future. In general, the ‘problem’ is now becoming well documented but
solutions and barriers to them and objective measures of their real effectiveness
are much less so.

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