Shaky Foundations: The Tradeoff between Structural Safety and Financial Security

Abstract

This paper investigates the relationship between the financial positions of a subcontractor and their performance on the construction site. Financial default by a subcontractor can cost general contractors additional time and expense, as they try to find replacements and keep the projects on schedule. This highlights the importance of vetting subcontractors before awarding a bid. This study attempts to bridge the gap between the subjective nature of construction quality and the more technical financial analysis in determining the overall quality of subcontractors. Safety measures are also incorporated into performance ratings. Data is collected for the years 2009 through 2014 from JE Dunn Construction's private databases. A panel least squares regression is used to estimate subcontractor score. Results do not demonstrate any consistent relationship between financial health and performance quality, but do provide a foundation for further analysis and research.