Main Contractor’s Discount: A Redundant Tradition?
From a subcontractor’s perspective, the concept of MCD often feels like an outdated or unnecessary practice for several reasons:
- Competitive Pricing Already Accounts for Everything
- Subcontractors typically enter the tendering process in a highly competitive environment, often needing to offer their most aggressive pricing to win the job.
- The submitted price usually reflects squeezed margins, material costs, labour expenses, and a fair profit—leaving little room for additional deductions such as MCD.
- Risk Transfer to Subcontractors
- Modern contracts often place significant risk onto subcontractors, such as:
- Design liabilities.
- Delays caused by other trades.
- Payment delays or retentions by the main contractor.
- With so much risk already shifted down the chain, asking for MCD feels like an additional—and unfair—burden on subcontractors.
- Main Contractors Already Charge Overheads and Profit
- Main contractors build their own overheads and profit into the project’s overall cost.
- Subcontractors manage their own business risks, such as labour shortages or material price fluctuations, which are not the main contractor’s responsibility.
- Given this, it’s questionable whether the MCD serves a real purpose in today’s industry dynamics.
- Impact on Subcontractors’ Margins
- Many subcontractors already operate on razor-thin margins, often in the range of 3–5%.
- A typical MCD of 2–10% can wipe out what little profit remains, leaving the subcontractor at financial risk if unforeseen costs arise during the project.
Arguments Against MCD in Modern Construction
Unfair Financial Pressure
Main contractors have greater financial resources and more leverage to manage risks than most subcontractors. By enforcing an MCD, they often push smaller firms into situations where profitability and sustainability are nearly impossible.
Disruption to Collaborative Working
Construction projects thrive on collaboration and mutual trust. MCD creates a transactional, “squeeze the other party” mentality, which can lead to strained relationships, poor communication, and ultimately, project inefficiencies.
Focus on Quality, Not Discounts
The primary focus should be on ensuring high-quality workmanship and project delivery, not on extracting unnecessary discounts. Subcontractors who aren’t financially pressured are better positioned to deliver quality work.
A Better Approach: Building Mutual Value
Instead of perpetuating the practice of MCD, the industry could adopt practices that create mutual value for both main contractors and subcontractors:
- Fair Tendering Practices
- Main contractors should award work based not only on price but also on factors such as quality, track record, and realistic project delivery plans.
- Eliminating MCD would allow subcontractors to bid transparently without factoring in hidden deductions.
- Collaborative Risk Management
- Rather than transferring all risks down the chain, main contractors and subcontractors should work together to mitigate risks effectively.
- Transparent Payment Structures
- Prompt and fair payment ensures that subcontractors can maintain cash flow without needing to inflate their prices to cover potential MCD deductions.
- Encouraging Sustainability in Margins
- By removing MCD, subcontractors can price projects sustainably, ensuring they remain financially viable and capable of delivering high-quality work.
Time to Rethink MCD
The construction industry has evolved, but some practices such as Main Contractor’s Discount remain rooted in outdated norms that don’t reflect the current challenges subcontractors face. Given that subcontractors are already competing fiercely on price and bearing significant risk, enforcing MCD is redundant and counterproductive.
The industry should shift towards a more equitable model where all parties share responsibility, risks, and rewards. By doing so, we create a healthier, more sustainable environment where both main contractors and subcontractors can thrive.