Category: Australia

Building Boom and Builders going Bust

Here we go again. The head hunters have emerged, companies cannot retain and hire good staff, material prices are through the roof and subbies are ordering jet skis (well maybe a few).

The Australian construction sector is going gang busters and the inevitable will happen – good, established builders and subcontractors will and are going broke. Some blame ridiculous low profit margins, some blame “greedy” subcontractors, some blame Covid. The truth is we need to look at ourselves. We determine the submitted tender, we put pressure on shaky subcontractors, we convince ourselves we can deliver on time and on budget.

Bottom line is many builders simply cannot manage risk, we accept draconian contract terms, procure inefficiently and blame everyone else for out predetermined fate.

Just say no and go fishing

Meet or Email

I have noticed over time, that the number of people who phone me on my office line during the working day is decreasing, whilst email has become almost unmanageable. Note I don’t use the phone at work for chit-chat only business. This suits my misanthropic view on life but does not pander to my narcissistic traits.

I was discussing this with one of our up and coming future project managers the other day and broached the subject of “business life before email and mobile phones” Of course to a twenty-three year old it must seem like the dark ages. But there was a world in construction management where we built things without spreadsheets, pdfs, ipads etc.

The conversation went back further to the time before telephones. No I am not that old but it brought to mind one of my favorite authors, who credited himself with being the author of a book in which the telephone was first used extensively between the characters. The author being Evelyn Waugh 1903 to 1966, famous for Brideshead Revisited, Decline and Fall, Handful of Dust and Scoop.

Vile Bodies was published in 1930 and is Evelyn Waugh’s second book and. Similarly to his first novel Decline and Fall, Vile Bodies is set in 1920’s high society London. It is about the “me generation” who are rich and privileged. They go to all night parties and love being in the papers. They were part of the cult of celebrity. Nowadays it seems the dream for the great unwashed as they wander around the supermarket checking their smartphones for some oh so important message, tweet or update, is to be famous. They attach self-worth to having a mobile phone as if it sets them up as being important. When in fact Waugh’s book title describes them perfectly.

We take the telephone for granted but email is easier yet more pervasive for some people, although my preference is a bit old-fashioned – it is called face to face. This is something I constantly bang on about to young PMs especially in solving issues with subcontractors. A face to face meeting works so much better than a curt email.

Which brings me to this great short article from Keir Thomas-Bryant of Sage

Five crucial advantages of face-to-face client meetings

References

There must be a fair amount of movement in the construction job market as I have had over a dozen requests to provide references in the last couple of weeks. I do not have an issue with providing them, but I like to be forewarned by the candidate they have given my details as a potential referee.

Usually the reference request is from a recruitment agency and they have a set list of questions. But to me, the most important one is would I employ the candidate myself. I might not particularly like the person but if they have the ability, experience and willingness to be a key team player, then no problem. I never want to hinder someone’s search for employment but if I am unaware they are looking, and give me the opportunity to give them some straight advice, the reference they get might not be what they are expecting. Last week I was asked my opinion on a candidate who had not let me know their intentions and the role they had applied for was completely beyond their capability. They did not make it to interview and I would have told them they were aiming too high.

References are usually sought from someone who the candidate reported to. If I was asked to provide a reference for myself I would do it in reverse. That is I would offer the insight from someone who I had hired and reported to me, from cadet to project manager it makes no difference. Potential employers would not appreciate this tactic but if I were hiring, I would gain valuable insight in speaking candidly to a candidates’ direct reports. They have worked closely with the candidate and know them probably better than anyone. This might give some of my previous hires great satisfaction as sticking pins in effigies of me seems like hard work!

Cash Flow

If you manage a business, you’re probably aware that achieving success doesn’t come easy. If you get it right, you can make a lot of money in business, but there are many pitfalls out there. If you’re keen to avoid common management mistakes, here’s what not to do when you’re at the top of […]

via Management Mistakes: What NOT To Do in Business — Insanely Clever Marketing

Large or Small Contractors

smb-quality-managementI have had the good fortune to work for many varied construction companies. Ranging from very large international conglomerates to small “mum and dad” businesses. Both types have advantages and disadvantages but which offers the best environment for employees. I started considering this after spending two days interviewing for staff. Not senior people but a mixture of junior quantity surveyors, graduates and others embarking on their careers in our industry. They all had a similar goal to be project managers on large projects within a large construction organisation. They all believed best practice, the most experienced staff and the best career could be achieved within those types of company. The idea of working for a small or medium sized business wan an anathema to them.

When I interview potential staff I look for potential, energy and commitment. I may not necessarily like the candidate, in fact I prefer the candidates who I do not take an instant like to rather the opposite. I look for people who can, in time, do my job better than I can do it. I also have issues with strict selection criteria and believe in sometimes adjusting the role to suit the person.

So, which is better, a small/medium business or the big corporate behemoth. The main attraction to the small/ medium company is employees know what is going on within the business whereas in the large company with it multitudinous layers of management, employees get isolated on projects or restricted within the silos of estimating, finance, HR, IT, or other head office cells. In a smaller company, there are no hiding places and talent and commitment is more easily recognised.

Having worked in both camps it is interesting to look at gross profit, overheads and EBIT. The big end of town with their $100 million plus projects tend to be union dominated, with a small pool of approved” subcontractors which means tendering is extremely tight, with the same major contractor trying to cut their own throats to win jobs with a two to three percent margin. These projects are usually design and construct which means they need to understand that process and have the people on board to manage it. They often do not understand the process and do not have enough experienced people to manage value engineering, control novated consultants, and manage the projects commercially. Added to this is the millstone of head office overheads which the projects must support, including hanging on to staff between projects completing and commencing.  This is compounded by the simple fact large contractors pay their staff too much. At the end of the financial year many large contractors are struggling to make a positive EBIT.

The smaller contractor is not weighed down with union pressure, high salaries and overheads are kept to an absolute minimum. Which means their tender margins are higher and their net profit (we don’t here the acronym EBIT in this environment) is higher. Because their projects are of a lesser value, they turn them around quicker so one bad job is not the end of the world.

My personal preference is the small/medium size business which has several income streams: new construction; small developments, refurbishments and fit outs. These businesses can change direction quickly and the owners are usually heavily involved not just in the business management, but they know their employees, subcontractors and clients inside out.

Increase EBIT Team

These words are uttered from on high usually post the company’s annual results, so who can do it?

dseThere are few countries in the world that have a role in construction called ‘Contract Administrator’. We have them here in Australia. They are a part quantity surveyor, part accounts clerk. They get involved in procurement, signing up subcontractors, issuing head contract variations and managing subcontractor payments. We do not need them. If they were good quantity surveyors then that is what they would be. They are in place to manage dollars and using commercial acumen they should increase the bottom line. But they do not yet get paid very well.

We should employ top notch quantity surveyors for all claims, payment and variation assessments, delay and EOT submissions. The day to admin is for site clerks and leave increasing the bottom line to people who understand construction methodology, programming and sequencing, resource management and have the experience to find every dollar. Large projects need an accountant to prepare cash flow, accruals, work in progress and manage the payment process.

I suppose this rant is due to having spent so much time finding good contract administrators and I have. But the good ones are wasted shuffling paper as they are project manager potential and that should be there goal. By the time the contract administrator starts letting trades the haemorrhaging of the budget has usually started. We make our money before we start on site and the deals are done with suppliers and subcontractors preferably at tender stage and by people far more senior and experienced than the contract administrator.

My preference is to get project staff out of constrained boxes and develop teams that understand the whole process from submitting tenders, conversion, setting up budgets, programming, procurement, managing the construction process, delivery snd client satisfaction.

And increasing EBIT. Profit is not a dirty word.

Into the Unknown

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Well I finally bit the bullet and decided to go solo. I have always relished the idea of working for myself and now I am on my own away from the corporate comfort blanket and all the other nonsense that entails.

Setting up your own business is very straightforward and I have one simple goal, that is to enjoy what I do day to day. It is not about making enormous amounts of money, it is about being happy.

To date I have not canvassed anyone, cold called companies or called upon colleagues and friends in the construction sector. Simply because I have been too busy dealing with clients who have sought me out. There are a lot of distressed projects and many builders and subcontractors who simply need some assistance.

In Australian capital cities there has been a boom in high rise apartment developments. With any boom there are casualties. Developers unable to make final payments to builders because apartment sales contracts have fallen through, subcontractors being strung out by builders, everyone blaming each other for their losses on projects. When you roll your sleeves up and get into the nitty gritty of the problems it usual is caused by companies taking work on without understanding risk and then they employ staff who do not know how to manage risk.

So I get approached to “fix” a project and very quickly identify it is not the project but the way the company is organised to handle projects in the first place.  The project may never achieve its tender margin but sometimes the damage can be reduced. Fixing the business is the key and usually it all relates to the contract that was signed and the way the procurement is managed.

I was hoping to get away from the sixty hour working week in the corporate world but the potential workload may keep me even busier – if I am not careful!

Premdale Consulting 2017

The Bottom Line

TC 1 and 2I was asked recently by a subcontractor how they could increase their bottom line. They had fallen into the trap of believing increasing revenue would increase profit. In fact by increasing revenue they were going broke quicker.

Whether it is the overall business or an individual project the principle is the same. Revenue is usually determined on a fixed price contract and costs are controlled by the business and on projects, the on-site team.

The table below set out the difference in increasing revenue or reducing cost:

Current Required Difference %
Increase Revenue
Revenue 10,000,000 13,636,364 3,636,364 36.4%
Costs 9,500,000 12,886,364 3,386,364 35.6%
Gross profit 500,000 750,000 250,000 50.0%
Margin % 5.0% 5.5% 0.5%
Reduce Costs
Revenue 10,000,000 10,000,000 0 0.0%
Costs 9,500,000 9,250,000 (250,000) (2.6%)
Gross profit 500,000 750,000 250,000 50.0%
Margin % 5.0% 5.5% 0.5%

My subcontractor friend is not an accountant. COGS, EBIT, work in progress, accruals etc are a foreign language to him. He simply wants to make more money.

In this example I demonstrated how to increase his annual gross profit by $250K. So I explained based on the above if he reduces his costs by 2.6% he will increase his gross profit by $250K. To achieve the same by increasing his revenue he needs a 36.4% increase ie another $3.636M, along with more risks on variations not being approved, more clients who may pay slowly and this does not allow for maybe more overheads to handle the increased turnover.

This sounds simplistic because it is. Costs are variable and under our control, but we have to fight for every cent of revenue not included in the contract.

Leaders

 

t-and-h
Courtesy KarstenKares

There are many reasons why Trump won and Hilary lost but imagine for one moment of you could choose one or the other to lead your business. No question it would be Trump because too many companies are led by Hilary types.

Trump’s style is one of motivating people and he achieves this by displaying what motivates him. I have no idea what motivates Hilary and she does not inspire. One talks about the future and a journey he wants people to join and the other is staid and maintaining the status quo. We need leaders in construction who are recognised in the organisation whether you are a site labourer, a project manager, subcontractor or client. We do not need faceless, bureaucratic bean counters who hide behind others when they make decision yet bask in the glory of others.

Trump style leaders make mistakes, they sometimes get it wrong but this is exactly what people empathise with, they are human and suffer the same anxieties, challenges and doubts we all do. That is why people who work in the organisation they lead, see a future for themselves.

Many years ago when I had to address an audience of several hundred for the first time I was give some advice from my then boss who was a mini Trump. He told me that unless you are a politician or a stand up comedian, the audience does not want you to fail. The reason being is they all see themselves having to do exactly what you are doing and for the grace of God go them. So they are with you. Then, he told me, show empathy and emotion and do not lecture them. It worked. How many time have we all attended meetings where the leader has delivers a “now hear this” message and when they ask for questions nobody speaks because they do not want to appear either stupid or in disagreement with what they have been told.

I may not agree with Trump’s policies entirely, but I would work for him. I have put up with too many like Hilary.