Category: Australia

Surviving

img_0012It is my birthday today and thanks for all the best wishes. However, it is also the anniversary of my first day in the construction industry. It was forty five years ago in Liverpool and I was a seventeen year old plasterer’s labourer and very wet behind the ears. I recommend anyone to read The Ragged Trousered Philanthropist  Which was set in the 1900’s and opens all our eyes to what the industry was like then.

It has been a hard road traveled since the first day I set foot on a construction site, many changes have taken place but we are still pouring concrete the same way, still have divisions between site workers and management, and working even harder to make a dollar. We have not embraced whole heartedly technology and still make the same mistakes.

Besides the negatives, I still love the industry and get the same buzz watching a tower crane going up or handing a project over. These days I get a great deal of satisfaction from spending time with our graduates and less satisfaction from winning contractual arguments.

Anyway this is a short blog tonight as it is time for the party. A great day, good memories of 1971, a phone call from each of my children, a form worker, an electrician and a music teacher, and pictures from my two princesses of granddaughters, and know a great evening with my darling wife.

Cost Reporting

Censor

As each month ends the project prepare the dreaded cost report. This report is reviewed by management and information extracted to be consolidated into the overall business reporting regime. But what value are these reports and what benefit do they provide?

The responsibility for the report lies with the project manager but it is usually prepared by the contracts manager/administrator and due to time constraints often the project manager has little input into the report even though he is responsible for it. The report can be quite long and detailed and all too often the only number the project manager looks at is any movement to the project margin.

The following points are all to often encountered in the preparation of the cost report:

The reports may include forecast revenue for head contract variations which have been submitted but not approved. The forecast cost of these must be include but not any margin uptake. However, in the world of design and construct how accurate are the forecast cost when design has not been finalized and the revenue/cost is not based on subcontract pricing but on elements of the cost plan.

The reports may not include all of the true project costs. Such as head office charges, late submission of subcontractor’s variations, late suppliers invoices, costs incorrectly costed to another project and incorrect cost coding.

Revenue may also be overstated by including the most recent client progress claim which is yet to be certified and is over claimed..

The cash flow report may show a large cash positive position. This may be due to subcontractors not submitting accurate claims

If there is over claiming it simply means the costs have not been incurred and the cost to complete are disproportionate to the physical progress on site. If this is not considered the margin position of the project is spurious.

They take too much time to prepare because:

  • The information is outdated often by a minimum of one month.
  • The report has simply too much information and detail.
  • Several people have input including Health and safety, programming, procurement, pictures and the person preparing it ends up chasing individuals who submit their “section” at the last minute not giving enough time for analysis prior to the report being tabled.

How to tighten up cost reporting (and control costs before they are incurred)

  • On a design and construct project It is essential that all decisions taken regarding design changes or trade lettings are based on a forecast of the cost implications of the alternatives being considered, and that no decisions are taken whose cost implications would cause the total budget to be exceeded.
  • The project leader must be involved in the preparation of the cost report, not simply reviewing what a junior contract administrator has prepared.
  • Accurate cash flow reporting is a function of accurate programming and an analysis of the programme status at the month end of the cost report period. Cash flow is not independent of the programme.
  • Only project members who have the authority to spend, commit expenditure or approve variations should do so. And should be carried out in accordance withe the head contract and the subcontract..
  • Most projects include a contingency for risk for items not included in the cost plan. However, before the contingency is accessed involvement by the cost planner is essential

Vale Jim Gordon

June

Breaking with tradition I have to name the person to whom this blog is dedicated. Jim Gordon passed away this morning. He was a friend and a work colleague and an inspiration to us all in our industry.

Jim was one of our senior site managers and his life was simply construction. Years of experience in delivering projects, mentoring staff, pushing subcontractors to perform, a complete all round building professionIMG_2243al.

The sadness of the team on site is palpable, from first year graduates to the most seasoned construction managers. The whole company is saddened and stunned by the sad news. We pass on our most sincere condolences to hi s family and to all on site.

Jim was old school. He could be belligerent with poor performing subcontractors but his common sense and complete understanding of the construction process is only achieved through years of delivering projects. Yet Jim always had a twinkle in his eye and was always willing to spend time with younger, inexperienced staff and would pass on his knowledge to them. Site managers simply make it happen, they are an integral element of any project team and the likes of Jim are few and far between.

I will miss him as a friend as well as someone I enjoyed working with. He would often pull me to one side and explain his concerns about a project: the safety; the programme; the quality; and the dollars. The essentials of any project. He will be missed by us all, we have lost a work colleague but more importantly we have lost a tue friend – vale Jim.

Congratulations

BdayIn keeping with my own blog policy I never name individuals or company details. Although in this blog I would dearly love to, I will maintain my own policy. Today is a significant birthday to a significant man. Rather than give him a present of another set of cuff links, bottle of Krug, Myer vouchers, I will simply pay tribute to him and let more then 10,000 people who will read this, learn about why we are in fact construction survivors.

All too often we praise people when they are departed, this person is far from departed and even though he has achieved a great deal to date, there is much more to come. Words like “legend” and”leader”, are bandied about all too often. He is more than that. What he has achieved so far is what we all aspire to in the construction industry. Simply he has left a mark on planet earth by the projects he has delivered, and he has left a similar mark on those who have had the good fortune to work with him and for him. It does not matter if you are a form worker on the tools or the mufti-million dollar client. He has the ability to relate to both and treat everyone exactly the same. His warmth and openness is not the norm in much of the corporate world, but he is no fool and can assiduously weigh up opportunities and people.

He has one defining ability which only exists in a very small number of people in our industry. That is he has a 360 degree vision for projects. That means a project discussion can in a short time span include the dollars, the programme, the contract, resource issues, construction methodology, the client and any risk and opportunities that others more often than not would miss.

People want to join him. Not because they are unhappy with the current companies but because they know they will not grow their career but they will develop as people.

So happy birthday mate and not only am I proud to work with you I am proud to be a friend.

Zero Overheads

v-30-PreviewSimple premise – reduce overheads, become more competitive, then win more work. So what overheads does a construction company essentially need. Perhaps if the projects were set up with the right resources we would not be as reliant upon a head office. The project becomes, in effect a stand alone business and if it needs anything from head office it has to pay for it. Simple. But in reality , if the project runs this way it will incur costs never envisaged in the cost plan and instead of wearing head office overheads, it just bleeds dollars and drags the business down anyway. It is all down to how the budget is managed, reported and controlled.

So we need to be competitive in the tender process, run the project pretty lean and not rely on additional resources from head office. The answer is smart people, good communication and the best IT we can buy.

Let’s start with IT. We  love to blame it, cannot function without it, do not embrace it and do not use it to its full potential. The IT department is an overhead that needs to charge the project for providing services and hardware.  First thing we can do is to stop buying hardware. Bring your own phone, ipad, tablet, monitor and simply connect to the company’s access points. Companies don’t provide cars any more so why provide computer hardware. All IT provide is the core software and managing internal communication. Everyone has a mobile phone so why is it most staff have two, one for work and one for personal.

Site office space is always a problem as we never seem to have enough. We need to understand space should be determined by function not status. Give everyone access to an open plan area and meeting rooms for meetings, not for egos. Site offices are expensive. We do not need a dedicated office for a project director who visits once a month, whilst others are working on top of each other.

But this is just simple good housekeeping. We need to look at all the functions that the project could manage themselves and ensure those they cannot are paid for. We all think very seriously before calling in external legal advise, yet pick up the phone at the drop of a hat if we have in-house counsel. Internal lawyers (if the company has them) are our best friends and having access to them is a true luxury. But we need to be aware not only do they have a cost, the resource is limited and whilst we are tying them up they are not available to our colleagues on other projects.

It is interesting to consider say fifty years ago we employed all the major trades for us to construct buildings and did not have internal support such as legal, marketing, green advisers, real estate novelists etc. Now we have various none core support divisions and we subcontract the construction.

Of course our support teams are vital and we need to make full use of their expertise, we simply need to remember we have to pay for them.

 https://gkeating.com/

picture courtesy of http://graphicriver.net/

Pastures New

3169262303_de9262f5d8_qWould you sign a job offer without checking the salary package, well I did recently . Was I desperate to leave my employer, no. They are one of the best employers world wide. Had I gone against everything I preach about risk management in construction, no. Had I simply taken leave of my senses, again no.

There were many reasons for, what some would see as a radical course of action, but to me it was simple. I was joining a business where I could make a difference, where i would have relevance and a part in shaping the company’s future. Not just an improvement to their bottom line but a difference to me personally.

The dollars were not important it was the opportunity to work with bright, motivated and like-minded people who matter most. Interestingly after signing I discovered the dollars were a pleasant surprise. But was no surprise was the buzz in the company, the determination to achieve and to enjoy the journey ahead.

Bleeding Dollars

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So how does a project start hemorrhaging dollars? I aspire to the old fashioned school of thought which states very simply “you make your money before you start on site, once you start construction you have to prevent losing money”.

Managing the risk with the client should be resolved in the tender process, what are we prepared to sign up to? Can we accept the draconian terms and condition the client wants? Have we allowed the gung ho business development manager too many long lunches, convincing himself in a haze of narcissism and red wine, that we can deliver a project on time, on budget but beat the rest of the tender pack by a country mile. Hopefully a company’s internal checks and balances and counteract this over-enthusiasm, stand up to the client and if need be, simply walk away. Often the client manages to wrap the contractor tightly within the contract, but the contractor is too loose with their subcontractors.

OK, we have won the job. The business development manager accepts the accolades and moves on to their next conquest. The cost planners have covered themselves with a multitude of caveats. The accountants are expecting the profit at tender to increase. All we as a construction team have to do is deliver. The first task is to sign up the subcontractors. So often we get a relatively inexperienced administrator to put “packages” together, to add to those issued at tender. These packages contain a scope of works, drawings, specifications, etc. The administrator fields the queries from the subcontractors. Eventually a short list of subcontractors per trade is prepared. How many times have we heard the cries of joy as a substantially lower price from a subcontractor is paraded around the office, until someone with the word ”commercial” on their business card slows it all down by actually reading what the subcontractor has offered. Often, the enthusiasm of the team is tempered by the Grinch aka: “The Commercial Manager”.

Next step – the deal with the subcontractor. There is no point in screwing someone in to the ground only for them to go broke mid-way through the project. Their price has to be based on a fully detailed scope of works with no “gaps” between their trade package and others. But all too often this is where many increased costs originate. The reason is that all too often, the wrong person has issued the package. Issuing tender packages requires construction knowledge, commercial acumen and rigorous internal review. Inexperienced administrators do not have the requisite experience or negotiating skills.

We are now underway on site. Every subcontractor has a signed subcontract so why do we not implement it. We have time requirements for claims, procedures for variations and extensions of time, so why do we not apply them. The reason we do not is often this task is left to an inexperienced administrator. We have a subcontract document, no doubt prepared by internal or external legal eagles, and often the people managing it do not understand it.

The hemorrhaging has commenced. Poorly written scopes of works, lack of contractual and commercial knowledge, now compounded by a third factor. That being the team’s self-denying something is going wrong. Somehow they believe by not reporting bad news, it will make it all go away. It does not.

The way to manage risk is through focusing and identifying, analysing, prioritizing, and managing risks to eliminate or minimize their impact on a projects objectives, profit target and success. We need the same rigor applied throughout procurement and construction that should is be applied at tender stage. This requires experienced construction professionals, and this usually means they have been burnt previously.

 

Picture courtesy of betanew.com

http://www.gkeating.com

 

 

 

 

Censorship in the workplace

CensorIt is fair to say that almost all bloggers have a day job, but carry out their blogging activities in their own as opposed to the company’s time. But that does not allow employees to blog about certain aspects of the business in which they are employed. But how far can companies go in restricting what bloggers put out on their sites.

Most companies have policies regarding computer usage and confidentiality. But some companies are raising the levels of what an employee can say or blog to a point where they want to vet everything an employee has to say. Often it is an individual manager that wants to control their staff above and beyond what the company guidelines provide for.

So what does an employee do if they are faced with a controlling manager. Simple. If the blog does not refer to, imply, make reference to or in ay way breach the company guidelines, tell the manager where to go. If that results in a stoush and if it is allowed to continue, then it is not the kind of company you want to be employed by. Time to “Ramble On”

Risk

riskBack in the sixties I received Waddington’s game of Risk as a Christmas present from my beloved, long departed parents. My favorite place on the board was Kamchatka. That was certainly a long way from home in Liverpool. I had never heard of Kamchatka and even today it is a place name not often mentioned in the media. The tactics were not complicated: build up your armies; protect your borders; and own as much as the board you can. Of course to own the board you had to roll the dice.

Okay enough of reminiscences from days long ago. We work in an industry full of risk. We take on projects that have been won my optimists, reported upon by pessimists and delivered by pragmatists. We do it because we have a passion for construction, but all too often that passion is tested in the extreme by the sudden realization that the risk we discussed at the start of the project, has increased exponentially.

As the economy gets tight, with a shortage of development cash, clients/developers want hard dollar, fixed price contracts with us builders. Then they want to push the responsibility of design onto the builder. Simply the project is a design and construct, fixed price contract. We then screw down the design consultants and the subcontractors in an effort to shift our risk on to them. But it does not work. Subcontractors are signed up on incomplete scopes of works, based on minimalist consultant documentation, and at the end of the project we are fighting with the client, consultants and subcontractors. The project team becomes tired of the battles and we limp towards practical completion watching the dollars hemorrhage from the budget. Add to this we have reduced the programme and contract sum in give backs to the client simply to win the job. So we are fighting time and money from day one on site.

But we as an industry keep doing it. Is it some masochistic trait within builders, are we deluded in believing we can achieve the impossible, that is making money on a hard dollar design and construct job.

We have to learn the lessons from previous forays into this model and simply not accept risk that we know will hurt us. We try to minimize the risk in draconian subcontract documents, but then we run a further risk in ending up in court with security of payment issues to subcontractors.

We all prefer the alternatives such as construction management contracts etc. and we can also reduce the risk by simply saying to clients, who want to screw us – thanks but no thanks.

http://gkeating.com

Consultants are Subcontractors

24462534There is a common factor that leads to some projects being less successful than others. It is not the team, the budget or the client, it is the design. It amazes me that often let the design cause us problems even when we control it. The classic design and Construct contract.

In a D and C contract it is usual for the client to kick of the concept design  and as the design progresses the design team are novated to us, the builder. At what point this takes place and can vary from almost the whole design being locked in before we get a chance to influence it, to a full in-house design control set up. Whichever end of the spectrum we find ourselves, we still have to manage the design process.

So why do builders all too often mis-manage consultants? The reasons are quite simple if you compare how we award subcontracts to how we engage consultants. With subcontractors we issue scopes of works, drawings, specifications, program, maybe an ungauranteed B of Qs, together with the subcontract they will have to sign, plus anything else that encompasses the package of work they are pricing. We receive their prices, compare them, carry out financial checks, then have a post tender interview to ensure they have included everything and understand what they are providing and what we expect.

On the other hand, the consultant’s brief is often nebulous, deliverables ill-defined, time lines not cast in stone, the list goes on.

Right away there is a difference in language in between the two processes. it should not be. Consultants need to be issued a scope, a program, expected deliverables, exactly the same principles we apply to subcontractors.

Every trade subcontractor understands what a monthly progress claim should be. Some consultants I have had the misfortune to work with cannot grasp this simple idea. I have forgotten how many times i have argued with consultants about the quality of their monthly report. It is usually a requirement for them to provide one, so when we get upset at either the lack of or quality of the report, the consultant often tries to shrug it off.

Then there is the issue of set off, or in the vernacular “Back Charges” If a subcontractor cause us to incur cost we set off dollars or back charge him. When we even dare to suggest back charging say the architect for an incomplete design that costs us plenty, we seem reluctant to take him to task.

We need to hire consultants with the same rigour and diligence that we do when hiring subcontractors. If consultants cause us pain we should  seek our recompense in the same manner we deduct dollars from the trades when they fail to clean up or damage finishes.

http://gkeating.com