Category: construction

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!

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.

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

Cost Reporting

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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

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

Damn Site Instructions

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Why on earth do site foreman/managers issue site instructions to subcontractors to carry out works which are contained within the original subcontract scope. It happens all the time and the larger the project the more it occurs. If they understood what is contained within the subcontract the amount of site instructions would decrease and of course the resultant trade cost over runs would be less.

There may be mechanisms for approval of site instructions by the project and commercial manager, but often the site foreman has issued a verbal instruction to the subcontractor and the argument about the validity of the instruction takes place after the works are complete. A case of trying to close the stable door after the horse has bolted.

Sometimes it falls to an inexperienced site based contract administrator to approve site instruction based variations in the subcontractor’s monthly progress claim. If all the boxes are ticked ie the site instruction is signed and issued, the subcontractor has submitted a full cost break up, then the dollars are approved and the subcontractor paid.

If after the payment some hawk eye spots that the paid for works were in fact part of the subcontractor’s original scope, then we begin the process of clawing the money back. We tell the subcontractors that variations are paid “on account” and that payment for a variation does not mean it has been approved. We then go into battle with a subcontractor who we need to finish his trade package. The smart ones may go legal and we get into arguments about Estoppel, deceptive and misleading conduct etc etc.

The worst case is when site instructions are issued after the work has been carried out. There is simply no excuse for this and in my view this is the time for badges and guns to be handed in and the first available window seat is to be organised.

The way to stop money going down the drain is to have a strangle hold in the issuing of site instructions and the only person who can issue them is that rare site based individual – someone who really does know what they are building.

http://gkeating.com

image courtesy of dreamtime.com