Should You Expand Your Construction Market?

I recently read a white paper talking about the business of construction. The paper was a good read and had valuable info. However, there was a point that I disagreed with. The paper talked about what a contractor would need to do for robust revenue growth. Some of the items listed go against what we advise to our clients.business men with money

The item I challenged the most dealt with bidding work that is outside of what you normally do. The white paper was suggesting this was a great way to make more money. I feel that this is bad advice, since the margins are usually razor thin in the bid market. If you make a mistake on your bid because you are not familiar with that particular kind of work you are doing, you can end up with a really bad project. business men upset

There are a couple of different ways you can go about expanding your field with considerably less risk.business men - writing

  • If you want to increase your line of work, see if you can negotiate a project instead. You may have more success than with a bid. The margins are usually better on negotiated work and there can be more breathing room for risk.
  • The second way to successfully bid work outside your comfort zone is to hire an independent estimator! At Tempest Company our estimators are highly qualified and experienced in all areas of the construction industry. You can be confident that you have the right numbers while you grow your construction opportunities.

Oh, by the way… Here is the link to the white paper. You can find more information on our independent estimating services here. Or just give me a call at 1-800-334-3332.

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Record Keeping And Construction Claims

Here is another good blog from Craig Martin, a partner at Lamson, Duggan, and Murray. Craig is the “go to” guy for all things related to Construction Law.  When I read this recent blog posting I knew right away that I wanted to share it with our readers. Read it and then let me know what you think!

Another court has found that poor record keeping will prevent recovery on a claim.  The court in Weatherproofing Tech., Inc. v. Alacran Contracting, LLC found that a contractor’s documents were a mess and that no reasonable jury could base a verdict on the contractor’s records.

The underlying project involved the construction of an army training facility.  The total project cost approximated $13 million.  Alacran, the general contractor, subcontracted about $3 million of the work to Weatherproofing Tech.  Alacran paid Weatherproofing $700,000 for its work, even though Weatherproofing submitted invoices of more than $2 million.  Alacran justified its refusal to pay Weatherproofing on the grounds that the parties had agreed to split the profit and loss on the project and the project was out of money.  Not surprisingly, Weatherproofing sued Alacran for the amount owed.

Even though Alacran’s justification for refusing to pay Weatherproofing was suspect from the outset, the real problem with Alacran’s defense was its deplorable recording keeping. The court found:

Alacran’s accounting records were a mess and the expenses reflected in its books were fraught with contradictions that Alacran’s own employees could not explain. 

The records were so bad that the court ruled that Alacran could not introduce any of the underlying documentation of its expenses during trial. (Continued)

Oh, by the way… You can read more blogs from Craig here and here. If you want to find out more about construction claims, look here!

 

American Infrastructure Series

Marketplace recently did a great series on American infrastructure. The series is entitled “The Weak Link – The State of Infrastructure”.

The series showed some of the areas in which we are failing:

The nation’s system of power plants, utility poles and electrical wires is aging. And compared with other developed countries, it’s less and less reliable. Among the worst hit states: Connecticut.

Three historic storms hit the state in 2011 and 2012. Each time, more than 600,000 residents lost power for days. More than lights went out (Continued)

America’s highway system, more than 200,000 miles of freeways and bridges, is the largest infrastructure project in the world.  It’s a feat of engineering that laid the foundation for decades of economic growth and prosperity.

By now, it’s also become a cliché to point out that it’s falling apart. In fact, the massive size of the highway systems is also its weak link. We built it, we’re dependent on it, and like all things made by man, now it is breaking, crumbling, and in some cases, falling down. (Continued)

It was informative:

What is the grid? It dates back to Edison and it gets power from plants to homes and businesses across the nation. But it’s also vulnerable and aging.

The series looks towards the future:

The nation’s power grid is experiencing more failures than ever. One city in Connecticut, Bridgeport, is taking measures to rely less on the grid and more on locally made power known as fuel cells. (Continued)

Los Angeles water officials say we have a lot to learn from the Japanese when it comes to protecting water infrastructure from natural disaster. Japan has severe earthquakes, and for almost 40 years the Kubota Corporation, a competitor of Caterpillar, has made quake-resistant ductile-iron water pipes. Underground water pipes can break in an earthquake, cutting off water supply to streets and sometimes entire neighborhoods.

Two years ago Los Angeles became the first city in the U.S. to install them. They’re designed so they don’t pull apart at the joints when the earth moves. Engineer Craig Davis, Los Angeles Department of Water and Power’s earthquake expert, says the pipes have withstood a 9.0 magnitude quake in Japan. “This pipe has survived 10 feet of ground movement and it hasn’t even leaked. So that’s very significant.” (Continued)

 

 

When A Construction Schedule Isn’t Just A Schedule

The most important reason to develop a schedule is to manage the work of your construction project. However, your project will also benefit from improved communications between the prime and subcontractors and between the owner and contractors.

When you develop a schedule for a project, remember that the information comes from a variety of sources.

  • Submittal requirements are developed from the specifications and other contract documents.
  • Installation activities and interfaces are established from estimates and contract documents.
  • Manpower levels, durations and cost loading information are also determined from the estimate.
  • Management and Supervisors also participate in the development of a schedule.

A schedule has many applications during the construction phase besides indicating progress and critical activates.

  • A well-developed schedule can be used for cash flow projections and progress payment requests.
  • Variations can be studied to uncover potential work delays.
  • Variations can also be useful to clarify alternate sequences, manpower projections, phasing interfaces and more.

Oh, by the way… Manage your work and bring your project to completion on schedule with a little help from Tempest Company.

Humor For Your Friday

Have you seen these videos yet? LinkedIn Out Loud takes over the top quotes from LinkedIn profiles and acts them out. At under four minutes each, they are good for a quick chuckle in your busy work day. Have a great weekend – Justin.

Oh, by the way… You can connect with Tempest Company on LinkedIn here.

 

 

Construction Industry News – Worker Shortage

Have you seen this article in the Wall Street Journal? It is worth a read based on its title alone!

Worker Shortage Hammers Builders

Construction firms boost wages to attract skilled labor but also find ways to do more with less

U.S. builders shed more than 2 million jobs during and after the housing bust. Now they say they can’t find enough carpenters, electricians, plumbers and other craftsmen for a growing pipeline of work. (Continued)

Estimating Help: Handling Errors In Bids

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Say a contractor makes a substantial mistake in a bid. Is the contractor required to perform the work for its bid price in spite of such an error or should the contractor be able to withdraw the bid?   

What if the error could potentially cause an undue hardship for the contractor, subcontractors, and suppliers? Could this make a project successful or is it doomed to fail from the beginning?

So let’s say a contractor claims to have made a large error and wishes to withdraw the bid.

  • Should a bid be able to be withdrawn before the bid opening? 
  • Should the contractor still be able to withdraw their bid after the opening?

                               At what costs?

                               In what time frame should this happen?

  • If the contractor does withdraw its bid, how should the remaining contractors’ bids be received?
  • Can a contractor alter their bid instead of completely withdrawing it?

 Let me know your thoughts.

Do You Have the Right Budget?

Here is a second look at one of Don’s early blogs. I thought it would be a good one to take another look at, since I have been answering lots questions about budgets this week with clients and potential clients. I hope you enjoy the re-read as much as I did.

When preparing an estimate for a budget there are three components that are critical.  They are scope, scope and scope.  The budget estimate has to present the right scope for the direct cost of construction, indirect costs of construction and the right markups to apply to them.  Even though there may be minimal information and minimal details, the right scope needs to be included in the estimate.

  • The direct cost of construction is just that – moving dirt, placing concrete, installing pipe and running conduit.  The line items can be as simple as task items, such as strip site with the area of the site or cubic yards.  It can be the break out on mechanical work for items such as such as insulation, fire protection, plumbing systems, mechanical piping, HVAC, and temperature controls.

What differentiates the right budget estimate from the wrong budget estimate is the scope determination that goes into the line items.  By using a solid basis, such as the area of the site or building, anticipated volume of concrete, or systems anticipated for the mechanical work in conjunction with historical cost information, the estimator can develop a budget that can be considered the right budget.  This budget scope will hold up under the scrutiny of the stakeholders prior to it being approved.  But first, a word or two of caution needs to be injected for the reviewers.  If the answers you are getting to your questions include “(Name your item) is included with this line item over here”, too many times, it is highly likely you do not have the right budget for the project.

  • The indirect cost of construction scope is as important as the direct scope.  This includes items such as design fees, legal fees, permits, artwork, furnishings, finance expenses and a host of other line items that are just as critical in having the right budget.  Again, each expense anticipated on the project needs to have a line item associated with it for the right budget.  What would happen to the budget if the design fees or finance expenses were left out?  What areas would be cut to make up for the shortfall?  Would the project still be viable?
  • The scope of the markups is very important to the overall budget.  The estimated costs for the direct and indirect costs of construction need to be estimated with today’s costs.  It is then appropriate to add line items for escalation, or cost growth, and contingency to the budget. The direct cost may not occur for two years.  Escalation, or cost growth, needs to be applied to the costs due to the overall tendency for costs to increase over time.  As another word of caution, the magnitude of cost reductions experienced in the past year is an infrequent occurrence, but they do happen.

Contingency needs to be added as a line item in the budget.  This contingency is used to cover the scope items that are not identified specifically in the estimate, and for scope that develops from the budget to bid time.  This is a very important line item and should not be reduced to help keep the budget numbers low.

The above considerations are important.  What is equally important is to follow up the initial budget estimate with further estimating during the design period. Unless this is done, the efforts to develop the right budget will be wasted.

Oh, by the way… This is a second look at the blog How Do You Know You Have The Right Budget? by Don Short from July 2009.