You work hard and have learned to ride the construction business cycles. You are proud of the work you do and its lasting impact in our community. But, every now and then, a project rears its ugly head and causes you a lot of trouble. Here’s what you need to know to get ahead of those troublesome projects.
Get the RIGHT team in place
Years ago, I was developing a framework to understand the biggest risks in executing projects. It quickly became clear that having experienced people matched to the project type was critical. The gentleman I was working with had a pearl of wisdom. He said that everyone makes the same mistakes. The key is to put people in an environment where they can make the mistakes, learn the lessons and know what to do in the future without having a major impact on the company as a whole.
When considering the people for the team, consider the following:
- Have they worked on a project of this size before?
- Have they worked on a project of this type before: Lump sum, guaranteed max, etc.?
- How have they handled problems in the past?
- What have they learned from failure?
Having an experienced team will make or break your project. Experienced team members know how to address issues as they arise. They get them on the table, make them visible and quickly get back on track. People with lesser experience try to hide the problems and fix them, usually creating bigger problems in the long term.
Understand your execution plan before you sign the contract
As you propose on a project, have you given thought to how you will execute the project? One of the biggest challenges you may face is a disconnect between the pricing in your bid and how the project will actually get executed.
A few considerations that should be thought through before you submit your proposal include:
- Will you have a constrained site?
- Will all of the heavy equipment be available and fit on the site when it is scheduled?
- Have you given consideration to the impact of weather?
- What happens if you run into issues with soil conditions?
By including the construction lead in the proposal stage, you will be able to identify issues that arise during execution and give appropriate consideration as part of your proposal.
Get firm bids from subs and major equipment suppliers
At times, projects are estimated using recent experience with labor and equipment rather than looking at market conditions and obtaining bids. But the actual costs can vary tremendously, especially if firm bids are not received. Your pricing from suppliers and subcontractors should line up with the same firm pricing you are providing to your customer.
As soon as you get a firm contract, subcontracts and purchase orders should be issued right away to ensure your costs are reflective of what was in your bid.
Know your risks
The ability to identify and mitigate or manage your risks can prove to be a differentiator for you. The best time to identify your risks is before you submit your bid. At that time, you will be able to determine how best to handle the risks — whether through contractual clauses, insurance or managing through pricing.
Here are a few of the most troublesome risks:
- Soil conditions. As a contractor, you can’t control what is in the ground and soil surveys won’t capture everything. You shouldn’t take this on.
- New technology. The road is littered with new technology that creates problems in starting up facilities. Between the time to get it fixed and the cost of getting it fixed, many a contractor has been burned
- Guaranteed max contracts. Owners look at these as a cost reimbursable contract. They are really not, they are more like lump sum contracts, but you don’t control the cost.
Before you submit your bid, make sure you have gone through the proposed contract, the project execution plan and the pricing. If any of these is missing, your pricing shouldn’t be firm. By evaluating the risks before you bid, you can avoid surprises later.
Don’t let the start date slide
Owners can get sidetracked and let months slip by before signing a contract, pushing the start date back by months, or a year. The challenge is most bids are put together with a specific start date in mind. Those bids consider the impact of weather in the winter, tight labor availability at certain times of the year or other constraints in resources.
One way to combat a start date from sliding is having a time frame for firm pricing. Anything beyond that date would result in adjustments to pricing and schedule.
By being thoughtful and focused, you can avoid surprises and problem projects. What is holding you back from getting started today?
Heidi Pozzo, founder of Pozzo Consulting, helps business leaders dramatically increase their organization’s value. To contact her, visit www.heidipozzo.com or call (360) 355-7862.