Construction is a tough industry and many construction companies are facing difficult times. Yet there are always some companies that are growing and increasing their profits. How do they do it? Are they lucky?
Construction shouldn’t be about luck. Sure we sometimes appear to have projects that appear to be luckier than others – projects where the sun seems to literally shine. However, managers of successful projects and companies create their own luck. They get the basics right.
How to get profitable construction projects?
1. Price your projects correctly
This includes reading the pricing documents carefully and understanding what’s in your scope of work. Check that you can deliver the project safely and to the required quality in the time the customer demands. Don’t commit to a project when you don’t have the necessary resources or skills to construct it or one that has an impossible duration. Rather, price a few chosen projects carefully, and don’t use the ‘shot-gun’ approach of pricing as many projects as possible hoping you’ll win one.
Visit the project site to ensure you have allowed for any problems or obstacles that may be encountered during construction. Understand the project risks and ensure they can be managed or are allowed. Develop new strategies for how you’ll win the project and deliver it successfully and profitably.
2. Reduce wastage on your projects
There always seem to be inordinate amounts of waste materials hauled from our project sites. Not only are there the original costs of the material but the costs of loading, hauling and dumping the waste is large – and dumping costs are increasing every year. Some of this waste is generated by poor quality work and construction errors which result in completed work being demolished and redone. Some waste is generated by poor handling of materials resulting in breakages.
Often though, project teams over-order materials, order the wrong material or don’t optimize the size of materials resulting in excessively large off-cuts and wastage. When you order materials take some time to ensure the quantities are correct, they’ll be packaged and transported in such a way to minimize breakages and so they’re effortlessly off-loaded at the project, and that you’ve ordered the size that will easily be handled and have the least amount of cutting and waste.
3. Improve productivity
Construction projects are notoriously for low productivities. I’m sure we’ve all witnessed people and machines standing idle on construction projects. Poor productivity can be due to a number of problems including:
- The crews not working the hours they should – they return late from rest breaks and stop work early before the end of the shift.
- Poor planning resulting in people waiting for equipment, materials or access to their work areas.
- Having too many resources on the project, or the wrong type of resources.
- Poorly skilled and trained workers work slower and often produce poorer quality than skilled tradespeople. Training your people is the best investment you can make.
4. Ensure you claim for work completed
I cannot believe how many contractors don’t claim for additional work they’ve done or don’t claim for items that the client was obligated to supply but didn’t. Part of this is because the contractor’s manager hasn’t read the contract, hasn’t looked at what was priced, or isn’t aware of what work has been performed on the project. Sometimes it’s because the project manager is of the mistaken belief that the client will be upset by a claim for additional works or delays. (My next book focusses on construction variation claims.)
5. Finish your projects on schedule
When I mean finish I mean 100% complete with all documentation handed-over and all snag lists (punch lists) completed. All too often I encounter contractors still working on projects long after they should have been completed. To ensure the project is completed on time use a properly prepared schedule which is regularly referred to and updated.
Ensure the construction team understands the schedule. Complete documentation and punch listing as the project progresses so these items aren’t left to the end.
6. Negotiate with suppliers
Negotiate with your suppliers and subcontractors to get the best rates and payment terms. Ensure that they are paid on time so that payment discounts can be claimed. Always get more than one quote, preferably three, so you can check the prices you’ve received are competitive.
7. Ensure your invoices are paid on time
This entails submitting your invoices in the correct format, on time and to the correct person. Some clients only run payments at a specific day in the week, or the month, so even submitting invoices a day late could delay the payment by a week or more. Even more important is to ensure your client pays you on time. Some clients make a habit of paying invoices late. Every month there’s a different excuse. Make sure you track your payments through the client’s system to ensure there aren’t any delays.
8. Claim deposits back
Many projects are completed and the contractor fails to claim their deposits back. These deposits could include for utility connections, office or house leases, or perhaps a deposit to the local council as a bond in case your project damages the road or sidewalk and you don’t repair it. Each project should have a schedule of the deposits paid so these can be tracked and claimed back.
9. Get paid retention monies and have bonds returned as soon as possible
Completing your project on time enables you to claim back retention monies and recover bonds as soon as possible. Sometimes the project team moves onto their next project and forgets to claim these back, which costs the company money. Maintain a schedule of all outstanding retention monies and bonds so they are tracked and returned.
10. Consider alternative materials and construction methods
There are new materials on the market that could be cheaper, easier to install or provide better durability. Of course, check first that these meet specifications and codes. Consider alternative construction techniques. Using precast or modular elements could speed up construction. New technology is appearing all over in construction and some systems can simplify construction and managing our projects. Get smart!
Minor changes to the way we operate can improve your company profitable construction projects. make our company and projects more profitable. Operating smarter allows us to be more competitive, leading us to win more projects. Some companies are making big profits, why not become one of them. Call in an expert to improve the way you operate. Ensure your managers understand how every dime is important.