I’m sure most of you at some stage have taken a bite from a nice big juicy apple or peach, only to find that the inside was rotten. Maybe it had a worm … or worse still, half a worm. You were taken in by the external appearance of the fruit and took a giant size bite in your eagerness to taste it. Maybe, sometimes you were just so hungry that you grabbed the fruit and bit into it without first checking the outside.
Of course, you are now left with a mouthful of rotten fruit and a half-eaten piece of unpleasant fruit. What do you do with it? Where’s the nearest trash can? How can you get rid of that foul stuff in your mouth before you chuck it up, and where can you rinse your mouth to get rid of the bad taste? Sometimes it’s easy and you are in the kitchen, but often you are out with friends and it’s not so easy to deal with.
Why do construction projects fail?
Unfortunately, the same happens with contractors and construction projects. Contractors are often beguiled by projects that seem so good, then they’re disappointed once they start the project to find that it’s not so great after all.
Sometimes, contractors are just so desperate for the work that they grab the project without much thought, only to find that they’ve got a rotten project. They forget to first check the project, read the contract document, understand what’s required, and know the client. Frequently contractors are too busy to price projects properly, they assume things, guess prices and hope for the best.
Then, when things go wrong, the project turns rotten, contractors are left holding the rotten project with no easy way to get rid of it. Like the rotten fruit, a rotten project can leave an unpleasant taste lingering for a very long time.
How can we avoid rotten construction projects?
It’s important when pricing any project to understand:
1. The client
Does the client have money to pay for the project? Do they have a reputation for paying contractors on time and fairly, or do they pay late and hold money unfairly? Does the client have reasonable expectations that can be satisfied? (Some clients expect a luxury sedan with the budget for a small car.)
2. The client’s team
Does the client have a team that can deliver information on time? Can the team manage the project? Are they organized?
3. The contract documents
Some contract documents apportion risk unfairly, they are one-sided in favor of the client. Are the documents clear and free of ambiguities? Are the terms and conditions of the contract reasonable?
4. The scope of the project
Sometimes contractors misunderstand the scope and don’t price all the work in the contract.
5. The project site conditions
What is the topography on the site (steeply sloping or flat), is the site accessible, what are the ground conditions like (rock or sandy), are there other contractors already on the project or going to be working there at the same time, how will the client’s activities and operations impact the construction works?
6. The project construction schedule
When will the client grant access and provide information? Is it possible to complete the work in the time allocated?
7. The weather conditions
Likely to be encountered during the project. How will the expected weather impact construction?
8. The available resources
Does your company have sufficient resources (people, financial and equipment) of the right quality to commit to the project? Will there be sufficient suitable resources such as materials and subcontractors available to complete the project?
9. The risks
Every construction project has some risk and contractors are expected to manage and control these risks. However, some projects have large risks which could be devastating for the project and the contractor should the risk eventuate. It is important to understand the type of risk, their quantum and the likelihood of them occurring. In some cases for particularly risky projects, it may be best to walk away from the project.
10. The project’s cash flow
How much you’ll be paid and when? Who has to be paid, how much and when? Poor cash flow has destroyed many contractors, even on profitable projects. If you don’t receive money on time to pay project debts the company could become bankrupt.
11. Your costs
Calculate the costs of managing the work, costs of all equipment materials and subcontractors and overheads. Don’t guess.
12. Other possible projects
Don’t just blindly pick the first project to price. Be selective and see which project best suits the company and which one you are most likely to win. When you are presented with a whole selection of fruit you are better able to be more selective, thus choosing one that’s the ripest, juiciest and least likely to be rotten.
None of us want to bite into a piece of fruit to find it’s rotten. Careful scrutiny of the item can detect if there are possible soft patches or obvious blemishes. Understanding the history of the item (it’s age and where it came from) can help us make an informed decision. First cutting the fruit will help detect a rotten area before biting into it. Unfortunately even then, as with any construction project, there is always a small risk of finding a rotten section after you’ve started eating the fruit.
Selecting and pricing a construction project properly is vital to ensure that you don’t end with a rotten project. Unfortunately, sometimes contractors are so desperate for a project that they don’t check all the pricing documents properly and don’t ask all the tough questions and consider all the risks. On occasion contractors have ‘starry eyes’ about a project, only thinking of the prestige and potential profits, so they rush through the pricing and ignore the risks.
Once you’ve been awarded the project it’s too late to find out the project isn’t what it appeared to be. The client doesn’t pay on time, they run out of money, they are ill-prepared and disorganized, they hold money for no reason, or that there are conditions in the contract document that you cannot comply with or that are blatantly one-sided and unfair.
You cannot easily walk away from a project when you find that it’s not as it appeared when you priced it. Inevitably you are forced to complete the project no matter how unpalatable it is, no matter how much money it’s costing you. Rotten projects can destroy reputations, they can break project crews and they can finish companies. Take the time to understand your projects before you submit your price. Mistakes made when pricing a project can be extremely costly.
Have you had a rotten project? What happened?