By George
Hedley
Every dollar
counts, and every penny wasted is precious. Losing small change on your
construction projects can add up to thousands of dollars at the end of the
year. So, what are you to do?
Maximizing
profit must be a top priority, right along with getting your projects completed
on-time. Setting aside a little time to focus on increasing your net profit will
boost your bottom line and allow you to make a lot more money.
When you’re
too busy working on the jobs, scheduling crews, or carrying out work tasks, you
don’t take or have enough time to focus on finances, financial tools, and
strategies that can help you hit your goals. Consider implementing these two proven
strategies to maximize your bottom line and grow your bank balance.
Accurate
general conditions
General
conditions in construction include the onsite administration, supervision,
temporary facilities, temporary protection, and soft costs required to get your
projects built. Estimating accurate general conditions for projects can be a
simple task, when the estimator is accountable to get it right.
Most estimators
use unit prices that are rarely checked against the actual final job costs. For
example, creating a budget for temporary toilets seems easy. An eight-month job
should cost 8 x $100 per month = $800. But, when the field superintendent sees
there are 40 men on the job, more than one toilet and more than one servicing a
week are required. This might increase the actual job cost by as much as $200
per month. These extra costs will add up to lots of lost cash.
The
estimator’s No. 1 job is to calculate an accurate estimate of what it will cost
to build each project. After every job, he must look at the actual job costs to
see if he miscalculated or under-estimated any of the project line items.
Before pricing every job, the estimator should get with the project manager,
field superintendent or foreman to determine what will be required to run the
project he currently is bidding.
Take a hard
look to determine if you are charging the right price for:
·
Project
manager, superintendent and their vehicles
·
Project
photos, sign, as-built drawings, etc.
·
Temporary
facilities, trailers, toilets, sanitation, etc.
·
Temporary
utilities, electricity, power poles, water, phones, etc.
·
Temporary
fencing, gates, barricades, site lighting, heating, etc.
·
Safety,
first aid, shoring, access roads, security guards, etc.
·
Water
quality control, dust control, etc.
·
Trash,
cleanup, window washing, final punch list, etc.
Charge
for all the changes on change orders
Change orders
are written documents amending the original contract agreement between parties memorializing
an additional or changed scope, price, time, schedule, terms or work item on a
construction project. Most often, they require additional money for the
additional work required by the change.
As
contractors, if you had $10 for every extra work item your company, project
manager, field superintendent or foreman did without a signed change order
before the work was performed, could you have retired several years ago? When
your customer asks for extra work, why is it so hard to get it in writing?
Everyone
knows the contract requires signatures on change orders prior to starting extra
work. But when you postpone getting a formal approval for extra work until
days, weeks or months after the event occurred, you have no leverage with your
customer. Your customer is in a great position to offer a reduced, discounted price
with you; change his mind; or decide the additional work wasn’t really extra
and should have been included in the original contract.
To avoid this
problem, present a complete cost breakdown for every proposed change order your
customer requests in advance of starting the work. Use a standardized format, cost
template, and rate sheet to assure you include all actual costs. Every time
extra work is performed, the followings costs occur:
·
Project
management to process the paperwork
·
Supervision
to supervise the work
·
Accounting
to process the payment
·
General
condition costs as the job will take longer:
-
Trailer,
toilets, water and utilities
-
Power
and power poles
-
Trucks
and equipment
-
Small
tools, ladders, bins, etc.
-
Small
items, nuts, bolts, hardware, etc.
-
Temporary
facilities, fencing, protection, barricades, etc.
·
Liability
insurance
·
Overhead
and profit
Don’t shortchange
your company by not asking for everything you deserve. I see most change order
requests presented as labor, materials and hard costs, plus a markup without
extra required soft costs for the many items listed above. If your company does
$5 million in annual sales, of which $250,000 is performed as change orders or
on a cost-plus basis, not charging for everything you spend can cost you as
much as $25,000 or more per year in lost revenue or net profit for things that
you actually had to pay for.
Making money
is not easy in construction. Look for every advantage you have to boost your
net profit margin. Take the time to implement these tools and send me an email
of the other tools you use to increase your net numbers. Email GH@HardhatPresentations.com to get your copy of “Project Management Forms For Contractors.”
George Hedley, HARDHAT
Presentations
800-851-8553
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