Building

a Successful Construction
Company
The Practical Guide

Paul Netscher

Copyright Note
Copyright © 2014 Paul Netscher
All rights reserved. No part of this publication may be reproduced or transmitted, in whole or in part, by any
means without written permission from the publisher.
Published by Panet Publications
PO Box 2119, Subiaco, 6904, Australia

[Link]
ISBN: 978-1500680008
Available from [Link] and other retail outlets




Legal Notices
It should be noted that construction projects are varied, use different contracts, abide by different
restrictions, regulations, codes and laws, which vary between countries, states, districts and cities.
Furthermore various industries have their own distinct guidelines, acts and specific protocols which the
contractor must comply with. To complicate matters further these laws, acts and restrictions are continually
evolving and changing. Even terminologies vary between counties, industries and contracts and may not be
the same as those included in this publication. It’s therefore important that readers use the information in
this publication, taking cognisance of the particular rules that apply to their projects and area in which their
company operates.
Each project has its own sets of challenges and no single book can cover all the steps and processes
in every project. This publication covers a broad range of projects without being specific to a particular
field of work. Some of the author’s personal opinions may not be pertinent to certain projects, clients,
circumstances or companies. Readers should undertake further research and reading on the topics
particularly relevant to them, even requesting expert advice when required.
Therefore, the author, publisher and distributor assume no responsibility or liability for any loss or
damage, of any kind, arising from the purchaser or reader using the information or advice contained herein.
The examples used in the book should not be seen as a criticism of people or companies, but, should
rather be viewed as cases from which we can all learn. After all we’ve all made mistakes.
Any perceived slights are unintentional.


Cover layout by Clark Kenyon, [Link]
Photographs: Cover - © iStock, Title Page – Ian Weir, Preface page – Paul Netscher, Acknowledgements
page - © iStock


Preface
Managing a company isn’t easy. Managing a construction project is hard.
Put the two together and manage a construction company – you have a
challenge. By nature construction projects are short term, many are high risk and
most are low reward. In addition the construction industry is always changing –
going from a few years when work is bountiful and then rapidly changing to
years when work is in short supply. One would think the good years are easy!
Unfortunately they often aren’t. Yes, it may be easy to find work, but suddenly
skills, materials, subcontractors and even equipment are no longer available, or if
they are they’ve quickly become more expensive reducing the good profits the
company was hoping to make. To grow and be successful, managers of
construction companies need to be skilled and astute to guide their company on
this rollercoaster ride. They need to be able to adjust their thinking and way of
operating to suit the changing circumstances. Even one wrong move;
undertaking the wrong project, submitting a quotation that’s too low, misreading
a contract, underestimating the schedule, making a major mistake on a project,
or miscalculating the cash flow can quickly destroy the company, ending many
years of hard work.
After 28 years in the industry I’ve seen some companies grow and be
successful year after year, while others have barely managed to keep afloat. A
number have even enjoyed a meteoric rise and a few years of success before
collapsing and going out of business. In this book I’ve tried to pass on some of
my experiences. This book isn’t going to show you how to run a company (there
are many other books that do that), rather, it’s aimed at giving practical tips on
how to manage and grow a construction company and to maximize profits.


Acknowledgements
Thank you to all the people who have worked with me in the last 28 years.
Many of you have in some way contributed to this book.
Thanks to my family for supporting me through this writing process.
Thank you to Sally for editing the book.
A special thanks to Tim for also editing the book and providing many
invaluable comments.


Contents at a Glance
INTRODUCTION
CHAPTER 1 – THE RIGHT PROJECT
CHAPTER 2 – FINDING THE RIGHT PROJECTS
CHAPTER 3 – TENDERING (PREPARING THE QUOTATION)
CHAPTER 4 – SECURING THE PROJECT
CHAPTER 5 – DELIVERING THE PROJECT
CHAPTER 6 – REDUCING COSTS
CHAPTER 7 – MAXIMISING REVENUE
CHAPTER 8 – FINANCIAL MANAGEMENT
CHAPTER 9 – CONTRACTUAL
CHAPTER 10 – PEOPLE
CHAPTER 11 - MANAGING THE COMPANY
CHAPTER 12 – GROWING THE COMPANY
CHAPTER 13 – REPUTATION
CONCLUSION
GLOSSARY


Contents
INTRODUCTION
CHAPTER 1 – THE RIGHT PROJECT
K NOW WHICH PROJECTS ARE PROFITABLE

W ORKING FOR THE BEST CLIENTS

T HE STRENGTH OF THE CLIENT’S TEAM

T HE FIELD OF CONSTRUCTION

O PPORTUNITIES FOR FURTHER WORK

T HE PROJECT’S LOCATION

T HE PROJECT’S PROXIMITY TO EXISTING PROJECTS

R EMOTE SITES

T HE RESOURCES REQUIRED FOR THE PROJECT

K EEP IT SIMPLE

T HE PROJECT’S RISKS

T HE RIGHT SIZE

N ICHE MARKETS

FAD OR POTENTIAL FOR A NEW MARKET

U NDERSTANDING THE CURRENT MARKET CONDITIONS

B ID (OR TENDER) PROCEDURES

T HE CONTRACT DOCUMENT

PAYMENT CONDITIONS

T HE CLIENT’S BUDGET

T HE QUALITY OF THE TENDER DOCUMENTS

L IQUIDATED DAMAGES

T HE PROJECT SCHEDULE

W ILL YOU BE COMPETITIVE?

ILLEGAL AND CRIMINAL ACTIVITIES

C ONTROVERSIAL PROJECTS

SUMMARY

CHAPTER 2–FINDING THE RIGHT PROJECTS

K EEPING A GOOD CLIENT

R ESEARCH

T ENDER DATA BASE

E XISTING PROJECTS

N ETWORKING

C ONTACTS
EMPLOYEES

COMPETITORS

M ARKETING

W EBSITE

COMPANY BROCHURES

P
HOTOGRAPHS

COMPANY LOGO

ADVERTISING

S
PONSORSHIPS

P
LANT AND EQUIPMENT

S
IGN BOARDS

DIRECT CALLS AND MEETINGS

COMPANY NEWSLETTERS

BUSINESS CARDS

REFERRALS

ENTERTAINMENT

S
OURCES OF WORK

REGISTRATIONS WITH TRADE BODIES

CENTRALISED MARKETING AND TENDERING (BIDDING) ORGANISATIONS

F
ORMING JOINT VENTURES

P
ARTNERING WITH LOCAL CONTRACTORS AND COMMUNITIES

P
OLITICAL SUPPORT – UNDERSTAND WHO CAN ACTUALLY HELP

CORRUPTION

DESIGN AND CONSTRUCT PROJECTS

M ULTIDISCIPLINARY PROJECTS

F
INANCE

ASSISTING WITH FEASIBILITY STUDIES

BEWARE OF OVERLY AMBITIOUS PROJECTS

TRACKING POTENTIAL PROJECTS

M AILING LISTS AND DATA BASES

BUSINESS DEVELOPMENT M ANAGERS

TRADE REGISTRATIONS

QUALITY, ENVIRONMENTAL AND SAFETY ACCREDITATIONS

GREEN BUILDING AND SUSTAINABILITY

M AINTENANCE, REFURBISHMENTS, REPAIRS AND RENOVATIONS

I
NNOVATIVE CONTRACTING OR TENDERING METHODS

A GOOD REPUTATION

S
AYING NO

S
UMMARY
CHAPTER 3 – TENDERING (PREPARING THE QUOTATION)
CHECK THE TENDER DOCUMENTS ARE COMPLETE

READ THE DOCUMENT

BASIS OF TENDER

UNDERSTAND THE PROJECT

UNDERSTAND THE CONTRACT

LAWS GOVERNING THE CONTRACT

SITE VISITS (SITE INSPECTIONS)

SUPPLEMENTARY TENDER DOCUMENTATION

TENDER SCHEDULE

QUANTITIES

TENDER CALCULATIONS

CALCULATION OF OVERHEADS

I
NSURANCES

SURETIES AND BONDS

SUBCONTRACTORS

PROVISIONAL SUMS

ALLOWING FOR COST INCREASES

ESCALATION AND RISE-AND-FALL

PROFIT

ALTERNATIVE TENDERS AND OTHER INCENTIVES

CASH FLOW

DAY-WORKS AND SUPPLEMENTARY RATES

W EATHER

RISKS AND OPPORTUNITIES

BID (OR TENDER) BONDS

FORM OF OFFER

TENDER COVERING LETTER

TENDER QUALIFICATIONS AND CLARIFICATIONS

CHECKING

TENDER SUBMISSION

J
OINT VENTURES

SUMMARY

CHAPTER 4 – SECURING THE PROJECT

OPEN THE DOOR – PRICE

DISCOUNTS AND SAVINGS

UNDERSTANDING THE CLIENT’S NEEDS AND PRIORITIES

THE TENDER SCORING AND ADJUDICATION PROCESS

 DIFFERENTIATING THE COMPANY

POST-TENDER CORRESPONDENCE

FOLLOW-UP

POST-TENDER MEETINGS WITH THE CLIENT

PRESENTATIONS

TENDER NEGOTIATIONS

A WORD OF WARNING – DON’T SECURE THE TENDER AT ANY COST

BRIBERY

FILING AND STORAGE OF TENDER DOCUMENTS

SUMMARY

CHAPTER 5 – DELIVERING THE PROJECT

PLAN THE PROJECT

M ETHODOLOGY

PROJECT SCHEDULE

DON’T START BEFORE THERE IS A CONTRACT IN PLACE

PAYMENT BONDS, INSURANCES AND GUARANTEES

TENDER HANDOVER

CLIENT HANDOVER MEETING

STAFFING THE PROJECT

I
NDUCTIONS

DESIGN AND CONSTRUCT PROJECTS

SITE SERVICES AND FACILITIES

SUBCONTRACTORS

UNDERSTAND THE CONTRACT

QUALITY CONTROL

SAFETY PROCEDURES

ENVIRONMENTAL

DRAWINGS

M ILESTONES

DAILY RECORDS, AND DAILY REPORTS

M EETINGS

PROJECT PHOTOGRAPHS

PERMITS AND DOCUMENTATION

LIAISON WITH THE ESTIMATING DEPARTMENT

FINISHING THE PROJECT

SUMMARY

CHAPTER 6 – REDUCING COSTS

W ORK SMARTER
P
LAN

S
CHEDULE

ACCESS

S
AFETY

QUOTES & TENDERS

ADJUDICATE QUOTES AND TENDERS

NEGOTIATE WITH SUPPLIERS AND SUBCONTRACTORS

ORDERS

LABOUR ONLY SUBCONTRACTORS

S
UBCONTRACTOR ORDERS

M ANAGE SUBCONTRACTORS

M ATERIALS

COORDINATE AND PLAN DELIVERIES

REDUCE WASTE

ALTERNATIVE MATERIALS

RECONCILIATION OF MATERIALS

P
RICE INCREASES

ALTERNATIVE TRANSPORT

LABOUR PRODUCTIVITY

P
AY THE CORRECT WAGES

I
NDUSTRIAL RELATIONS

CONTROL OVERTIME

DAMAGE TO EQUIPMENT AND PROPERTY

P
UT ITEMS OFF HIRE

EXTERNALLY HIRED EQUIPMENT

NEGOTIATE REDUCED RATES FOR INCLEMENT WEATHER, LOW USAGE, AND SITE CLOSURES

EQUIPMENT PRODUCTIVITY

THEFT

P
REVENT PROBLEMS FROM OCCURRING

ALTERNATIVE DESIGNS

COORDINATION OF SERVICES

I
NSTALL SERVICES CORRECTLY

DAMAGE TO EXISTING SERVICES

P
ROTECTION OF EXISTING STRUCTURES AND NEW WORK

QUALITY

QUALITY DOCUMENTATION

ENSURE REPAIRS ARE DONE CORRECTLY

M ODIFYING EXISTING STRUCTURES

I
NSPECT EXISTING PROPERTY
 SURVEY OF EXISTING STRUCTURES

AVOID SURVEY AND SETTING-OUT ERRORS

DRAWING CONTROL AND MANAGEMENT

AVOID FINES

CLOSE OUT PROJECTS CORRECTLY

CLOSE FINAL ACCOUNTS

PUNCH LISTS AND MAINTENANCE

EXPENSE AND VEHICLE CLAIMS

RECOVERY OF DEPOSITS

PLAN THE RELEASE OF RESOURCES

M INIMISE WEATHER LOSSES

M ANAGE THE USE OF COMPANY ASSETS

COMMUNICATION WITH STAFF – BUY IN

SUMMARY

CHAPTER 7 – MAXIMISING REVENUE

M ONTHLY VALUATIONS

VARIATIONS

PREPARING AND SUBMITTING VARIATIONS AND CLAIMS

COSTING VARIATIONS

ASSIST SUBCONTRACTORS WITH CLAIMS

SITE INSTRUCTIONS

DELAYS

ACCELERATION

LOGGING VARIATIONS

GETTING PAID FOR THE VARIATION

DON’T EXCEED THE VALUE OF THE ORDER OR VARIATION

RE-MEASURABLE CONTRACTS

DAY-WORKS, COST RECOVERY AND COST REIMBURSABLE CONTRACTS

PUNCH LISTS

ESCALATION AND RISE-AND-FALL CALCULATIONS

DEALING WITH COST INCREASES

ADDITIONAL WORK

ALTERNATE SOURCES OF INCOME

I
NVESTMENT INCOME

CONTRACT BONUSES

PAYMENT OF SUBCONTRACTORS AND SUPPLIERS

SUPPLIER PAYMENT TERMS

BACK-CHARGES AND SERVICES SUPPLIED TO SUBCONTRACTORS

 I
NSURANCE CLAIMS

NEGOTIATE BETTER PAYMENT TERMS WITH THE CLIENT

R GST VAT
ECOVERY OF , , DUTIES AND OTHER TAXES

ENSURE THAT THE CLIENT PAYS

SUMMARY

CHAPTER 8 – FINANCIAL MANAGEMENT

COST CONTROLS AND REPORTING

COST TO COMPLETION

COST VERSUS ALLOWABLE

COST REPORTING USING THE SCHEDULE

COST CODES

I
NVESTIGATE LOSSES – DON’T COVER THEM UP

P B
ROJECT UDGET

C B
OMPANY UDGET

LEVELS OF AUTHORITY AND FINANCIAL CONTROLS

CHECKS AND CONTROLS

DOCUMENTATION

FRAUD

CASH FLOW

DON’T TRADE ON OVER-CLAIMS – BUT DO OVER-CLAIM

TAX

J
OINT VENTURES

SAVE FOR THE LEAN TIMES

SUMMARY

CHAPTER 9 – CONTRACTUAL
W HAT IS A CONTRACT?

W HEN DOES A CONTRACT EXIST?

THE LEGAL BASIS OF THE CONTRACT

THE SAME CONTRACT – BUT IS IT?

M EMORANDUM OF UNDERSTANDING

LETTERS OF INTENT

PAYMENT GUARANTEES

CHECK CONTRACT DOCUMENTS

DOCUMENTATION

GUARANTEES AND WARRANTIES

DISPUTES

DISPUTE RESOLUTION

TERMINATING A CONTRACT
 J
OINT VENTURE CONTRACTS

SUMMARY

CHAPTER 10 – PEOPLE
EMPLOY THE RIGHT PEOPLE

REMUNERATION

BONUSES

SHARE SCHEMES

OTHER REWARDS

LEAVE AND TIME-OFF

M OTIVATION

PROMOTING PEOPLE

M ENTOR, TRAIN, AND DEVELOP

SOCIALISE BUT DON’T FRATERNISE

FAMILY

CELEBRATE SUCCESS

EMPLOYING PEOPLE

PROBATION PERIOD

BURSARIES AND IN-SERVICE TRAINING

CONTRACT STAFF

EMPLOYING WORKERS PERMANENTLY OR FOR A LIMITED DURATION

I
NDUSTRIAL RELATIONS POLICIES

EMPLOYMENT CONTRACTS

SHOP FLOOR AND UNION AGREEMENTS

DIFFERENT CULTURES AND ETHNICITIES

DISCRIMINATION

I
NDIGENOUS AND LOCAL PEOPLE

DELEGATE

S M
UPERVISE AND ANAGE

DISCIPLINE AND COMMITMENT

POOR WORKER PERFORMANCE

LEAD BY EXAMPLE

FEEDBACK

KNOW AND UNDERSTAND THE TEAM

HIRING AND FIRING

LABOUR DISPUTES

SUMMARY

CHAPTER 11 - MANAGING THE COMPANY

REQUIREMENTS TO MANAGE
OPEN DOOR POLICY

REPORTS

M EETINGS

ATTENDING TO TASKS

LEARN TO SAY NO

THE ART OF PERSUASION, NEGOTIATION & COMMUNICATION

S
TAND UP FOR YOUR TEAM

DECISION MAKING

ORGANISING AND ANALYSING INFORMATION

ORGANISATIONAL STRUCTURE AND REPORTING LINES

COMPANY OVERHEADS

DEPARTMENTS

DIVISIONS

S
HARING BETWEEN DIVISIONS

M ANAGING SAFETY

TENDER SYSTEMS

DOCUMENTATION

I
NSURANCES

P
ERMITS, LICENSES AND REGISTRATIONS

GUARANTEES

P
OLICIES AND PROCEDURES

OPERATIONS MANUAL

S
TANDARDISED STATIONERY

ARCHIVING DOCUMENTS

S
ELF-PERFORM OR SUBCONTRACT

REPORTING OF PROBLEMS & PROBLEM SOLVING

W HEN THINGS GO WRONG

ASK FOR ADVICE

USE EXPERTS

M ISTAKES MUST BECOME LESSONS

S
UBCONTRACTOR AND SUPPLIER PERFORMANCE DATA BASE

BE ADAPTIVE – ADAPT TO CHANGES IN THE ENVIRONMENT

USING TECHNOLOGY

I
MPLEMENTING NEW SYSTEMS

I
NFORMATION T
ECHNOLOGY

GRAND IDEAS

DON’T GET SENTIMENTAL

P
LANT AND EQUIPMENT

REASSESS EQUIPMENT
 STANDARDISATION

REVIEWING THE RELEASE OF RESOURCES

VISITING PROJECTS

SECURITY

COMPANY STORE AND YARD

M ANAGE RISK

M ANAGING THROUGH BOOM PERIODS

M ANAGING THROUGH A DOWNTURN

CORPORATE SOCIAL INVESTMENT

SUMMARY

CHAPTER 12 – GROWING THE COMPANY

CONTROLLED GROWTH

I
S THERE A LONG TERM FUTURE?

NOT HAPHAZARD

NOT GROWTH AT ANY COST

SYSTEMS

PEOPLE

CASH FLOW AND GUARANTEES

SUPPORTING DEPARTMENTS

REGISTRATIONS FOR QUALITY, ENVIRONMENTAL & SAFETY INTERNATIONAL STANDARDS

M ORE PROJECTS OR BIGGER PROJECTS

W HERE TO NEXT – LOCATION, FIELD, CLIENT.

EXPANDING TO OTHER STATES OR COUNTRIES

PURCHASING ANOTHER COMPANY

COST OF GROWTH

SUMMARY

CHAPTER 13 – REPUTATION
PROACTIVE

RESPONSIVE

FAIR-MINDED

HOW MUCH PROFIT IS TOO MUCH?

SAFETY

QUALITY

PROFESSIONALISM

HONESTY AND INTEGRITY

BE SEEN, BE INVOLVED

M EETING THE CLIENT’S EXPECTATIONS

DELIVERING PROJECTS ON TIME

 DO NOT OVER-PROMISE AND UNDER-DELIVER

M ISTAKES HAPPEN

COMMITMENT FROM EMPLOYEES

I
NDUSTRIAL RELATIONS

RELIABLE EQUIPMENT

S
UBCONTRACTORS

F
RONT DESK – RECEPTION

BRANDING

P
UBLICITY

P
UBLIC RELATIONS AND NEIGHBOURS

REPUTATION AS A GOOD EMPLOYER

S
ERVICE AFTER THE PROJECT HAS BEEN COMPLETED

S
UMMARY

CONCLUSION
GLOSSARY
Introduction
Many people think there’s lots of easy money to be made in construction.
They may be working for a construction company and see owners and senior
managers driving expensive cars, or they hear of companies doing well and
declaring big profits. It seems to be a fast way to make money. So, many good
tradesmen give up their jobs, invest their life savings and start their own
construction business. Unfortunately, the truth is that for every rich and
successful person in the construction industry there are probably at least ten
others, business owners and managers, who aren’t as successful, working long
hours and taking home an average salary. Furthermore, there are probably
several business owners who’ve lost their companies and are once more working
for a boss, sometimes even in another industry. Nearly all of these people are
skilled and knowledgeable and I’m sure every one of them worked hard. Many
of them probably even completed successful projects, and yet, their company
wasn’t successful and eventually collapsed.
People who have owned or managed a construction company that has fared
poorly often ascribe the poor performance to bad luck. Often it’s just one bad
contract that has wrecked their company. It may just have been one client that
didn’t pay them, or it could have been one project that was affected by
unseasonably bad weather. I’ve worked on projects that have lost money, where
we could attribute the loss to bad luck. Maybe there was bad luck! Maybe it did
rain and possibly we did have equipment breakdowns. But, to be honest, if we
analyse the reasons for the poor performance, we probably could have avoided
the loss, or at least reduced it, if we had done things differently and managed the
project better.
To be successful in construction means more than just completing
numerous projects. It requires that the projects must be completed on time, to the
required quality standards, with no safety incidents, and importantly, make a
profit. But more significantly, the company must be paid for the work they’ve
done and be cash positive. Cash flow is one of the biggest challenges facing
construction companies. Just because a project is profitable doesn’t mean the
company has money in their bank account. Furthermore, the company needs to
build a good reputation, establishing relationships with clients, so they can
obtain further work.
Construction isn’t an easy business with clients that are sometimes difficult,
demanding, inexperienced, have unreasonable expectations and even in some
cases may be simply dishonest. Clients also set unreasonable schedules, have
their own cost pressures (forcing construction companies to provide
unsustainable savings), and appoint substandard design teams that provide poor
quality drawings and information, often late, and aren’t responsive to the
construction company’s needs and queries. Furthermore, contractors often face a
shortage of materials, additional red-tape, tougher safety and environmental
legislation, a society that has become litigious, added competition, more
complicated and complex projects and in some cases even political interference.
Every project and client is different and contract conditions are often
varied. Therefore, there isn’t one set recipe that will work on every project,
forcing construction companies to continually adapt and modify their processes.
Moreover, contractors still face the same challenges of adverse weather
conditions, price increases and a shortage of skills.
However, if the truth be told, there are very few well run construction
companies. Many fail, not because of the outside pressures, but rather because of
their own inadequacies. Some reasons for their failure are; poor tendering, lack
of cash or poorly managed cash flow, over-extending themselves where they
have insufficient finance, resources or skills, not getting paid for work, poor
financial controls, a lack of leadership and a shortage of work.
So what makes a construction company financially successful? Well firstly
managers must find a project to price – and not just any project, but the right
one. They need to accurately tender or price this project and make sure they win
the work without giving all their potential profit away. Once the company has
been awarded the project they must successfully do the work, avoiding mistakes
and ensuring they’re paid for all completed work. To achieve this they need to
be financially and contractually astute and employ good people. At the same
time managers need to be enhancing the company’s reputation, managing the
overall company, and growing the business.
There isn’t a magic formula for this, but, there are some common sense
rules to assist in achieving these outcomes which I’ve outlined in the following
chapters. There’s no coincidence that the two longest chapters are on tendering
and reducing costs. If you’re awarded a project at the correct price, ensuring the
conditions aren’t unreasonable and the schedule is achievable, and then carry out
the work efficiently with minimal costs, the company is half-way towards
becoming successful.
Being successful is not so much about being lucky, but rather about
creating your own luck. Obviously it also demands hard work and a certain
amount of technical knowledge and practical skills.
 Managing and running a construction company requires knowledge of
many particular laws such as; company registrations and compliance, labour
legislations, legal and contractual knowledge, safety and environmental
legislation and tax laws. This book doesn’t go into detail on these since they
vary between countries and change with time. It’s however essential that
companies comply with the prevailing legislation, so it’s important that
managers have a broad understanding of the requirements and seek expert advice
and help.
I was fortunate and was employed for twenty years by a very successful
construction company. The company expanded and overtook most of its larger
competitors. As the company grew I was able to grow and develop, benefiting
from the success of the company in monetary terms, in personal growth and job
satisfaction.
Chapter 1 – The Right Project
Many construction companies are desperate to find work so they’re willing
to accept any project, at any price. I’ve been in a similar situation before.
However the risk of accepting a project at any price is that the company wins the
project, works hard on it for several weeks, or months, only to lose money. How
much better would it have been for everyone to sit at home, neither making
money nor losing it? By not working on the project maybe the company would
have had time to look for other more suitable projects? Maybe, by taking on the
project the company didn’t have resources available to undertake a more suitable
project when it presented itself?
The risk of taking on the wrong project not only impacts directly on the
profitability of that project, but it impacts on other projects and the company as a
whole. When a project is in trouble management spends more time on it than
they normally would, trying to rectify and solve the problems. This time could
be better spent on maximising profits on other more successful projects. In fact,
the absence of management on the other projects sometimes results in them also
turning bad.
Working on a project should not be about being employed. The only
reasons you want to be doing a project is so the company can make money, or
occasionally so it can win further work which will make money. Frequently I see
contractors win projects just because they’re desperate for work, or, sometimes
contractors take on large and prestigious projects, believing it will enhance their
standing with the public and their shareholders. Unfortunately, many of these
projects end up costing the company large amounts of money.
So what is the right project? It’s one which the contractor can:
1. complete on time
2. produce good quality work which satisfies the client’s specifications and
requirements and is a good advertisement for the contractor
3. complete with no safety incidents, without harming anyone or the
environment
4. make a profit
5. receive payment on time
6. be cash-positive, or at least cash-neutral
7. utilise their available resources
8. if possible, obtain further work from the same client or win work from other
clients in the vicinity
Know which projects are profitable
If a contractor understands which contracts are their most profitable, it
makes sense to place more emphasis on them and pursue that particular field or
client. This sounds obvious, but unfortunately some contractors don’t always
know how much profit each project has made, nor have they analysed the
reasons why some projects are more profitable than others. This results in
contractors submitting tenders for projects which won’t be profitable, even
tendering for projects where they consistently lose money.
Case study:
We constructed two concrete cooling structures and lost a considerable
amount of money on both projects. At first glance the projects appeared simple
and were priced as such, but in fact each time the construction turned out to be
more complex and difficult than anticipated. The first time we lost money we
thought it was because we ran the project badly. After we lost money the second
time we realised it was best to avoid these projects.
I later talked to a number of other contractors and none of them seemed to
have made money on these structures.
After turning down the invitation to tender for several more of these
projects I eventually couldn’t resist the temptation to price one and try and
prove we could actually tender it correctly and build it efficiently without losing
money. Fortunately we were able to win the project at a relatively high profit
margin of 20%. Needless to say, we made only 12% profit on the project,
meaning we lost 8% of our tendered profit.
The above just proves that some projects are best left for other construction
companies to build.
If you lost money on a project, before you tender on a similar one, you need
to understand the reasons for the loss and ensure the same problems won’t arise
next time around.
Working for the best clients
Picking the right client and working for them is probably one of the
essential keys to being a successful contractor. So what makes a good client?
1. Most importantly the client must pay for the work done. Not only must the
client pay the contractor, but they must pay the contractor on time and in
full. This means they must be financially sound with money in the bank, a
positive cash flow, and have no risky ventures or businesses.

So how do you enquire about the financial wellbeing of a client?

You can ask for a copy of their bank statements, but many clients
are unwilling to divulge these. Anyway, having money in a bank
doesn’t mean the client will pay the contractor on time, or even at
all. So a contractor should do a bit more research. By reading
newspapers one could hear about a client’s financial problems. In
addition, talk to subcontractors, suppliers and other contractors
and you will get a sense of whether the client is a good payer or
not.
2. It’s also useful to work for a client that may have other work, either on the
same project or elsewhere. Many of the projects I was involved with went
onto a second phase, one even went to five phases, and we regularly
remained on a site for several years. We worked for a large petrochemical
company and were often able to work on several projects simultaneously
while established on their facility.

For a time our competitors made sure they kept us away from
certain mining clients. When we eventually won a contract with
one of these clients we quickly discovered why our competitors
had been so protective. We were able to undertake several more
large projects for this client, which were very profitable and
ultimately made up a significant portion of our overall profits.
3. Some clients are more organised than others and employ strong
professional teams. The more organised the client, the more likely it will be
that drawings and information will be issued in accordance with the
schedule, which will enable the project to be completed on time, within
budget and with minimal fuss. Although late information and delays may
give the contractor an opportunity to submit claims and variations, earning
the contractor additional money, the delays are often counterproductive,
tying up staff unnecessarily, preventing them from moving to the next
 project and causing them to become frustrated. Obviously, in a tight market,
with little work and no project for staff to move to, it can be advantageous
to be delayed on a project and paid by the client for this time. However, in
most cases it is far better to complete the project in the allotted time (or
faster), and move onto the next one.
4. Some clients can be particularly fussy and demanding especially if they
don’t understand the construction processes properly. At times these clients
will argue about every little detail and every cent. I’m not advocating that
clients shouldn’t insist on quality and value, but rather that some clients go
beyond these requirements, becoming quite petty, frustrating the
contractor’s staff and tying them up in time consuming arguments. I’ve
known some contractors that refuse to work for certain difficult clients, or
deliberately add a premium in the tender price to allow for the trouble of
working with them.

Case study:
We undertook a road project for one client who used to send us letters
daily, some even late at night. These letters usually required a response from our
Project Manager, but were often about small details that many clients would
ignore. In fact, often the facts and logic were incorrect. All of this tied up our
Project Manager and prevented him from working on other projects. In addition,
the client’s constant interference in the work methods slowed us down and if we
hadn’t been contractually astute the client would have deducted money from us
which they weren’t entitled. All of this added additional costs which weren’t
budgeted for and we lost money on the project.
We later heard that another contractor who had previously worked for the
client added a 15% premium to their tender price to compensate for the
additional costs they knew would likely be incurred on the project.
The strength of the client’s team
The client usually appoints a team of designers, sometimes architects, and
occasionally a managing contractor. Some of these companies can be very
professional and often assist the contractor in delivering the project on time.
However, I’ve found some to be inexperienced, even obstructive in the way they
administer the project, and on occasion unresponsive to the contractor’s requests
for information, drawings and access.
The contractor depends on the designers to produce quality drawings and
reliable information on time. Inadequate drawings hinder the project progress
which could negatively affect the contractor’s costs.
Projects run by a poor team lead to the contractor requiring a larger
administrative team which adds to the contractor’s costs. Also, these projects
often result in delays, claims, variations and disputes which further add to the
contractor’s administration costs, negatively impact their cash flow, and even
affect their reputation. Projects with these teams on board are therefore best
avoided.
I’ve worked with many good teams and clients. The projects have generally
been well organised, drawings have been of a high standard and issued on time.
They’ve been responsive to our questions and have been fair in their assessments
of our variations. It’s not to say there weren’t mistakes or problems, but in
general things were done professionally. The end result was always that we had
a successful project, finished on time, with minimal fuss, with a happy client,
but, more importantly we always made money – usually significantly more than
anticipated at tender stage.
The field of construction
What field or type of project should you be tendering on? I had one
particular business owner who was prepared to tender on anything, even if we
had absolutely no experience in that field of work. Clearly, to prepare a proper
tender you need some knowledge of the field to enable an accurate price to be
developed. The client would also typically only consider awarding a project to a
contractor who has the relevant experience in the type of work to be undertaken.
This is not to say that contractors shouldn’t be looking at alternative fields in
which to work, but, these should only be considered after considering all the
risks and opportunities.
Often branching out into a new field requires the contractor to employ staff
with the required knowledge, even purchasing specialist equipment. Therefore
there should be some certainty that after completing the project these resources
can be employed on other similar projects.
Occasionally, opportunities arise on an existing project, or with an existing
client, to undertake a project in a different field. If there are benefits in
undertaking the project consideration should be given to either subcontracting
the specialist work, or forming a joint venture with another company that has the
required expertise.
I wouldn’t advocate tendering for projects in new fields without first
ensuring there’s sufficient knowledge available, either within the company or
from outside experts, that can assist with the tendering and construction.
Case study:
One of our competitors decided to start a division to undertake slip-form
construction. Since there were many opportunities for slip-forming work, with
very few competent contractors, the idea was a good one. However they didn’t
employ the correct personnel for their first two projects and these weren’t
executed well. This unfortunately cost them money and also negatively affected
their reputation.
It should be remembered that any work done poorly, even if it is done by a
new division, can adversely impact the entire company’s reputation.
Opportunities for further work
A good project to work on is one where there’s potential to be awarded
further work. It’s often advantageous to be one of the first contractors on a large
project. Some contractors even tender for a project at a reduced or even zero
profit to ensure they win it in the hope they’ll be awarded further work where
they can recover their profit. This can be dangerous because they might not get
further work on the project.
Some projects might be the first part of the client’s facility and they have
indicated that they will be constructing further phases. Unfortunately these
phases often don’t follow immediately after each as a continuous stream of
work.
It’s still worth doing homework, understanding the bigger picture and the
potential for more work from the same client, another client in the same facility,
or even within a particular area. For instance, if your company specialises in
building renovations, then a suburb that’s undergoing redevelopment with many
home owners doing renovations may be a good area to be working in. If
prospective clients see the company’s name on sign boards, vehicles and
equipment there’s a good chance of being asked to quote for other projects in the
area. However, working in an established suburb, where renovations and
developments are few and far between, won’t necessarily generate the same
exposure for the contractor.
The project’s location
A project adjacent to, or in the vicinity of the company’s Head Office may
be desirable. Not only are these projects convenient to manage and support, but
it wouldn’t be good to have a competitor constructing a project so close to the
office, particularly when potential clients visit the office.
Some project locations are prominent, offering an opportunity to advertise
the company. The successful completion of the project can result in good
publicity giving the company an opportunity to showcase its abilities.
On the other hand, some projects may be difficult, disrupt business and
traffic and result in adverse publicity, particularly if they are in prominent
locations.
The project’s proximity to existing projects
One business I worked for tried to price anything and everything, with
some projects being thousands of kilometres from where we were operating. We
weren’t running the projects close to home very well so it was likely that these
distant projects would be run more poorly.
Don’t underestimate how much travelling eats into management time.
When projects are located close together Project Managers and Project Directors
can often easily look after more than one project, and they can certainly look
after more projects than when they are widely spread over large distances.
Projects situated close together may also have other efficiencies such as
sharing resources like mechanics, fitters, service trucks, fuel bowsers, Site
Administrators, Contract Administrators, transport, office space and
accommodation.
Remote sites
Many companies are good at working in remote locations. In fact some
specialise in working in remote areas, though, most don’t operate successfully in
these locations.
Projects in remote locations have their own challenges:
1. These projects require personnel who are prepared to work in these
locations, yet, most people are unwilling to do so, and many companies just
don’t have the right personnel for such projects. These companies either
recruit people specifically for the project, which isn’t a good idea since they
are relying on someone who doesn’t necessarily understand the workings
and culture of the company, or, they force their existing staff to relocate,
leading to them being unhappy and either not focusing on the project or
resigning. Why lose a good person just because you have a project in a
remote area?
2. It also takes a special kind of person to work in a remote area – someone
who’s resourceful, independent and who can get on with the project with
little or no assistance.
3. Working in a remote area demands certain logistical skills because
personnel, equipment and materials must be transported over long distances
to the project. The projects are often difficult to reach and may present
difficulties in servicing and repairing equipment, supplying spare parts and
even getting paperwork back to Head Office.
4. Remote projects must be tendered correctly, and the Estimator must be
aware of additional salary costs and allowances. Since plant and equipment
may not be readily available it will be expensive to move equipment onto
and off the project. Equipment may sit idle on the project between tasks
because it’s uneconomical to remove it and return it later when it’s
required. Maintenance and repairs will be more costly, and may take longer
to implement.
5. Management visits won’t occur as frequently as for projects closer to Head
Office, meaning problems could go undetected or unresolved. Many of my
projects were several hundred kilometres from our office and I required a
full day to travel and visit them. I envied Project Directors who had all their
projects in the city and could easily visit a project whenever they had a few
spare hours in the day.
6. If the area is remote there’s often not much chance of further work in the
vicinity. Of course, if there’s a possibility of other work in the area that can
be done at the same time, or immediately following the project, the
company could be well placed to be awarded the work and some transport
costs may be shared with the new project which would make them both
more profitable.
The resources required for the project
Consideration must be given to the types and quantities of resources that
will be required to carry out the project.
1. Some projects can be fairly difficult, or spread over a large area, and
require lots of management and supervision for a relatively small revenue
and profit. Other projects with a similar profit and revenue may require less
supervision and management, so it’s obviously better to focus on these
because the company is able to do a larger turnover (hence making more
profit) using the same number of people.
2. Of course some projects are better suited to certain staff, so it’s advisable to
tender on projects that match the abilities of staff requiring work. For
instance if the company is looking for work for its Building Supervisors and
doesn’t have spare Concrete Supervisors they should be tendering for
building rather than civil projects.
3. If a company owns a significant amount of equipment and most of it is
unutilised then it’s useful to win a project (even at a lower margin), that
will utilise the equipment and earn revenue for it.

Unfortunately some companies tender for and win projects for which they
don’t have enough suitable staff. This means they have to employ new people
for the project. Because the recruiting is usually done in a hurry some of the new
staff may not be the best or the most suitable and are just bodies to fill a position.
The new engagements are normally not familiar with the company’s procedures,
safety and quality expectations or behavioural codes. This often leads to
problems which may cost the company money as well as its reputation.
Keep it simple
Often the simplest and least attractive projects are the more profitable ones.
Case study:
For many years our company was unable to secure a project with a
particular client who was usually constructing a number of new projects at any
one time. One day we got our opportunity. A major competitor had constructed a
new process plant for the client. The main work was complete, but as with many
large projects there were lots of bits and pieces to be finished off. The other
contractor wasn’t interested in doing these and only wanted to do larger
projects. The managing contractor approached us to undertake the remaining
works which we accepted, since we were only too happy to finally work for the
client.
Not only was this work profitable for us, but after completing the project
the client gave us opportunities to undertake further projects, leading to us
eventually becoming their preferred contractor.
We always said that when a project won an award, or had fantastic
photographs that appeared on calendars, then it had almost certainly lost money.
Obviously this is a generalisation and isn’t always true. However, it’s often the
case that projects that look fantastic are the more difficult and costly ones to
construct and are usually more risky. Many of my most profitable projects aren’t
visible to the general public.
One of our major competitors always chased mega projects which were
good for headlines, but they seldom earned the major profits they expected.
The project’s risks
It’s important the contractor understands the risks involved with a contract
since some projects can be very risky. These risks could be related to a weather
event, (do you really want to build a bridge across a river during the rainy
season?). They may be related to possible industrial relations problems, or there
might be risks of damaging public or private property, or injuring someone.
Case study:
One of our good clients was very persistent that we undertake a small very
difficult project. We had previously completed several large projects for them
and at that time were busy on a couple of projects worth several million dollars.
This particular project was worth only a hundred thousand dollars and was in
the middle of a petrochemical plant. I mean in the middle! It was directly under
and around major operational equipment and we were expected to excavate,
locate and remove literally hundreds of existing underground cables. The
project was high risk, and if we damaged operating equipment or cables we
could have shut down portions of the plant which would have resulted in bad
publicity for our company and probably have prevented us getting further work
from the client. In addition, we may have been liable for the costs of the repairs.
Obviously the profit from a one hundred thousand dollar project couldn’t make
up for these risks so this was definitely a project to be avoided.
Unfortunately, in this case the client was really persistent and we were
eventually forced to accept the project. Nonetheless, we bought additional
insurance in case we damaged any of the existing facilities, made sure the client
changed some of the conditions in the contract document (reducing our risk
exposure), and included sufficient supervisors and management in our price to
lessen the chance of problems occurring. We ended up successfully completing
the project without mishap and made a good profit.
From the above I’m not saying that you shouldn’t tender for a high risk
project, but it’s important to consider and understand the consequences of the
risks. You don’t want to destroy the company because a big risky project was
undertaken and the potential risk events actually happened.
When tendering for projects with high risks there are various strategies that
can be employed to mitigate these risks:
1. Some risks can be reduced by negotiating better contractual terms with the
client and transferring risks to them.
2. Some risks can be partially allowed for in the pricing – for instance if we
expected to lose time due to inclement weather we often priced to allow for
a portion of the expected lost time. Obviously if there was no inclement
 weather we wouldn’t have spent the contingency and would have made
more profit. If we experienced more inclement weather than allowed for we
would have spent the entire contingency and used some of our profit – but
at least by allowing for some inclement weather we had reduced the risk
and potential loss.
3. In addition it may be possible to purchase insurance to cover some risks.
4. Sometimes one can add additional profit to the tender, making it worth
taking on the risks.

Of course all construction projects have some risks and it’s a matter of
ensuring that the risks are understood and allowed for.
Some risks to consider are:
1. difficult ground conditions such as having to excavate in rock
2. existing services which can be expensive to locate, result in delays when
they are moved, and if damaged can result in large repair costs and harm
the company’s reputation
3. adverse weather conditions, such as rain, wind and severe temperatures
4. industrial relations problems
5. unknown or untried technology
6. a short or difficult schedule
7. complex and difficult structures
8. working in and around existing operating facilities
The right size
Just like the children’s story of Goldilocks, where some items weren’t right
(either too big or too small) and others were just right, you don’t want to be
working on projects that are too big or, too small. You want to work on projects
that are the right size for the company. I must emphasise ‘right for the company’.
Consequently it’s important to understand what the best size of project is. A
project that is suitable for a small company may be too small for a larger one. As
the company grows, so will the size of their projects change. This may even
affect the clients the company works for, and even the market or region in which
they operate. Many contractors grow in size but are reluctant to abandon their
existing clients. I’m not advocating dropping all existing clients, but
occasionally, companies grow out of clients, and the company has to move on,
politely declining to price projects that may now be too small or unprofitable.

Many contractors get into trouble when they win projects that are too big
since:
1. They have insufficient personnel, causing them to hire new staff who could
be inexperienced and don’t understand the company’s values. Alternatively,
the company puts too few staff on the project, resulting in poor
management and supervision.
2. They don’t have suitable personnel with large project experience.
3. The company doesn’t have the right experience and knowledge to run a
major project.
4. Large projects place bigger demands on the company’s cash flow.
5. A large project may require all of the company’s resources which means the
company is unable to work on other projects, effectively meaning they have
all their ‘eggs in one basket’, which could be disastrous for the company
should the project go badly.
6. If their resources are all tied up on one project they are unable to do
projects for other clients, some of whom may be good ones, which causes
these clients to use another contractor which may well result in the
contractor losing them forever.
7. When a large project ends there’s often a sudden release of personnel and
equipment and replacement work has to be found for all of them in a short
period of time (ideally you want a number of projects starting and ending at
different times – each with a value not exceeding fifty per cent of the
company’s annual turnover).
8. Large projects require bigger bonds and sureties which could take up all the
 company’s banking facilities, preventing them from taking on other
projects. It should be noted that many projects require these bonds and
sureties to be in place until the end of the warranty period which could be a
year or more after the project completion.

Just as a project can be too large for a company, so to, are there projects
that are too small; either in duration or value. Smaller projects:
1. Often require the same management and supervisory staff as a large one, so,
it’s possible for the same number of staff to look after and generate more
revenue per month with larger projects than with a number of smaller
projects.
2. Are normally of a shorter duration than larger projects and are therefore less
efficient because every time personnel and equipment are transferred
between projects there are inefficiencies and lost time due to travelling
between the projects and preparing for the new one. In addition one project
seldom follows on exactly from the previous one. Consequently there’s
often a break of a few days, weeks or months, when personnel and
equipment are idle and not earning revenue.
3. Take more Head Office administration time than one large project does
because:
1. payroll staff must administer frequent transfers of personnel between
smaller projects
2. creditor administrators must deal with many smaller purchases
compared with a few larger purchases for the big project
3. debtors staff must process more invoices to the many different clients
compared with only a few invoices for the larger projects
4. the estimating department must submit and win more tenders

It is however useful at times to have a mix of different sized projects since

smaller projects allow junior Project Managers to manage their own projects,
while larger projects employ a number of junior engineers who are able to learn
from the more senior staff on the project.
Niche markets
Sometimes contractors have a particular niche field or client that they
supply and service. It’s generally in the contractor’s interest to keep other
contractors out of this niche so they must ensure their tender is competitive
enough to do this.
In other cases, if the contractor has the experience, equipment and
personnel suitable for the project then their costs may be lower than other
tenderers who don’t have these advantages, which will enable the contractor to
apply a larger profit margin.

Contractors must be careful not to become trapped in a particular niche

because often these niches can come to an end when other contractors enter the
market, or when work dries up. If the contractor doesn’t have other clients and
fields to work in they suddenly find they have no work, leading to them going
out of business.
The moral of the story is to develop and chase a niche market where
practical, but always to be involved with other opportunities that can replace the
revenue from this market should the work come to an end.
Fad or potential for a new market
Case study:
Several years ago many of the contractors working in South Africa were
unable to find sufficient work in the country so they tendered for, and won,
projects in other African countries with varying degrees of success. Operating
conditions weren’t easy, logistics were often a problem, some clients didn’t pay,
employees were unhappy working far from home, the legal situation was
different and there were additional taxes which weren’t always factored into the
price. Unfortunately the success stories were outnumbered by failed projects.
Many of the medium sized companies saw the large companies moving into
Africa and decided to do the same thing, bringing more accounts of failure.
The moral of the story is that there was potential to make large profits in
other African countries but it did depend on the country, the client and how well
the tender was done. Just because another company has been successful doesn’t
mean your company will be as successful, and nor does it mean that when you
move into that market the profits will be as easily made.
It’s important to research new markets and opportunities to ensure you
understand all the risks and that the market is going to be sustainable in the
future. You don’t want to be setting up an office in another country, state or
region just for one or two contracts, nor do you want to purchase new specialist
equipment for a new market only to find that the market dries up and you’re left
with equipment you cannot use.
However, if you’ve done your research properly and believe that the
financial model works, that you can minimise the risks and the market is
sustainable, then by all means tender for the project. Maybe you will find a
profitable new market.
Understanding the current market conditions
Different projects can be more suitable than others depending on the
prevailing market or economic conditions. When there’s little work available it’s
not always possible to be selective about which projects to tender for.
The construction market changes and moves through cycles of a relative
abundance of work to a scarcity very quickly. It’s important to understand and
anticipate these cycles. I’ve regularly seen contractors take on a difficult project
at a low profit margin just as the market enters a boom period. Their resources
are then tied up on the project with a low margin, while other contractors are free
to tender for more profitable projects.
The opposite is also true, and it’s important to secure a long duration
project at the end of a boom cycle at a good profit, just before the tender profit
margins start dropping. This project can at least get the company part way
through the difficult period.
Profit margins must be adjusted appropriately and timeously to take into
account these changes in market conditions. I’ve frequently seen contractors at
the end of a boom period not adjust their margins downwards fast enough in
anticipation of the downturn, and every time they do adjust the margins down
they aren’t reduced low enough to secure the project, forcing them to go even
lower on their next tender.

Sometimes if you’re aware your competitors are busy on other projects, or

aren’t keen on tendering for a project, it’s possible to win the project with a
larger profit margin than would normally be applied.
Bid (or tender) procedures
How the client calls for bids should influence the decision whether to price
a project or not.
1. Many clients put projects out to open tender which means there are no
restrictions and any contractor can submit a tender. Government projects
are usually put out to tender in this way. Obviously the client may receive
dozens of tenders for the project and I’ve seen clients receive up to fifty
tenders. The competition is fierce and the chance of winning the contract is
low, particularly since there’s often at least one contractor who is desperate
and submits a low or even stupid, tender. With an open tender there are also
often inexperienced smaller contractors who don’t understand the project
correctly, causing them to submit an incorrect price. Where possible I’d
avoid submitting tenders for these projects.
2. Another way clients call for tenders is anyone can tender for the project
providing they meet certain criteria stipulated in the tender documents.
Some of these conditions can be quite simple such as the contractor must be
registered in the state or country. Some can be more restrictive and many
contractors are unable to meet them. These may include a requirement for a
tender bond which some contractors may not be able to provide, the
contractor might have to demonstrate they have constructed similar
projects, achieved a minimum annual turnover, or there may be a specified
minimum local content or local contractor participation target. The number
of contractors eligible to tender for the project depends on the number and
types of conditions. If a contractor cannot meet the conditions of eligibility
then it’s usually a waste of time to submit a tender, although, some clients
don’t always adjudicate tenders in a fair and honest manner and could be
swayed by a low price and award the project to a contractor who doesn’t
meet the tender criteria.
3. Some clients call for contractors to prequalify to tender, and only
contractors who successfully qualify are invited to bid for the project.
Unfortunately some clients can prequalify a dozen or more contractors to
submit tenders which can still mean that the competition to win the contract
can be fierce.
4. Most private clients invite only a select number of contractors, which is
normally around six, but can be as few as three or as many as twelve, to
tender. The competition is obviously much reduced and it’s definitely worth
tendering for these projects. The trick is to become part of the group the
client invites to tender. More on this subject in the next chapter. An
 important item to bear in mind is that if a client invites a contractor to
tender there is almost an obligation, and an expectation, for the contractor
to submit a tender and if they don’t submit one some clients can be
unforgiving and possibly won’t invite the contractor to tender for their next
project.
5. Of course the best method of winning a project is when a client negotiates
the contract with the contractor. I’ve managed to arrange this on a number
of occasions. Not only is it possible to achieve a slightly higher margin, but
more importantly it almost definitely removes the opposition from the
tender process thus ensuring the contractor can secure the project. During
the negotiation process it may be possible for the contractor to offer up
ideas for improving the constructability of portions of the project, thereby
providing cost savings for the client and maybe even increasing the profits
for the contractor. Having said this though, as a word of caution, I have
seen contractors lose contracts they were negotiating because they were
either too greedy and wanted the contract at a price the client wasn’t
prepared to pay, or because they were demanding terms and conditions
unacceptable to the client.
The contract document
Clients use different forms of contract documents. Many of these are simple
variations of standard conditions used throughout the industry. Most offer
protection to both the client and the contractor. Some clients, however, use their
own form of contract document which can sometimes be heavily biased,
transferring all the risk to the contractor and offering them little protection.
Either avoid tendering for these projects or ensure the risks are removed,
qualified out, or priced in the tender submission.
Payment conditions
The cash flow on a project is important to the success of the company.
Some clients have payment periods that are short – possibly even a week or two
weeks after the submission of an invoice. These projects are far more attractive
than those with terms of thirty-five days, fifty-six days or longer. Many smaller
contractors have to pay suppliers upfront and most contractors have to pay
suppliers within thirty days. If the contractor is paid later than this they are in
effect financing the project. Many building contractors make more money from
managing their cash flow properly than from actually doing the work, since
they’re often paid at seven or fourteen days and only pay their suppliers and
subcontractors after thirty days.
The difference between projects paying after fourteen days compared to a
project paying on fifty-six days could be worth ½% of the project value in
interest earned, which might not seem much, but if the project profit is 5% this
increases the profit by 10%.

But that’s just on the payment period. Now what about some of the
payment conditions? Clients often hold between 5% and 10% retention with half
released at the end of the project and half released at the end of the warranty
period which is normally twelve months.
A project with a duration of one year and a warranty period of one year,
with a 10% retention held to the end of the project and 5% held over the
warranty period could add nearly another ½% of interest costs to the project
compared to one with no retention.

Moreover consider when and what the client pays. Many clients don’t pay
for materials and equipment which hasn’t been built into the works at the time of
invoice. At times these materials can be a significant cost which the contractor
often has to carry for several months until they’re built in. Many clients will
however accept a bank guarantee or insurance bond to cover the costs of this
material or equipment, thereby freeing up the contractor’s cash flow.
Some clients only pay on completion of a milestone, and sometimes the
contractor may have to complete a substantial amount of work at their cost in
order to achieve the milestone before payment is received.
The client’s budget
Some client’s budgets are too low. Obviously contractors are not always
privy to the client’s budget but some research may give an indication of what it
is.
When the budget is too low:
1. The contractor’s price is usually higher than the budget and the
administration of the project is difficult because the client will argue and
resist all claims and variations that the contractor submits even if they are
legitimate and valid.
2. The client will also try and save money wherever they can which could
mean that they select cheap, poor quality materials which are difficult to
use or which could cause a finish which is below expectation and frequently
becomes the contractor’s problem.
3. Furthermore, the client may take short cuts with the design, or even reduce
payments to the design team, which could affect the quality of the design
information, or the effectiveness and timeliness of responses to queries
submitted by the contractor to the team, which will impact the schedule and
possibly result in delays to the contractor.
4. Furthermore, when the project price is above the client’s budget there is
always the risk that the client runs out of money before the project is
complete, leaving the contractor unpaid.
The quality of the tender documents
The quality of the tender documents is often indicative of the quality and
experience of the client and their design team. Poor quality documents are an
indication there could be problems in the course of the contract due to poor and
insufficient information which will lead to delays and possible claims. In general
I would stay well away from these contracts, or at least price them in the
knowledge that you will have to use a well prepared and experienced contract
team that can deal with any problems, and submit variations for the delays and
inconveniences caused by the poor information. On occasion, if the client has a
sufficiently large budget, and the contractor has an experienced team, it’s also
possible to profit out of the situation.
Some tender documents and scope of works are so poor it is unclear what
the contractor should price so it’s important that the contractor clearly defines all
their assumptions and specifies what they have priced (or not priced) in their
tender submission.
Liquidated damages
Some projects have excessively high or stringent liquidated damages. Often
these damages may be uncapped, allowing the damages to quickly accumulate
and consume any potential profits and even in some cases the entire value of the
project. It’s important to understand the liquidated damages and what the risks
are of being penalised.
In some cases it’s possible to qualify a lower value for the liquidated
damages in the tender submission, as well as placing a cap on the maximum
amount of damages that can be applied. If these proposals are not acceptable to
the client it may become necessary to walk away from the tender. More than one
contractor has gone out of business when they’ve not completed a project on
time, resulting in financial charges and penalties which they were unable to pay.
The project schedule
As part of the liquidated damages it’s also important to understand the
project schedule and the project’s completion dates. Often these dates aren’t
feasible in which case either propose a more realistic schedule or don’t price the
work. Rather, let another contractor be stuck with a problem project which they
can’t finish on time, resulting in liquidated damages as well as damage to their
reputation.

Will you be competitive?
Often you know before submitting a tender that your price will be
uncompetitive. The project may be too small, it could be located in an area
where you aren’t working, or you may not have the expertise or the equipment
for the project. If the project is more suitable (either in location, size, or type of
project) for other contractors your price is going to be far more expensive than
theirs. Not only has valuable time been wasted in preparing and submitting the
tender, time that could have been used more effectively on another bid, but there
is also a risk the company’s reputation has been damaged since the client may
think the contractor is too expensive and uncompetitive and they will not invite
them to price their next tender.
We’ve often declined tenders because we believed we would be
uncompetitive. We usually phoned the client and sent them a letter, explaining
why we weren’t going to submit a tender and why we felt in this particular case
we would not be competitive or have the necessary resources to offer them the
quality of work they had come to expect from the company.
Illegal and criminal activities
Contractors should be careful not to be involved in illegal or criminal
activities. Projects that are built illegally without the correct permits, or require
vegetation to be cleared without the necessary permits being in place, can result
in:
1. bad publicity for the contractor since it’s normally their machines and
workers that appear on television and in media photographs
2. the project being stopped with implications for the contractor’s equipment
and people
3. equipment even being impounded
4. the contractor not getting paid

Further to this, people often acquire money illegally which they use to
finance building projects. While you may think there’s nothing wrong with being
paid from these ill-gotten gains there are always risks that:
1. if the source of income is exposed the contractor receives negative publicity
2. the client is arrested and the project comes to a halt
3. the client’s assets are seized resulting in the contractor being unpaid
4. people involved in criminal activities may resort to illegal tactics should the
contractor get into a dispute with them
Controversial projects
Sometimes certain projects are controversial, such as projects located in
sensitive environmental areas, or projects that have resulted in local inhabitants
being relocated. These projects may have vocal protesters who sometimes even
resort to sabotage, vandalism and blocking off access to site. This opposition can
delay the project, result in the company losing money as well as being in the
press for the wrong reasons.
Summary
The right project to price is influenced by a number of important variables.
Projects you should not be tendering on are ones which:
1. are unprofitable
2. pose a serious safety risky to workers or members of the public
3. you don’t have the expertise and knowledge to prepare an accurate tender
4. have high risks that could affect the future of the company
5. require staff with expertise and knowledge that the contractor doesn’t have
and will probably not require in the future
6. the client may pay late
7. will negatively impact the contractor’s cash flow
8. require bonds and sureties which cannot be obtained
9. have a final value in excess of the client’s budget
10. have unachievable milestones
11. have high and uncapped liquidated damages
12. have unreasonable contract conditions
13. have a weak design team
14. don’t have all the permits in place, or there’s a chance the client won’t be
granted the necessary permits
15. are too small
16. are too large
17. are in a remote region you have no experience with
18. are for difficult clients
19. are controversial and may tarnish the image of the company
20. are illegal
21. are funded by known criminal activities
22. you will not have a competitive price giving you a fair chance of being
awarded the project

Selecting and winning a suitable project for the company is vital to being a
successful contractor.
Chapter 2–Finding the Right Projects
Many smaller companies are trapped in a cycle of doing small projects,
working as subcontractors to other contractors, or working for difficult clients or
ones that are poor payers. So how do you break out of this mould and find the
right project with the right client? Well this is where you have to do some work
to find who these clients are, and which projects are going to be good projects
leading to further work.
Keeping a good client
Case study:
For many years we had been unable to work for a particular client and
most of their work was awarded to two contractors. Eventually we got a lucky
break and a fairly difficult project came up which wasn’t that prestigious. One
contractor was currently on site but hadn’t performed particularly well, and to
make matters worse they had recently transferred their Project Director to
another project. The other contractor had also changed personnel within their
organisation and their current management didn’t understand the importance of
keeping the client. We were desperate both for the work, and to establish a
relationship with the client, so we bid keenly for the project and went all out to
secure it in the post-tender negotiations. We were awarded the project and went
on to successfully complete it as well as a number of smaller projects.
Following on from these we secured a very large project which we again
successfully and profitably completed. By this stage the client had long forgotten
any previous relationships they had had with either of the two original
contractors.
The above shows how important it is to keep other contractors away from
your clients and to ensure you look after them, since once lost it might be
difficult to regain them again.
Of course you cannot keep competitors away from a client by price alone.
There will always be someone who is prepared to undercut prices to get an
opportunity to work for a good client. The only way to keep competitors out is
by:
1. developing a relationship with the client
2. delivering a quality product, on time and without incident
3. being fair and honest with the client
4. acknowledging mistakes and rectifying the problems as soon as possible
5. managing the client’s expectations
6. not over-promising and under-delivering – if anything under-promise and
over-deliver
7. senior management from the contractor being seen by the client on the
project

If a competitor’s price is cheaper than yours, explain to the client why your
bid is more expensive. Remind the client of your past successes and
achievements on their projects. Negotiate with the client, but don’t undertake a
project at a price that will lose money.
 Naturally, when a contractor does repeated work for a client there’s a
danger they’ll become complacent and arrogant, and start to charge inflated
prices for work. When a client discovers they’ve been taken advantage of they
can be quite unforgiving.
Don’t become overly dependent on one client. Unfortunately clients also go
through phases of spending and other times when they cut back on expenditure.
Contractors who are largely dependent on work from one client can quickly run
out of work when that client stops spending.
When work finally runs out with a particular client due to another
contractor winning the work, or the client not having further construction
projects, stay in contact with them. This may entail a phone call every six
months and as a minimum a greeting card at the end of the year. No matter how
good the relationship was with the client you cannot depend on them
remembering your company in a year’s time and inviting the company to tender
for their next project. Regrettably clients have fairly short memories (except
when it comes to remembering poor performance), so it’s essential to keep
reminding them of the past relationship.
Research
Large companies often announce new projects in press releases, so just
reading newspapers provides some idea of projects starting soon. Local
newspapers also have articles about new developments and planning permissions
granted in the area.
Trade publications are useful in providing information about new projects.
For example, mining industry publications have articles regarding new mining
projects, and most industries have similar journals which are useful to subscribe
to.
Reading newspapers and trade magazines makes you familiar with the
names of clients who have finance and are starting new developments. Even
advertisements provide names and contact details of managing contractors,
designers and architects that work in the field that you’re interested in, and can
provide useful leads. Put together a data base of these clients, contractors and
professionals.
Regularly check potential clients’, designers’ and managing contractors’
websites since they often have announcements of new projects they’ve been
awarded.
Always be vigilant in your travels and you will notice old buildings being
demolished, sites or estates being prepared for developments, and real estate
agents’ boards offering units for sale that are yet to be built.
Tender data base
In many countries there are companies that collect data on all the tenders
that are publically advertised. They collate this information into lists which they
regularly update and circulate to contractors who subscribe to their service. (It’s
important to note that many tenders aren’t advertised publically and so probably
won’t appear on these lists).
Tender data bases are an essential form of learning what projects are
available for tender. It’s important to subscribe to at least one of those that
operate in the region of your activity and ensure the tender data base you
subscribe to covers all the projects and clients that are of interest to the
company. Many of these data bases allow the tenders to be filtered according to
region, type of contract or size of contract. Sometimes without the filters the
number of tenders coming through every week can be quite overwhelming.
Bear in mind that even if the project is too large for the company, there may
be an opportunity to contact the larger contractors pricing them who may want to
subcontract a portion of the works to a smaller contractor.
Existing projects
While working on a project talk to the client’s representatives who often
have inside information regarding other projects the company is undertaking or
may be starting. It’s also useful to obtain contact details of people in their
organisations who you can approach to get onto vendor or bidding lists. Add
these names and contact details to your own data base since they could be useful
in the future.
The designers, architects and managing contractors are also a wealth of
useful information because they’re often working on projects for a number of
different clients. Some of these projects may still be in the early stages of
development, and construction hasn’t started.
Talking to subcontractors and other contractors can also yield new
information and contacts.
Sometimes even suppliers have knowledge of upcoming projects because
they’ve provided quotes to other contractors or supplied prices to clients to
enable them to prepare their budgets.
Of course an existing project is the opportunity to demonstrate the
capabilities of the company. It’s important to deliver a quality product, on time
and with minimal fuss and incidents. With luck this good work and
professionalism will be noted and remembered by the client, their
representatives and the project team, leading to further opportunities.
Ensure that existing projects have company brochures available on site to
hand to prospective clients. Project Managers should have sufficient business
cards with them at all times.
Networking
As mentioned above it’s useful to network with clients, subcontractors,
designers, architects and suppliers involved on the projects you’re currently
working on. Still, this networking should be taken further, so it’s useful to
belong to trade and industry associations or local business groups. It’s often the
case of not what you know, but who you know that leads to business success.
Sometimes even union representatives get to hear about new projects before
they start because clients begin negotiating project labour agreements with them
well in advance of a project starting.
Friends and relatives can also provide leads to work opportunities, as can
people you meet at sporting events, functions and even on aeroplanes. Always
carry spare business cards with you in case an opportunity arises.
Contacts
There are many other useful contacts who are often involved with a new
project from its early stages such as:
1. land surveyors
2. quantity surveyors
3. town planners
4. environmentalists
5. geotechnical engineers
6. estate agents
7. recruitment agencies
8. local government officials
Employees
Don’t underestimate the market knowledge of your own employees who
often have friends in the industry working for subcontractors, clients, designers
or other contractors, and who may learn of new projects long before they’re
reported. Encourage employees to report leads for potential work opportunities.
Of course employees should be encouraged to be salespeople for the
company, promoting the company in a positive way. Employees must be aware
of the capabilities of the company so that when asked by potential clients they
are able to readily market the company.
Competitors
Be aware of where your competitors are working and for whom they are
working. Competitors don’t easily give away information but sometimes at
informal gatherings or industry forums they may pass comments about their
projects or clients.
Often competitors announce their new projects in press releases or on their
websites.
Marketing
You must be able to sell your company and its capabilities to potential
customers. Marketing is a continually evolving process but is largely dependent
on the type of customer your business is aimed at and where they are located.
Sometimes one can approach specialist marketing companies, but these
need to be treated with caution. It’s easy to spend large amounts of money on
marketing with few results to show for it.
Should you approach a marketing company, check that they have
experience selling what your company does. Make sure that they clearly
understand what your business is about, where you operate and who your
customers are. Set a clear budget which is relative to the potential outcomes
you’re seeking.
However, I would advise that construction companies do their own
marketing. This normally should take a multi-pronged approach since no one
thing will work alone. It’s often a trial and error approach, as what works for one
company won’t necessarily work for yours. In fact, what works for you today,
may no longer work for you in a year’s time, so it needs to be continually
adapted and improved to suit the changing conditions. It’s therefore important to
understand what’s working so you can discard what’s not.
Website
A website is an essential ingredient to selling the company and many clients
(even the small home owner planning renovations) will view a company’s
website. The website should be reasonably simple – in general avoid pop ups
and videos (although these may be suitable for some specific companies).
Clients want:
1. a quick overview of the company’s capabilities, what the company does and
where it operates
2. to know who to contact
3. some examples (with photographs) of the projects the company has
undertaken, with an indication of their size, what is was and who the client
was
4. to see registrations and certifications such as for quality, environmental and
safety management
5. (for larger contractors), to see copies of their financial results or the annual
turnover for the last few years

There are various tricks that can be used to promote your website. But this
is another topic on its own and is an evolving process.
Company brochures
Brochures are useful to hand to prospective clients since they give an
overview of what the company’s capabilities are and they can be kept and
referred to at a later date.
1. These brochures should be simple and take a similar format to the website,
including contact details, a brief overview of the company and examples of
recently completed projects.
2. The brochures should look professional and must be printed on good
quality paper.
3. Take the time and trouble to proof-read the brochure carefully before
printing to ensure the spelling, language and facts are correct. I often see
poorly produced and written brochures which don’t portray a good image of
the company.
Photographs
Photographs as they say ‘are better than a thousand words’. However if
poor photographs are used in an advertisement, brochure or website they won’t
enhance the advert, and sometimes can even harm the company’s image. Check
the photographs to ensure:
1. they are a good quality (photographs mustn’t be grainy, out of focus or
skewed)
2. they don’t show any unsafe acts
3. the work shown is of a good quality
4. the work site looks organised, neat and tidy
5. they illustrate what you are trying to show – often photographs are used
which show other contractor’s work and it’s difficult to see what was built
by your company, or, the photograph is too small or taken from far away
and the work isn’t clear
6. the photographs are relevant and show a diversity of work since I’ve seen
artistic photographs in advertisements which don’t display the contractor’s
abilities and resources
7. plant and equipment in the photographs is clean, in good condition and
preferably has the company’s logo on it
Company logo
Logos are what people usually see first – these might be on items of
equipment, sign boards, advertisements, business cards and letterheads. Now I’m
not an expert on marketing so can only speak from my experience, but, I would
recommend the logo is kept fairly simple with letters that can be clearly seen and
distinguished. Think what the logo will look like on items of equipment,
business cards and letterheads. Don’t make the logo too long as it may become
reduced in size to fit onto some areas. Stick to bold letters and colours,
remembering that it will often be placed on items of equipment painted in
different colours.
Advertising
Advertising can be useful but also costly with limited results. I worked for a
large construction company and we were frequently being solicited by sales
representatives from various journals to place advertisements in their
publications.
1. Many of these would have been a waste of money as their readers were
unlikely to be our clients, or provide us with any work. So carefully
consider who your clients will be and whether they will read the
publication. Make sure the advertising medium reaches the right market and
reflects the image you want the company to portray.
2. When drafting an advertisement keep it simple but ensure it tells the story
you want to tell. The reader at a glance should understand what your
company does.
3. The advertisement must have the name of the company and contact details
– preferably website, email, telephone and physical address and the name of
a contact person.
4. The advert must attract attention. It’s pointless paying good money for an
advertisement that nobody will notice and read.
5. The advertisement must not be too crammed and cluttered – some
companies try and squeeze in too many pictures, or too much text, making
it difficult to read.

Of course advertising takes many forms which will depend on the size of
the company, the services offered and the target market. Advertising may
include some of the following:
1. placing adverts in the print media such as:
1. national newspapers
2. regional newspapers
3. local newspapers
4. magazines
5. journals
2. placing advertisements in the electronic media such as:
1. online newspapers
2. online journals
3. websites
3. other electronic formats such as:
1. Facebook
2. twitter accounts
 4. placing advertisements in strategic locations where they’ll be noticed
(always ensure that you have permission to put up the advertisements)
5. delivering or handing out flyers which could be in the form of:
1. fridge magnets
2. writing pads
3. calendars
4. diaries
5. simple piece of paper

The important part of any of these advertisements is that they are directed at
the market which you want to see and take note of your company. For example,
if you’re a local plumbing company that specialises in repairing leaks then it’s
pointless placing an advertisement in a national newspaper at great expense,
rather, it may be more appropriate to hand deliver fridge magnets or note books
with your company details to homes in your area so residents can find your
contact details when a plumbing problem arises. By the same token electronic
marketing is very successful for many products, and it’s probably successful in
certain fields of construction, but not in all.
It may be necessary to experiment to see what works and what doesn’t. But
even what works today may not work in a couple of years’ time, so the strategy
needs to be looked at periodically and modified to suit the current circumstances.
Part of this process is always to ask new customers how they came to hear of
you and these answers should be tabulated and reviewed to see what’s successful
and what hasn’t worked.
Sponsorships
As part of their marketing campaign some companies sponsor sporting
events, sporting teams or other events. From past experience I’ve seen little
benefit for construction companies, but I’m sure some may disagree. On
occasion, sponsorship of local teams and community events is useful in fostering
goodwill in the community. Of course, with any sponsorship it’s important the
name of the company is given prominence and people understand who the
company is and what services they provide.
Sometimes sponsorship is unavoidable such as when clients request a
donation or sponsorship for an event. It’s important once again that the name of
the company is prominent at the event, which can take the form of setting up
flags or banners.
Successful companies should consider contributing to charity, in particular
to the local community where they’ve been successful. Preferably the donation
should be something tangible and visible. Again, use and promote the
opportunity by inviting the client, or even the local media, to handover
ceremonies (always make sure both the project and donation are worthwhile).
Plant and equipment
Plant and equipment are often a good form of advertising the company so it
should be kept clean and in good condition. The company’s logo should be
prominently displayed – consider including contact details. Of course drivers of
company vehicles and equipment on public roads should obey the road rules and
behave considerately to members of the public because you don't want the
company to be noticed for the wrong reasons.
Even if the company has externally hired equipment it’s possible to have
the company’s name on magnetic signs, or similar, which can be stuck to the
equipment and then easily removed when it is returned to the hire company. (Of
course, ensure that you don’t damage the item’s paintwork which will result in
costs to repair the damage.)
Sign boards
Sign boards on your construction projects are an important form of
advertising.
1. Obviously seek permission from the property owner and from the relevant
authorities before erecting the sign board.
2. The signboard should be prepared by a professional sign writer and must be
erected securely and properly. (Signs of a poor quality that are askew are a
poor reflection on the company.)
3. The signs must be clearly visible and legible and should have the company
name and contact details.

Sometimes after the project is completed the contractor forgets to remove

the sign board and they remain for several years afterwards which can be good
free advertising as long as the project continues to be looked after and remains in
good condition. Obviously, there’s no guarantee that the client won’t later use
other contractors to carry out work which may not be as professional as your
company’s work.
Case study:
A company installed shade sails on a property with prominent street
frontage and erected their sign board which remained in place for several years.
However, with time the shade sails became torn, stained and mouldy. Yet, the
sign was still there advertising the company – surely no longer a good
advertisement.
Be cautious of the location of the sign boards as often these are on the
property corner boundary, possibly being interpreted as relating to work being
done on a neighbouring property which might not look as professional as you
would like to portray the company.
Direct calls and meetings
An important part of marketing is visiting and meeting prospective clients.
The meetings should be prearranged which means that you need to know who
the best person is to talk to. I’ve regularly found that most people are happy to
talk to you. However, if the meeting isn’t with the correct person it can be a
waste of time.
1. Be prepared for the meeting. Study up on the company and their current and
future projects.
2. Take sufficient business cards and brochures to the meeting.
3. Make notes of what’s said.
4. Introduce yourself, explaining your position and what your company does.
5. Outline examples of projects the company has done which are similar to
what they are involved with. Outline your company’s experience, resources
and strengths.
6. Congratulate the person on any recent company achievements or new
projects.
7. Enquire how the existing projects are progressing.
8. Enquire about new projects, the type of project, expected start date,
estimated size, who to contact and how to be included on the tender lists.
9. Explain why your company will be suited and experienced to work on the
project.
10. Offer assistance to the client with their feasibility studies and any questions
they may have.
11. Find out if there are other people in the organisation you should talk to.
12. Provide additional copies of the company brochure and ask for these to be
distributed to other people within the organisation.
13. Thank them for meeting with you and send them a thankyou email which
could include a link to your company’s website as well as an electronic
copy of the brochure.

Remember, large organisations often have a number of different divisions

or operating entities, and sometimes these operate in their own individual
compartments with little communication between them, so it may be necessary
to make contact with each one individually.
Company newsletters
A useful form of marketing is to produce company newsletters.
1. They can be a page long, or longer, depending on the size of the company.
2. Quarterly letters are usually sufficient.
3. Ensure they are proof read by a senior manager to ensure the facts are
correct as well as the spelling and grammar.
4. They should be distributed to staff and clients on existing projects.
5. They should cover changes within the company and feature various
projects.
6. They should be produced on good quality paper.
Business cards
Business cards are an important advertising tool as they are handed out at
business meetings, to potential clients, or at events.
1. They should be uniform throughout the company with standard layout, logo
and colours.
2. If the company changes the layout, all business cards should be replaced. I
find it a bit confusing when I go to a meeting and I get business cards that
look different from people working for the same company.
3. Since business cards are often pocketed and filed, when a person needs to
refer to the card they often can’t remember what the company was. Each
card should therefore clearly have the person’s name, title and contact
details, and the company name, which should reference what the company
does, for example; building contractors, electrical contractors and so on.
4. The cards shouldn’t be cluttered and should be able to be read by most
people without using glasses so it’s important to carefully consider
background colours, designs and logos.
Referrals
Referrals are really an excellent form of advertising – after all someone else
is doing your marketing for you. Wherever you work, try and hand out business
cards and brochures. For instance, you may be a tiling company working for a
builder renovating someone’s house. Hand out your card to the owner and any
neighbours you see; you never know, they may have other tiling work which
they want you to do – even if it’s only much later. In fact give them a couple of
spare cards. I know we’ve often recommended good tradespeople to our friends
and passed on the contractor’s business card.
Entertainment
Some clients expect to be entertained or invited to sporting events, though
many clients have strict rules governing their staff attending such events. Ensure
you understand and follow these rules.
Entertaining clients can often be a waste of money and can even do more
harm than good. Be selective with who is invited, both from the client’s side as
well as from within the company. There are different forms of entertainment,
from individual project events with the personnel immediately involved on the
project, to larger corporate events where senior members of companies are
invited. Entertainment must be appropriate.
All formal project and corporate functions should be carefully thought out
and planned.
1. Senior managers need to review the guest list to ensure no one who should
have been invited has been left off.
2. Formal invitations should be sent out.
3. The event must be properly organised since events with insufficient food,
drink or seating can be embarrassing.
4. These events shouldn’t be organised too frequently because people stop
attending when the novelty wears off.
Sources of work
Personally I am reluctant to work as a subcontractor to a larger contractor
and would much rather work directly for the client, but this isn’t always
possible. In addition, it can be useful for smaller contractors to work as a
subcontractor which could provide them an opportunity to meet the client and to
demonstrate their capabilities. Major contractors will try and keep their
subcontractors away from direct involvement with their client, but being on the
project usually provides opportunities to meet the right people. Make sure all
your personnel have clearly marked clothing and that equipment has your logo
prominently displayed.
Additionally, these projects give smaller contractors experience of working
on large projects for major clients. This experience eventually assists with
building a good resume of projects, and can be used to convince future clients of
the company’s abilities.
Working on these larger projects is also an opportunity to learn new skills
and to observe and learn different construction techniques.
It shouldn’t be overlooked that even projects which aren’t necessarily
related to the field that you work in, and which you would not tender for, may
have a small portion of work in your field. For instance large electrical
contractors and piping contractors might not be interested in performing the
excavation works and minor concrete works and would subcontract these out to
small civil contractors.
Registrations with trade bodies
Even when it’s not compulsory it can be useful to register with the relevant
trade bodies, or organisations representing the industry the contractor operates
in. Many clients perceive this as providing them with a guarantee that the
companies registered are more reputable than others who aren’t.
Furthermore, clients often contact these organisations to ask for names of
suitable contractors in their region.
Sometimes these organisations have newsletters which can provide useful
information or contacts. They also usually have regular meetings with their
members which provide opportunities to meet competitors. Some even provide
training programs which members can attend.
Centralised marketing and tendering (bidding) organisations
In some areas there are organisations set up that clients can contact to find
local tradespeople. The client phones or emails the organisation and gives details
of the job that needs doing. The organisation then approaches plumbers
registered on their data base, who have the appropriate experience and that
service the location of the project, to quote for the work. The plumber either
quotes directly to the client or provides the organisation with their price for them
to pass onto the client.
This can be useful for small contractors that provide a service for the
average home owner, since the organisation effectively markets the company.
However, there’s a fee to be paid, which is either monthly or dependent on the
leads the organisation provides, or the value of projects the contractor wins.
It’s also difficult to differentiate your company from others except by being
the cheapest, and by slowly building a reputation of delivering quality work on
time.
Forming joint ventures
One way of taking on bigger projects is by forming a joint venture with
another contractor. Joint ventures have a number of benefits:
1. the combined resources of the two partners enables them to tackle larger
projects
2. they can be formed when one partner has a particular expertise that the
other partner doesn’t
3. one partner may have a relationship with a client but not the capacity to
undertake the project on their own
4. if both partners were going to tender for the project it effectively reduces
the competition to win the project

Not only do the joint ventures provide the companies with exposure to
working on larger projects, but they also provide opportunities of seeing how
other companies do business and to learn new techniques and systems.
Partnering with local contractors and communities
Sometimes when the company is planning to work in a new area it’s useful
to form a partnership with a local company. In regional areas, particularly with
large indigenous populations, it may be worth developing a relationship with the
local community.
This strategy can be particularly worthwhile ahead of the start of large
projects. Clients are often under pressure to support the surrounding
communities and companies, but these local companies frequently have
insufficient experience or resources. Establishing relationships (either in the
form of a joint venture or committing to subcontract portions of the work to local
contractors) makes the tender more attractive to the client. In addition, these
contractors assist with their knowledge of the area. Using local resources is also
usually cheaper than bringing them in from elsewhere.
Of course, these relationships should also benefit the local companies and
communities. At no time must it seem that you have cheated the local companies
because the client will almost certainly hear of any problems.
Political support – understand who can actually help
Some companies develop relationships with local or national politicians or
groupings. These relations can be useful in some regions or countries,
particularly when the relationship is used to obtain information about
forthcoming projects and developments. Nevertheless, I would be cautious of
some associations since political figures come and go, and their replacements
might not want anything to do with the friends and perceived allies of their
predecessors.
In some regions these political friendships can quickly develop into corrupt
relationships and dealings which should be avoided.
Corruption
In some countries bribery and corruption is rife and it’s best to avoid these
countries. There’s no guarantee that the official receiving the bribe can actually
influence the awarding of the project, or that they aren’t dealing with other
contractors at the same time. In addition, even in countries where corruption is
prevalent bribery is normally an offence, and a company caught paying a bribe
may find their management arrested and the company barred from doing further
work in that and other countries.
If you believe that corruption could play a role in the tender process, or the
awarding of a project, then rather decline the tender.
Unfortunately corruption isn’t just about paying off officials who can
influence the bid, but sometimes one contractor may pay another contractor not
to tender or to submit a higher non-competitive tender. These practices are
illegal and if contractors are caught it will severely harm their reputation, even
leading to their management being imprisoned or fined.
Design and construct projects
Some projects are put out to tender as ‘design and construct’ projects so it’s
useful to have a relationship with designers to enable the company to tender for
these. Be aware that tendering for design and construct projects can be more
costly and time consuming than other tenders.
There are also more risks associated with these projects and it’s important
to work with designers who have experience of designing similar projects. Also,
ensure that they have sufficient design indemnity insurance in case there’s an
error with their design.
Multidisciplinary projects
Some clients put projects out as complete packages, including civil,
mechanical and even the electrical works. Companies that have all of these
components in-house usually have a competitive advantage. Alternatively, the
company could form partnerships with suitable contractors who can provide the
needed expertise which the company doesn’t have, forming either joint ventures
or alliances for the project.
Finance
Sometimes clients have projects that are viable but they don’t have the
finances in place to proceed. Contractors in the fortunate position of having a
strong bank balance, or a source to borrow capital, may consider offering the
client a finance option to make their tender more appealing. In addition, a well-
structured and favourable finance deal could net the construction company
additional profit.
Obviously care must be taken to ensure there are sufficient guarantees in
place to cover the loan amount and that the value of the work doesn’t exceed the
agreed loan value.
Assisting with feasibility studies
Often clients approach contractors to assist with their feasibility studies.
There may even be opportunities to approach a client when you first hear about a
potential project to see if you can assist them in any way. These feasibility
studies do take time and effort and some projects may never eventuate, or when
they do it’s several years later when you are no longer interested in the project.
However, when a client requests a contractor to assist with their feasibility
study it’s sometimes difficult to refuse. I’ve had clients not invite contractors to
tender because they had declined to assist them with their feasibility study.
By helping with the feasibility study it’s possible to influence the client’s
design, steering them in a direction better suited to your company’s abilities.
Also, being involved with the project’s feasibility study gives the contractor a
head-start in the tender process since they’ve already put thought into the
construction methodology and researched various options which should lead to a
more accurate and competitive tender price.
Beware of overly ambitious projects
Over the years our company was often approached by developers to assist
with feasibility studies for projects they were proposing that were never going to
be built. The projects were simply too ambitious or outrageous for the location,
they weren’t going to get finance or they weren’t going to get development
approval. Very occasionally, maybe one out of ten times, the project went ahead,
but usually several years later when the developer had long forgotten who
assisted them with their planning and feasibility studies.
Assisting with these projects is time consuming and takes resources away
from other projects which are more likely to proceed and provide work in the
short and medium term. If we had priced all of these schemes we would have
had to increase the number of Estimators in our company.
It’s therefore important to research and understand which projects are real
and which probably won’t happen, or if they do, when they will happen.
If there really isn’t anything else for the estimating department to do, you
can consider assisting with these projects.
Sometimes these projects are brought to you by good clients who provide
the company with other work, so it’s then necessary in the interests of continuing
the relationship to assist.
Tracking potential projects
It’s essential to track the various potential projects since many could be
several months or years away, and often their start dates change. Prepare a list
which includes the name of the project, the details for the contact person, the
anticipated start date and the value of the project. This list should be divided into
projects which will be out to tender shortly, medium term prospects and, lastly,
those which are sometime away.
Continually update the list and maintain contact with the clients to ensure
that when the project is put out to tender you will be invited to tender.
By tracking potential projects it’s possible to decide which the most
suitable ones are to pursue. The number of potential projects may also influence
the profit margin used when tendering, since if there are only a few prospective
projects it may become imperative to secure the project. However, if there are
many potential projects there will be other opportunities if your bid is
unsuccessful so you can possibly add a larger profit to your price.
Mailing lists and data bases
Contractors should maintain a data base of potential clients, engineering
companies, managing contractors and architects. These lists would include the
company name and contact details of important persons within the organisation.
These data bases are important when sending out invitations to company
functions, or greeting cards at the end of the year. All senior management, and in
particular project managers, should contribute and update this list.
When reading newspapers and trade publications you may come across
mention that someone on the list has been promoted or moved to another
company. Use this information to not only update the list, but also to contact
them, offering congratulations and good wishes in their new position.
Often companies win awards or make the news for other reasons. Again,
use these opportunities to maintain contact by sending out messages of
congratulations, or even condolences should the company have suffered an
accident on a project.
Ensure these messages are sent by a suitable member of the company and
that the messages aren’t just generic letters – a handwritten note can often
generate lots of good will.
Business Development Managers
Many larger companies have Business Development Managers (BDMs)
who are tasked with finding new potential projects and clients. These can be
useful since they can devote time to finding new projects and contacts,
developing relationships, and preparing marketing material. Most companies
however can’t afford to add an additional person to their overheads.
Many BDMs need to be steered in the direction in which the company
wants to head. I’ve seen these individuals chase down clients and opportunities
that weren’t suitable for the company. After pursuing a client for a tender and
finally getting the opportunity to bid, it’s awkward if the project isn’t suitable
and the contractor has to decline pricing it.
Some BDMs aren’t familiar with either the construction industry or the
company’s abilities so it’s essential for senior managers to review the contacts
and relationships they’re developing, as well as the marketing material they’re
preparing and distributing.
Trade registrations
With certain trades, or in certain industries or regions, it’s imperative to
have the required qualifications and registrations and failure to have them could
mean that the contractor is unable to tender for some projects.
Quality, environmental and safety accreditations
Larger clients expect their contractors to have the appropriate certifications
in place proving they comply with the standardised quality, safety and
environmental systems and procedures. Even if this isn’t specified it’s almost
certainly something that clients will check, and it may prejudice the contractor if
they are not in place.
Green building and sustainability
In many countries there’s a growing market for constructing buildings
which are environmentally friendly. A large part of this is in the design of the
building which in most cases the contractor doesn’t control. There is however
merit in teaming up with architects and designers who are able to design
environmentally friendly buildings so that you can offer a total package.
Part of what makes a building environmentally friendly is the construction
process and the following should be considered:
1. Recycling and reusing building rubble.
2. Segregating waste.
3. Using environmentally friendly materials which depends on:
1. their manufacturing process
2. the distance they have to be transported to the project
3. how easily they can be recycled at the end of the life of the facility
4. the amount of wastage
5. toxins they may emit during their life and particular during
construction
4. Ensuring that suppliers and subcontractors comply with environmental
legislation and procedures.
5. Having environmental plans, policies and procedures in place.
6. Having workers and staff committed to achieving the highest environmental
standards.
7. Eliminating wastage of power and water and minimising their use during
construction.

In some regions there may even be accreditations that can be obtained that
certify the company is competent to build green buildings.
There are other opportunities to consider in the green field, particularly
when it comes to renewable energy where there may be construction
opportunities. For example, in solar and wind energy the contractor could either
team up with one of these providers or look at becoming a niche contractor in
these fields.
Maintenance, refurbishments, repairs and renovations
Many first world countries are no longer building new infrastructure or
facilities, but, large portions of the existing structures are thirty or more years
old and require replacing or major maintenance. Therefore there’s good potential
for work in the rehabilitation, repair and renovation market, and good
contractors may have unlimited work.
To become part of this market, consideration should be given to learning
about new repair techniques and products. Much of the existing infrastructure is
below ground, so being able to repair or replace this without digging up city
streets could provide a steady source of work.
Innovative contracting or tendering methods
It’s possible to make the company more competitive or more appealing to
the client by proposing alternative contracting techniques such as:
1. design and build
2. partnerships with the client
3. tying up specialist suppliers or subcontractors in a tender consortium or
joint venture
4. entering into a target plus contract with profit sharing where both the
contractor and the client benefit from innovations in the methods of
construction
A good reputation
Reputation is discussed in more detail in chapter 13. Having a good
reputation often means that clients actively seek the contractor out, automatically
inviting them to tender. Nonetheless, if the contractor has a poor reputation no
matter how much effort is put into trying to work on a project, or with a client, it
will be doomed to failure.
Testimonials and references from happy clients are very useful for
marketing the company.
Saying no
Sometimes clients request contractors to undertake projects which are either
unsuitable for the company’s expertise and experience, are too large, too small,
that are difficult or are required at a time when the company simply doesn’t have
adequate resources available. In these cases you have to learn to say no. This
should be done both firmly and politely. I’ve gotten into trouble undertaking
projects that I really didn’t want to do for the reasons above. Some of these
projects resulted in us losing money, but worse, a couple have actually harmed
our reputation because we had to use inexperienced staff on them. The harm
done to client relations was usually worse than if we’d simply declined the
project in the first place. This doesn’t mean you shouldn’t help your good clients
where possible, even if it means undertaking a project at a lower profit.
However, never be forced into a project that will harm the company’s reputation
or cause it to lose money.
Be honest with the client, giving your reasons for being unable to price or
do the work. If possible make suggestions as to when or how the company could
be available to do the project.
Summary
It’s important for all contractors to find suitable projects on which to tender.
This involves:
1. research such as reading newspapers, trade and financial publications and
checking clients’, designers’ and contractors’ websites
2. subscribing to a tender data base
3. marketing such as:
1. establishing a website
2. producing a company brochure
3. printing and distributing business cards
4. distributing company newsletters
5. appropriate advertising
6. contacting and meeting potential clients
7. erecting project sign boards
8. ensuring logos are on company vehicles and equipment
4. getting clients to refer your company to other clients, project management
teams, industry professionals, their friends or neighbours
5. using opportunities on existing projects to talk to clients, suppliers,
designers and subcontractors about new business opportunities
6. belonging to centralised marketing organisations
7. networking
8. asking employees for leads they may have for potential projects
9. talking to other professionals such as surveyors, geotechnical engineers and
town planners
10. asking friends and relatives about their possible contacts
11. establishing a data base of potential projects and clients
12. looking after and maintaining existing relationships with good clients
13. forming joint ventures with other contractors that may be local, could
increase the size of project that can be tendered for, or bring in another
level of expertise
14. coming up with alternative tender strategies
15. developing alternative techniques or knowledge that will enable the
company to enter a niche or developing market
16. ensuring the company has a good reputation
17. assisting clients with their feasibility studies
18. engaging political support which sometimes can be useful, but always
taking care to ensure this support is genuine and at all times avoiding
corruption, bribery or other impropriety
19. having the appropriate registrations and accreditations in place
20. being able to tender for design and construct projects and projects which are
multidisciplinary in nature
21. even offering to finance projects if this is feasible and appropriate

Sometimes it’s necessary to decline a project which isn’t suitable or

convenient at that time. Care must be taken not to upset the client in this process.
Chapter 3 – Tendering (Preparing the
Quotation)
I’ve worked for some companies that submitted dozens of tenders every
month without giving too much thought to any of them. We weren’t selective
and tendered for everything. Many of these tenders were unsuccessful even
though we actually needed the work. The estimators worked long-hours and
were frustrated with the high failure rate. Furthermore, the tenders were done in
such a hurry that errors often occurred. Often our price was too expensive
meaning we didn’t win the project, while other times our price was too cheap
and we were awarded the project at a price that was too low and lost money.
Frequently the hurried nature of preparing the bid was apparent in our
tender submissions. These were a poor reflection on the company and its
capabilities and our tender was often discarded by the client even when we had
the lowest price.
Tendering is one of the most important functions of running a construction
business. If it’s of a poor standard, with a price that’s too high, the company
won’t be awarded work and will go out of business. On the other hand mistakes
could result in the contractor being awarded a project at a price below what it
will cost to build, the schedule may be unachievable, or the contract conditions
have been misunderstood, all of which could lead to the company losing money.

It’s important that the person responsible for preparing the tender:
1. is diligent, checking the tender submission carefully for errors and ensuring
it complies with the client’s tender documentation
2. understands the tender system the company is using (this is often a
propriety tender package system)
3. understands the methods of construction (it would be pointless to, say, have
a person familiar with electrical projects doing a tender for a road)
4. is aware of the company’s available resources and its capabilities
5. understands the rates of productions, both for personnel and for equipment
(these rates will differ between countries, regions, industries and even
projects – for instance production rates will vary between first world and
third world countries, they could be lower working within an existing
facility or in a controlled petrochemical or mining project compared to say
 on a building project in the city)

Case study:
One company I worked for employed someone to do tenders who had never
worked on a construction project before and had been elevated from the position
of general office person. Needless to say this was a recipe for disaster because
he did not have the experience or knowledge to understand how things were
built. We had to redo the tenders after he had finished them.
Mistakes made during the tender process can be extremely costly.
Case study:
One of my projects was the civil and earthworks for a new gas power
station valued at twenty three million dollars. We were a subcontractor to the
managing contractor.
The tender documents were poor and the managing contractor had merely
issued us the documents they had received from the client that included the
scope and specifications for the whole facility including the mechanical and
electrical works. There was no separate scope for the works we had to do. The
only drawing we were given was an overall footprint of the facility showing the
outline of various structures, and a contour plan indicating the surrounding
contours outside the perimeter of the plant.
We were verbally told to allow for eighteen hundred cubic metres of
concrete, but had to guess the quantities of formwork, reinforcing and
underground pipework.
Using the contour drawing we estimated the quantity of earthworks
required to construct the power plant terrace. Because the contour lines stopped
at the edge of the plant the Estimator had to assume what the topography would
be under the footprint of the plant. During the tender process we were issued
another layout drawing which showed the footprint reduced by 40%, so we
based our earthworks quantities on this drawing. There was no record that we
were issued this drawing.
Now clearly there was insufficient information to price such a complex job,
and the little information we had was of a poor quality, some given verbally or
via ‘back-door’ drawing issues. Yet the company appointed an inexperienced
Project Manager to price the work. Somehow he put together some semblance of
a bill of quantities and priced them. He then submitted a lump sum price to the
managing contractor. The tender submission had no reference to the
assumptions made in the tender, or to what drawings were used to arrive at the
price.
 Starting the project I immediately found there were a number of problems
with the tender which included:
1. our tender only allowed for the services and facilities required for our
work, but the managing contractor felt we should have priced all the
requirements in the document for the whole project, so for instance, they
felt we should have allowed to provide site offices and facilities for them,
the client and other contractors on site
2. after we surveyed the site we found that our assumptions of the contours
were incorrect and there was a substantial increase in the earthworks
quantities
3. our assumptions on the types and quantities of underground pipework was
incorrect

These together with other errors added nearly two million dollars to our
costs before we even started the project.
The lesson from the above is to ensure that the tender submission:
1. qualifies what’s been included and what’s excluded
2. explains the assumptions made in order to arrive at the price
3. should note what drawings and information were used to formulate the
price (especially if revised drawings are issued during the tender process)

Case study:
One company had the Project Managers pricing various small projects.
This was uncontrolled and many of these projects lost money. On investigation I
found that the projects weren’t being priced correctly. I instituted a review
process to ensure that we only priced projects which we wanted, that they were
priced in a consistent manner, and that the pricing was accurate. With better
control of our tenders we were more successful with our projects.
Tendering should not be taken lightly. I recommend that companies set a
limit on the size of projects that the estimating department can submit without
senior management reviewing the tender.
Tenders cost money to prepare so it’s important that this money is well
spent and companies concentrate only on tenders they want to win, giving every
effort to do this at the best price.
Check the tender documents are complete
When tender documents are received it’s important to check them to ensure
they are complete and include all the pages, sections and drawings. I’ve often
received documents missing pages or sections. On occasion drawings on the
drawing list haven’t been included or the revision numbers were different.
When a tender is submitted the client assumes it’s based on their
documentation and all the information supplied.
Failure to check the documentation can lead to expensive errors if an
important specification or drawing wasn’t received and taken into account in the
estimate.
Read the document
The Estimator should carefully read through the tender documents and
make notes as they proceed.
It’s important to note the tender requirements such as:
1. When the tender must be submitted. A late submission is usually
disqualified.
2. Where the tender should be submitted. If this is some distance away the
tender may have to be ready the day before so it can be couriered to the
tender receipt location. I’ve heard of tenders being delivered to the wrong
address, consequently not being considered by the client.
3. The numbers of copies required.
4. The format of the submission.
5. Specific documentation or attachments required such as:
1. safety information
2. quality documentation
3. schedules
4. method statements
5. company financial statements
6. guarantees
7. insurance policies

(Some of these documents may take several days or even

weeks to put together and may involve input from other
departments. Allocate the preparation of the various
documents to a responsible person and track their progress to
ensure they’re ready before the due date.)
6. Summarise important items like:
1. the name of the client
2. the client’s agents and designers
3. payment terms and conditions
4. insurance requirements
5. general contract conditions
6. special conditions
7. liquidated damages
8. milestone dates
9. the basis of the tender such as lump sum or re-measurable
10. the estimated value of the project or a brief summary of the important
quantities
 11. a brief description of the project
7. What the client will supply.
8. What the contractor should allow for.
9. Specific project rules and conditions, including project labour agreements.
10. Other requirements and conditions which may affect the cost of the works.
11. Any discrepancies in the document or points that require clarification.

It’s useful to prepare a standard form that can be used for this summary.
Basis of tender
Projects are put out to tender in various forms.
1. A cost recovery basis is where the contractor submits a schedule of resource
rates and is reimbursed for the hours that their personnel and equipment
work on the project. These projects carry very little risk for the contractor
providing the rates submitted take into account all the costs the contractor
will incur in carrying out the work, and providing the contractor records all
the hours worked on the project.
2. A re-measurable contract where the client supplies an estimate of the
quantities in the tender and the contractor prices this schedule or bill of
quantities. As the project proceeds the quantities provided may vary and the
contractor may end up doing more, or less work, than was originally
tendered for, and the final contract sum will vary accordingly. The changes
in quantities may affect the schedule and the contractor’s overheads. It’s
important that the Estimator takes into account possible changes and
ensures the contractor will be adequately compensated.
3. A lump sum contract, meaning the contractor must during the tender phase
calculate all the quantities required to construct the project and then price
them accordingly. The contractor takes on the risk for incorrectly
calculating these quantities. In some cases the contractor may elect to add
in a contingency to cover any errors in their calculations.
4. A design and construct contract, where the contractor is responsible for
designing and constructing the project. Obviously at tender stage most
contractors won’t want to spend money on a detailed design and, in fact,
there is usually insufficient time to do so. Generally only a preliminary
design is done to enable a basic price to be determined. The contractor then
adds a contingency to their price to allow for the incompleteness of the
design. The more detailed the design the smaller the contingency can be.
Understand the project
The Estimator must understand what is included in the scope of the project.
Most tenders include a scope of works and this should be compared to the
drawings as well as to the client’s schedule and client supplied bill of quantities.
It may be necessary to query details of the project with the client or to request
further information if the scope is unclear or if there are inconsistencies between
the scope, drawings and schedule. If the client is unwilling or unable to answer
some of these queries then the Estimator may have to make some assumptions to
enable the tender to be priced. It’s important that any assumptions made are
included in the list of qualifications submitted with the tender.
Understand the contract
The Estimator should note the particular conditions of the contract
document and how the risks are apportioned between the client and the
contractor. Check whether the conditions are standard or if the client has added
their own conditions, some of which may be unacceptable to the contractor.
Some of the clauses may have to be discussed with senior management to see if
they’re acceptable and whether they’ll be exposing the company to unnecessary
or unwanted risks. In some cases it may even be advisable to seek specialist
legal advice.
Laws governing the contract
It’s essential to understand the laws governing the tender documents. Often
these laws are of another country with which the contractor might not be
familiar. The contract may also specify that disputes are dealt with in a foreign
country which would add additional costs and risks to the contractor should a
dispute arise. If possible the tender should be qualified so that any disputes are
handled and resolved in the contractor’s home country, or where this isn’t
possible, in one that has a similar legal system.
Site visits (site inspections)
Whenever possible the project site should be viewed during the tender
process. This often takes the form of a client organised formal compulsory
inspection, or it may be an informal optional visit. Either way the visit is
important and can provide much useful information. If possible the person
responsible for the tender should visit the project site, but this isn’t always
possible since they may be too busy or the project could be in a remote location.
Case study:
We sent a young engineer to attend a site inspection. When we came to
review the tender we called the engineer in to explain to us what the site looked
like. It was most frustrating as the engineer couldn’t give us any useful
information about the site. I was quite annoyed, but in hindsight we should have
given her a better briefing and explained what to look for and note during the
site visit.
When someone, other than the Estimator, attends a site inspection, it’s
important that they remember they are acting as the eyes and ears of the person
doing the tender and they need to note as much useful information about the
project site and its immediate area as possible, as well as who the other attendees
and the client’s representatives were. The quality of the information provided
could substantially influence the way the tender is completed and may end up
helping to win the tender or contribute to losing it. Potential problems which are
missed during the site inspection could later be costly to the company because
they weren’t taken into account when formulating the tender price or in
preparing the tender schedule.

As part of the visit it’s important to be prepared.

1. Know where the visit will take place and obtain directions.
2. Know who to meet and ensure you have a contact telephone number so you
can telephone should you get lost or be running late. (However remember
that if the contact person is conducting the visit they’ll probably switch
their telephone off once the meeting begins and won’t be contactable.)
3. First impressions are important and if the contractor’s representative
appears disorganised, arrives late or becomes lost, the client will assume
this is typical of the contractor’s employees.
4. It’s useful to arrive early because this can provide an opportunity to talk to
the client or their team. An informal discussion can often reveal some
valuable additional items of information that other contractors might not be
privy to. Arriving early also provides an opportunity to chat to other
 contractors and they could reveal if they are working in the area, and any
concerns they have regarding the project as well as their level of interest.
5. Have the correct personal protective equipment since it’ll be embarrassing
arriving without it and having to borrow from the client. If no equipment is
available it might be impossible to visit certain areas of the project, or in the
worst case it could even mean the project site cannot be visited at all. The
safety equipment should be in good working order and you should appear
neat and tidy. Where the requirements are unclear contact the client to find
out what they are. In fact, it’s sometimes a good idea to telephone the
client’s representative ahead of the visit to ask some questions because this
provides an excuse to introduce yourself, and provides the opportunity to
get the contractor’s name registered in their mind.
6. In many cases the visitor may need to present a form of identification to
access the site. In certain circumstances the client may require your details
ahead of time.
7. Take a notebook and pen. Even if the client says they’ll distribute formal
minutes of the site visit meeting, I would recommend that notes are taken of
what’s discussed at the meeting, since often the formal minutes are brief
and don’t cover everything, and they’re usually only distributed several
days later.
8. If it’s a formal compulsory visit there’s often a form in the tender document
that the client must sign, so this should be brought to the visit.
9. Part of the preparation should include looking at the document and
drawings so you have an understanding of what the project entails.
Checking these beforehand may perhaps give rise to questions to be raised
during the inspection. It’s a good idea to take a copy of the overall layout
drawing to the visit to help with orientation.
10. If possible take photographs of the project site, providing this is allowed.

During the visit note the following:

1. The distance the project is from Head Office (or the company’s nearest
office).
2. The nearest towns and infrastructure.
3. The name of the other contracting companies attending the meeting because
it’s useful to know who is competing for the tender. Note who their
representatives are since the number and seniority sometimes provides an
indication of the importance of the tender to them.
4. The names of the client’s representatives and their roles.
 5. The names of specialist subcontractors attending the visit because the
Estimators may need to contact them to obtain prices for portions of the
project.
6. The conditions on the site such as:
1. is it open or restricted
2. are there other contractors on site
3. is the site flat or steeply sloping
4. is the ground soft or hard, and if there’s rock what is its depth
5. is there ground water present and at what depth
6. are there existing structures that will impact construction
7. the site security and the level of security which may be required
8. is the site fenced
9. are there restrictions to get vehicles and people onto the site
10. the location of the laydown areas
11. the availability of services and utilities, their location, other
contractors using them and any restrictions on their use
12. access to the site such as road condition, gradients, load restrictions
and limitations
13. traffic conditions in the area
14. the location of rubbish and spoil areas
15. if your project involves earthworks, the location of the fill material,
how easy it will be to extract, and its quality
16. the condition of the site roads and any restrictions
7. The other contractors working on the site or in the vicinity, and the type of
plant and equipment they have.
8. Questions asked during the meeting and their answers.
9. Note what the client’s representative emphasises since it’s usually
important to consider these points, and highlight them in the tender
submission.

Sign the attendance register and include the contact details of the lead
Estimator. (In the past I have had young engineers attend site visits and leave
their email address. They were then sent all the tender correspondence which
they sometimes didn’t forward onto the estimating team.)
When the formal part of the visit is over stay behind to hear what the other
contractors are saying or asking, or what ideas they could have. On occasion
another contractor already has a good relationship with the client and it’s useful
to note this.
After visiting the site explore the surrounding area and check for:
 1. Possible suppliers and contractors, noting their size, equipment, facilities
and contact details.
2. What accommodation is available and the distance from the project, if this
is relevant.
3. The transport networks to the area.

Prepare a brief report on the visit, including all relevant information and
photographs, and submit this to the estimating team.
It’s useful if the company has a standard document or checklist that can be
used and filled in during site visits.
Supplementary tender documentation
The client’s tender documentation may make reference to supplementary
documentation which possibly isn’t included in the documents. This could
include reference to the client’s insurance policies, standard specifications and
geological reports amongst others. It’s often important for the Estimator to read
through these documents, so it’s necessary to request copies of them or read
them at the client’s offices if this is all that’s possible.
Tender schedule (program or programme)
This is one of the most important processes in preparing a tender and yet
it’s something that is often overlooked or done poorly.
Sometimes the client provides a schedule in the tender documents.
Nevertheless, this schedule may well be incorrect or unachievable and many are
just a guide. It could even have been produced by someone in the client’s team
who isn’t even familiar with the construction processes. In many cases these
tender schedules are far too optimistic. Consequently it’s essential that the
contractor ensures they can meet the client’s schedule and if necessary propose
an alternative one.
It’s important to note that by accepting the client’s milestone dates or
schedule in the tender the contractor is committing to them. Failure to meet these
dates during construction will probably lead to penalties and additional costs to
the contractor. The contract schedule will have to conform reasonably to the
tender schedule unless the scope has changed.
In many cases contractors prepare and submit their own tender schedule but
often little thought has gone into it, it’s been done in a hurry and may have been
prepared by an inexperienced Estimator or Planner. The schedule may not have
taken into account the site conditions, rules, or restrictions on working hours,
types of machines or resources that can be used.
An accurate schedule is usually an essential aid to price the tender so it’s
vital that it’s prepared properly.
Quantities
In order to price the tender correctly it’s necessary to know the quantities
involved for each individual task. The contract may be re-measurable with the
client supplying a bill of quantities, even so, it’s good practice to, where
possible, check the larger quantities which could influence the schedule, or the
final contract sum, should they be hugely different from those provided.
The client might request a lump sum price in which case it’s the
contractor’s responsibility to measure the works and draw up a bill of quantities.
Obviously it’s important to ensure these quantities are accurate in order to obtain
the correct price. The quantities should be broken down into sufficient detail so
that the items can be priced.
Tender calculations
There are many different ways of working out the estimated cost of a
project. Many smaller contractors look at a project and guess that it’s similar to
one of their previous ones and use that price with minor modifications taking
into account any obvious differences between the projects. Clearly this isn’t very
accurate and doesn’t really take into account variations in the quantities or the
complexity of the project.
Ideally the Estimator should prepare a list or schedule of all the tasks or
items required to construct the project. Each task should then be individually
priced. These amounts are then added together to get the total cost of
constructing the complete project. The overhead costs are then added, together
with the mark-up and contingency allowance (see below).
Many contractors are inclined to use standard rates from previous contracts
when pricing the items, which isn’t very satisfactory since these vary from one
project to another, as do their production rates. Material prices also vary from
project to project. For example, the rate to place one cubic meter of concrete on
one project will almost definitely not be the same on the next one. By breaking
the items into labour, material and equipment it’s possible to take these
variations into account when pricing them.
The pricing can be in the form of a simple spread sheet or it could take the
form of a computerised tendering package. There are many different tender
packages with some being better than others. Many contractors select the
cheapest package which may not necessarily be the best option for the company.
Each tender should have the hourly cost worked out for the individual
labour trades. These rates must include the base labour cost, plus a factor to
account for the estimated overtime hours, as well as allowances for leave pay,
sick leave, bonuses, unproductive time, retirement funding, public holiday
provision and other monetary allowances. In addition, somewhere in the tender
add in the costs for protective clothing, mobilisation of staff and workers,
training, as well as transport and accommodation costs. (Some companies
choose to add these into their task labour costs.) On some projects the
unproductive allowance can be quite large to allow for workers moving between
tasks, the preparation of work method statements, attendance of safety and tool
box meetings and the interruption of work due to the client’s or other
contractor’s operations.
By working out the size and composition of the team required to complete a
task, the production that will be achieved per hour, and knowing the individual
hourly rate (calculated above), it’s possible to work out the labour cost to
complete each task.
When working out material costs it’s important to allow for any wastage,
bulking and compaction, laps, transport and handling, as well as the cost of
fixings.
It’s essential to diligently and accurately work out the costs since simple
arithmetic errors can have serious consequences.
Ensure that the price for each task includes all of the activities required to
complete the task. For example, when pricing an excavation it’s not only
necessary to include the cost of excavating the footprint of the structure but often
it’s necessary to include excavation for working space, battering of the
excavation to make the sides safe, access and ramps into the excavation,
protection of the excavation, and backfilling the excavation, working space,
batters and ramps. Often the volume of earth removed from the footprint of the
structure is only a small part of the total volume that must be excavated to
construct the structure.
Calculation of overheads
There are two types of overhead costs on a project.
1. Firstly those related to the operation of the company and the services the
company provides to the project. These include the cost of running the
company Head Office and the costs of the company’s management and
administration staff. Many companies charge each project a fee to cover
these overheads and this is sometimes incorporated into the tender price.
The Estimator needs to understand the company policy in this regard so that
the correct amount is allowed for.
2. Secondly there are the overhead costs directly related to running and
administrating the project. These costs cannot be attributable to a particular
item or task on the project and may include costs such as:
1. The project offices and facilities including their transport and set-up.
2. Management, support staff (Administrators, Planners, Engineers,
Safety and Quality Advisors) and supervisory personnel. These costs
would include their basic pay as well as provisions for bonuses, leave,
sick leave, retirement benefits, allowances, other benefits and possibly
also the cost for their accommodation and transport.
3. Mobilisation costs for personnel and equipment.
4. Specialised equipment such as cranes, access equipment and site
transport.
5. Cleaning and security services.
6. Water and electricity.
7. Stationery, telephones, radios and computers.
8. Provision of insurances and bonds.

To calculate these costs it’s necessary to complete the project schedule and
work out the resources required to construct the project. Importantly check
subcontractor’s quotes to see if they have overhead allowances that must be
included into the tender overheads or if there are additional items which the
contractor must allow for and which must be added to their overheads.

Once the total costs of the overheads have been calculated it’s important to
decide how they will be claimed in the tender. Some contractors elect to spread
the overheads proportionally through the various bill items and add this to each
item. This can have adverse consequences if the quantities decrease, which
would then result in the contractor being paid a lower value for their overheads,
resulting in them recovering insufficient money to cover the actual costs
incurred. Of course if the opposite happened and the quantities went up the
contractor would recover more overheads than was envisaged and required,
which would add to their profit.
I prefer to show the overheads as separate line items in the bill of quantities
so there’s less risk of being underpaid. It’s also more transparent if a variation is
lodged for additional time and overheads when the project duration is extended.
When showing the overheads separately they can be broken down into:
1. fixed overheads which are normally the costs to establish and set up the
facilities, mobilise people and purchase insurances and bonds as well as the
demobilisation costs
2. time related overheads which are related to the monthly running costs of the
project
3. value related overheads which are directly influenced by the value of the
work completed

It’s important to nominate in the tender how the overheads should be paid.
Many of the overhead costs are incurred near the start of the project. However, if
the client pays the overheads in proportion to the elapsed time on the project, or
in proportion to the value of the works completed, then the contractor could
experience a prolonged period of negative cash flow.
At times, to improve the cash flow, you could elect to place a higher value
into the fixed overheads which are paid near the beginning of the contract, and a
reduced value in the time related portion. There is then a risk that if there’s an
extension of time variation the contractor will be basing their claim value on
these reduced time related overhead costs which will result in them earning an
amount less than they actually require.
Insurances
Check what insurances are required for the project. In some cases the client
may have insurances in place. Read their documentation to ensure they
adequately cover your work. It may be necessary to purchase additional
insurance to cover events which the client’s insurance doesn’t cover. Often the
client’s insurance may also have deductibles or excesses which are too large for
the contractor, so again the contractor may have to purchase additional
insurance.
It may be necessary to seek expert advice since some insurance policies can
be quite complicated.
On large projects the costs of insurance can be quite large, particularly if
the insurer perceives there to be additional risks.
Sureties and bonds
The contractor must understand what sureties and bonds they must provide,
and ensure they will be able to obtain them should they be awarded the project.
Failure to provide them at the start of the project could result in the project being
terminated which will be both embarrassing and costly.
The cost of providing the sureties and bonds should be allowed for in the
tender price.
Subcontractors
Sometimes the client elects to appoint some of the subcontractors who are
termed as nominated subcontractors. These subcontractors will perform work on
the project and the contractor is expected to control and monitor them. When the
tender is issued the client may already have chosen these subcontractors and
they’ll be specified in the documentation. However, often the client hasn’t
selected them and will only indicate the work which is to be performed by a
nominated subcontractor. Sometimes they will include a provisional amount for
these works which the tenderer must include in their price.
It’s important the tenderer understands the risks of accepting the client’s
nominated subcontractors since they will be responsible for their performance.
Where possible, the tenderer should try and influence their selection. If the
subcontractors are known at tender stage the contractor should investigate them
to better understand how easy or difficult the subcontractor is to manage, and
price their tender accordingly or qualify it appropriately.

Some of the work may be done by subcontractors appointed by the tenderer

and these subcontractors must receive a request for a quotation as soon as
possible so they have sufficient time to provide a meaningful price.
The request for quotation must include:
1. the scope of works
2. the date when the price must be received
3. tender drawings
4. special project conditions
5. specifications
6. the schedule relevant to the subcontract scope of work
7. the schedule for the overall project
8. the conditions of contract

When the subcontractors’ prices are received the quotes must be carefully
analysed to check:
1. they’ve priced the scope fully
2. they understood the project conditions
3. they haven’t excluded anything
4. what they expect the main contractor to supply (such as scaffolding, cranes,
offices, storage and accommodation)
5. specific qualifications that could affect the cost of works being priced
 Subcontractors’ tenders have to be compared to other prices received for
the same work. The adjudication can be complicated because often the total
prices can be similar but within the different quotes there can be wide variations
of prices between individual items, as well as differences between products
offered, and the terms and conditions of the subcontract tender.

The contractor must allow in their price for the management and
supervision of the subcontractor, as well as the services, facilities and equipment
which the subcontractor may have excluded from their price and which the
contractor must supply.
Provisional sums
Sometimes clients aren’t sure what they want in an area, or they have
insufficient information for the contractor to price a section of works. The client
may then provide a provisional sum in the tender document which must be
added into the tender price. I’ve heard of several occasions where contractors
forgot to add these provisional sums to their tender sum, resulting in them
submitting a price which was too low.
The client should state if these provisional sums include or exclude the
tenderer’s mark-up. In many cases the tenderer may have to allow a separate
amount for their profit on this work which should also include their overheads,
management, supervision, equipment, services and facilities required for the
work.
Allowing for cost increases
It’s one thing to work out the cost of doing the work now, but what happens
when prices increase after the tender is submitted? We know wages increase
annually, fuel prices change monthly, or in some cases even daily, and suppliers
frequently increase the price of materials. Of course this usually isn’t a problem
for a project which is only a month or two in duration and starts soon after the
tender is submitted because the increases over this short period should be
relatively small.
However, many larger projects start several months after the tender is
submitted, and they’re often a year, or even several years in duration. Over this
period there may be several wage increases and the price of petroleum and other
materials could increase significantly. It’s necessary to understand these
potential increases, which could be significant in countries with a high rate of
inflation or with a volatile exchange rate, and make allowances for them.
Naturally the allowances will be guestimates since the increases are usually
unknown, although sometimes with wages there are agreements locked in for a
period of several years. Other items, like petroleum, have volatile prices varying
according to supply and demand, foreign exchange rates and world events.
Unfortunately contractors cannot always allow for the worst case scenario
of the maximum potential increases because then their tender will become
uncompetitive. It’s therefore necessary to take a realistic view of what increases
can be expected using historical data as a guide.
To work out the allowance for these cost increases, break the tender down
into the different cost components that may be affected by price increases, such
as the quantity of petroleum, labour, steel, and so on. Work out the average
increase expected for the item, which depends on when the item will be used
according to the tender schedule. Apply this increase to the value of the item to
calculate the additional cost which should be allowed.

Sometimes it’s possible to mitigate against some or all of the risk, by either
asking suppliers to provide a price fixed for the duration of the contract, by
procuring the materials near the start of the project and storing them on or off
site, or by asking the client to absorb some of the risk by paying escalation, or
rise-and-fall on the contract.
Escalation and rise-and-fall
Sometimes clients allow contractors to ask for escalation, or rise-and-fall,
on the contract price. This is particular common in countries with high inflation.
Escalation is a factor that’s added onto the contract price to compensate the
contractor for price increases that occurred during the contract period. It’s
calculated using the contract value and the assumed percentages of the various
components, multiplied by the factor by which each item increased as the work
proceeds. Escalation factors are usually calculated and published by the
Department of Statistics or some similar government body in the country where
the project is being undertaken.

Rise-and-fall is similar, and the contractor normally nominates in their

tender which items in their contract will increase in cost. Each item would
require an estimate of the quantity to be used as well as its starting cost. In the
course of the project the contractor claims, and is reimbursed, for the difference
in the final cost of the item relative to the cost at tender stage.

Many clients may accept escalation, or rise-and-fall, although generally

they prefer fixed price contracts where the contractor has to allow for the risks of
price increases.
When clients adjudicate tenders, comparing a fixed price tender to one with
escalation, they’ll often apply their estimate of the increases and come up with
their cost of how much the escalation will add to the price of the tender. The
danger here is that clients will often be conservative and add a bigger value than
necessary, which could make the tender with escalation more expensive than the
one which is fixed.
There are other risks with these formulas in that they don’t always
compensate the full portion of the increases. In addition, sometimes prices go
down and the contract sum will then be adjusted downwards.
Profit
The amount of profit or margin on a project will depend on numerous
factors:
1. The contractor’s policy governing the profit they add to their tenders.
2. How important it is for the contractor to win the tender. If a company needs
the work the profit level could be reduced to improve its chances of
winning the tender, while if they aren’t desperate for the work they could
add more profit.
3. The size and type of project. Contractors who subcontract portions of the
work may have a reduced margin on the subcontracted portions.
Contractors may apply a lower profit to larger projects and a higher margin
to smaller ones.
4. The complexity and risks of the project. High risk complex projects may
have a higher profit to compensate the contractor should problems be
encountered on the project.
5. The client and location of the project. Contractors may add a higher profit
to compensate for the risks of working for certain clients or for undertaking
projects in remote locations.
6. Other bidders on the project. If it’s known who they are, and if their
numbers are limited, assumptions may be made as to the margin these
competitors will apply to their tenders. The margins of competitors could be
influenced by the amount of work they have on hand and the type of project
they prefer to undertake. A rough idea of their competitiveness can be
gauged by the prices they submitted for recent projects. Of course this isn’t
an exact science, but is a guide to the profit which can be applied.
7. Knowing the client’s budget also gives an indication of the tender price the
client is expecting and in some cases it’s possible to adjust the profit to
ensure the tender comes in below their budget. Of course sometimes the
client’s budget isn’t correct and it shouldn’t be the only determining factor
of the contractor’s price.
8. The accuracy of the tender. When the contractor is confident their price is
correct they can apply a smaller profit, while a less accurate price may
require a higher profit to compensate for any possible deficiencies and
errors in the tender calculations. (However if you have already added a
contingency to cover the company for any errors in the price it shouldn’t
necessary to increase the profit as well.)

The level of profit is normally a decision taken by senior management

within the company.

Once the level of the profit is decided the next decision is where the profit
should be added. This can sometimes be complex and needs carefully
consideration. The simplest is to apply the profit uniformly across all items in
the schedule of quantities.
In some cases when the contract is re-measurable the contractor can
compare the estimated quantities the client has provided with those they expect
to encounter on the project. Often there are differences. Obviously, if the final
project quantities end up being lower than the tendered quantities and profit has
been applied to these items, then the contractor will earn a smaller profit than
estimated. The reverse happens if the quantity increases. I’ve often reduced the
profit on items I guessed would reduce in quantity and applied a higher one to
items I expected would increase in quantity. This can be risky if these
assumptions are incorrect.

Always seek ways to maximise the tender profit by thinking up and

providing alternative solutions, methods, schedules and materials.
Alternative tenders and other incentives
In most cases the client presents a design and construction methodology for
the project which tenderers are expected to price. Nevertheless, contractors may
propose alternative designs, methodologies or materials which they consider to
be cheaper options. Most tenders specify that the contractor must price the
original option (a conforming bid), even if they intend to price alternatives.
I’ve on a few occasions won tenders based on alternate solutions. Often we
only passed on some of the savings created by the alternate solution, and have
taken the remaining savings as additional profit. If the client has to make
modifications to their design the savings offered should be sufficient to make the
offer attractive, and also pay the additional costs the client incurs in modifying
the design.
Contractors could also offer alternative materials which are more readily
available or cheaper than those specified. The tenderer will need to convince the
client of their suitability.
There are other tactics to make the bid more attractive. These could include
finance terms, early payment discounts, or even offering alternative schedules.
Cash flow
It is imperative that contractors understand the cash flow of a project. Many
contractors fail, not because they are poor contractors, or because they’re losing
money, but because of inadequate cash flow. Many of the cash flow problems
can be attributed to contractors accepting unsuitable payment terms, or carrying
out projects which are too large for them.
In addition to the contract payment terms and conditions, the contractor
ought to consider the payment terms they have with their subcontractors and
suppliers. In some cases a supplier may have to be paid a deposit to secure the
purchase of a major item of equipment. Most clients don’t pay for unfixed
materials, even though they may be on the project site.
It’s therefore vital in the tender process to prepare an accurate cash flow
forecast. This should take into account when the client pays the contractor and
the portion withheld for retention. Compare this with when payments will be
made to suppliers, subcontractors, personnel, and for other services.
Unfortunately most projects have a negative cash flow until they’re almost
complete, so the contractor must ensure they can sustain this negative cash flow.

Some ways the Estimator can improve the projects cash flow may include:
1. requesting an advance payment from the client
2. requesting the client pay the monthly valuations earlier
3. requesting the client reduce the retention money, or replace it with a
guarantee
4. front loading the tender (which is where the work done near the beginning
of the contract has a higher value, or a higher profit than the balance of the
works)
5. setting milestone targets when the contractor will be paid a percentage of
the contract sum (this is often used by contractors building houses who
demand a certain percentage of the total project price be paid when the
foundations are complete, a further percentage when the walls reach roof
height and so on) and normally these payments are set at a value higher
than the actual value of the works completed, so many clients are reluctant
to accept these terms as it exposes them to risk should the contractor fail to
complete the project
6. negotiating to pay subcontractors and suppliers later
7. holding cash retention from subcontractors
8. requesting the client pay for unfixed materials
 Cash flow can be adversely affected by clients who pay valuations late.
Consequently, it’s important to consider the client’s ability to pay progress
valuations in full and on time.

Some clients request the contractor to include a valuation schedule in their

tender which is used by the client to work out their own anticipated cash flow.
It’s important that this schedule (or client’s cash flow projection), is accurate so
the client can correctly forecast their financial requirements. If it isn’t accurate
the client may not have sufficient funds available to meet particular monthly
payment claims from the contractor.
Day-works and supplementary rates
Most tenders request the contractor to complete a schedule of day-works
rates. Usually the preamble to this section specifies what the rates should
include. For instance, wage rates would normally include the basic wage rate
plus allowances, holiday and sick leave pay, leave provisions, bonuses,
protective clothing, accommodation, transport and small tools. However, in
addition many contracts specify that supervision and other overheads should be
included as well, which is usually difficult to assess and depends on the type and
size of work to be done using these rates. Therefore, where possible, exclude
supervision from the labour rate and nominate a separate rate for this.
Ensure plant and equipment rates include everything that’s requested, such
as the basic hire costs, maintenance costs (including the provision of service and
refuelling vehicles, mechanics, oils, grease, cutting edges and spare parts), fuel
and in most cases the operator’s wages (again the wages would take into account
all of the costs mentioned above). In some cases the contract specifies that the
rate should also allow for mobilising and demobilising the equipment. This is
typically difficult to do, so where possible nominate to exclude these costs.
Most contracts normally ask for a mark-up or profit percentage to be added
to the actual cost of the materials that are used in day-works events. If certain
materials are specified it’s important to allow for the actual cost of the material
plus transport, storage, offloading, handling as well as any wastage and bulking
factors.
When making use of subcontractors, make sure that their day-works rates
are included in the rates submitted in the tender. Often the subcontractor’s rates
are higher than the rates agreed with the client which results in the contractor
losing money if the subcontractor does work on day-works.
Weather
It’s essential to understand and consider the likely weather conditions on
the project site during the construction period. Rain, winds and periods of
extreme temperatures can have a major impact on the productivity of personnel
and equipment which will influence the project schedule and the cost of
construction. If necessary, additional time may have to be factored into the
tender schedule for these possible delays, and additional money added to take
into account the cost of these delays as well as the cost of the reduced
productivities.

Cognisance should also be taken of the potential consequence of any client

delays in awarding the contract or access to the project site. These delays could
push the contract into a season of unfavourable weather which may not have
been allowed for in the tender. If there are concerns about these potential
impacts they should be highlighted in the tender submission to ensure that if
there are delays the contractor will be suitably recompensed for the changed
conditions.
Risks and opportunities
Most tenders involve some risk. Risks can be dealt with in a number of
different ways, for instance the contractor could:
1. eliminate the risk by engineering it away, for example using alternative
construction methods, which may add additional costs
2. assume the worst case scenario and price the full cost of the risk occurring
3. ignore the risk and hope it doesn’t eventuate
4. qualify the risk out, transferring it to the client

In the ideal world the contractor would like to eliminate all risks, but this is
obviously not always possible since the additional money added to compensate
for the risk will make the tender uncompetitive. It’s also usually difficult to pass
all the risk to the client as typically they won’t accept this. Therefore the answer
is usually a combination of the four options above.

While preparing the tender the Estimators should note the risks in a
schedule, including how they’ve been treated. When the tender is finalised the
risk schedule should be reviewed to check the risks have been treated correctly
and accounted for in the final tender amount.
Some typical examples of risks to consider may be:
1. adverse weather
2. payment terms including the risk of non-payment
3. contractual conditions that place more risk with the contractor, or
conditions which are ambiguous
4. industrial unrest
5. possible shortages of critical materials
6. the availability of equipment and people
7. specific engineering problems
8. the project schedule
9. high penalties or liquidated damages
10. poor ground conditions
11. lack of information
12. political instability

Arrange the risks into the following categories; financial, commercial and
engineering.
Against each risk allocate the likely chance of the risk materialising as a
percentage (with one hundred per cent being a risk that will definitely occur).
Allocate a cost to the risk should it eventuate.
When preparing the risk schedule it’s important that you don’t see ghosts,
adding risks that are unlikely to occur or may in fact be non-existent.

Just as there are risks, so too are there opportunities. These opportunities
may be:
1. the project scope increases which may give the contractor better utilisation
of their resources and increase the project’s profit
2. further work opportunities
3. the client is disorganised which could provide opportunities for claims and
variations
4. the possibility to re-engineer the project making it easier to construct

List the opportunities in an opportunities schedule with the possible positive

cost impacts for the project. Allocate a percentage to the opportunity in
accordance with the likelihood of the opportunity materialising.
When assessing the additional costs to be added to the tender for possible
risks, also consider the potential additional profit from opportunities which the
project may have, and try and balance them out.
Bid (or tender) bonds
Some tenders require the contractor to submit a bid bond with the tender
which is normally equal to 10% of the tender value. Failure to submit the bond
will invalidate the tender. These bonds could take several weeks to arrange so
they need to be requested from the bank at the start of the tender process. Often
there is prescribed wording for the bond.
Because the bond is dependent on the tender value it’s important to do an
accurate estimate of the value as soon as possible and update the bank on any
significant changes as they occur.
Form of offer
Most tenders require the tenderer to fill in a standard form of offer which is
included with the tender. I’ve heard of contractors forgetting to complete the
form, or filling in the incorrect price. The form of tender is a legally binding
document and the client is entitled to accept the value entered on it.
Tender covering letter
It’s good practice to include a tender covering letter which should:
1. thank the client for the opportunity to tender
2. give a brief overview of the tender submission
3. reference any qualifications
4. amplify why the contractor is best suited to undertake the project
5. place emphasis on attending to the client’s concerns and priorities

The letter should be brief and pertinent and no more than a couple of pages
in length.
Tender qualifications and clarifications
Most contractors will have some qualifications for their tender. These
would include the conditions they are willing to accept in order to undertake the
works. Furthermore, the contractor may want to clarify what they’ve actually
priced. The shoddier the tender details and information provided by the client,
the more items have to be clarified. The contractor must ensure that what they
have priced has been fully described in the tender documents and if not, it needs
to be clarified.
Additionally, I’ve sometimes highlighted in the clarifications an item I’ve
priced which I believe other tenderers may have missed. This brings it to the
client’s attention so they will either ask you to remove the item from your price
(if it’s unnecessary), or they will request the other tenderers to ensure they’ve
priced for it (which may mean their prices increase).
Typical exclusions and clarifications may include:
1. unforseen or unknown ground conditions
2. dealing with artefacts and hazardous materials
3. unforseen or unseasonal weather conditions
4. the correctness of existing structures and ground elevations
5. the location and quantities of the client provided facilities
6. the tender schedule
7. location of existing services
8. payment terms and conditions
9. capping of penalties and liquidated damages, and their rate of application
10. alternative materials or designs
11. office and laydown requirements
12. dates by when information, drawings and client supplied materials are
required
13. the provision of a payment bond in lieu of retention money
14. assumed working hours
15. the tender validity period

I’ve known some contractors to have pages of qualifications in their tender,

some being fairly minor items. I believe this practice could jeopardise
acceptance of their tender, so some care needs to be taken to ensure only those
conditions which are really important are included.
Checking
It’s important to check the final price to ensure:
1. it includes all the client’s requirements such as:
1. the provision of offices, facilities, services and security
2. their site restrictions including working hours and mobilisation and
site induction procedures
3. quality procedures and tests
4. staffing
5. deliverables
6. special requirements
7. spare parts
8. insurances
9. warranties
10. restrictions with tying into existing services
2. the calculations are correct
3. all items have been priced and included in the final tender price
4. it includes all provisional sums
5. it has allowed for client supplied items and materials
6. it allows for commissioning, including the power, water and chemicals that
may be required for this process
7. it includes for all taxes and duties
Tender submission
Don’t underestimate how important the tender submission is. This must be
as professional as possible. In the past, I’ve often attended tender clarification
meetings where the client has complimented us on our tender submission and
they have possibly been swayed to award the project to us.
Some or all of the following could be included in the tender submission:
1. an index
2. the transmittal or covering letter
3. the final price or form of tender
4. commercial and technical clarifications and qualifications
5. the tender schedule
6. a breakdown of the price
7. the contractor’s proposed project management organisation chart and
curriculum vitae of senior staff
8. a list of equipment and subcontractors
9. the deliverables the client has requested (which may include proof of
insurances, cash flow and histograms)
10. day-works rates
11. company profile including a list of similar projects the contractor has
completed
12. safety information and documentation
13. quality documentation (keep the information relevant to the project and
demonstrate the company has a clear understanding of the client’s
requirements and will meet and even exceed these)
14. environmental management information and documentation
15. if necessary, traffic management plans
16. the project approach, work methodologies and considerations taken into
account in the tender
17. company brochures (which may include financial statements and safety
statistics)

Include as much information as possible to demonstrate that the company

has an understanding of the project, has thought through the construction
process, and has the personnel and resources to undertake the project
successfully.
Many tenders are scored not just on price but are affected by other items in
the submission such as quality documentation, safety plans, methodology and
schedule.
 Check the submission to make certain:
1. all the documentation requested by the client has been completed and is
included
2. that all the pages have been printed and are included (sometimes in the
binding process pages get inadvertently left out, or during printing, errors
occur resulting in blank pages)
3. the documentation is presented in a logical and easy to read format (The
specific documents the client has requested should be highlighted and easy
to find. I’ve on occasion had clients ask for documentation which we had
included in our submission but which they couldn’t find. This is frustrating
for the person adjudicating the tender and can lead to them assuming it isn’t
available, resulting in the tender being disqualified.)

Ensure sections such as safety and quality are included in their own
separate divisions and aren’t spread across other areas of the submission. This
could result in the reviewer only receiving, and reviewing, a portion of the
relevant information.
Remember, tenders are often reviewed by a number of different people, or
departments, within the client’s organisation. The tender is frequently split into
the relevant sections which are then circulated to various people who aren’t even
directly associated with the project but will, for instance, be requested to review
all the tenderers’ safety documentation. If they don’t receive the full submission
from a tenderer they’ll assume it wasn’t included and will give the tender a poor
rating which may adversely affect the contractor’s chances of being awarded the
project.
Joint ventures
Joint ventures are normally formed by two or more contractors for the
purpose of sharing risk, to pool resources for a large project that they
independently couldn’t perform on their own, or where one of the partners has
an expertise in an area the other partner doesn’t, (for instance one of the partners
may do the mechanical works and the other the civil works).
Before tendering in a joint venture ensure that the client will accept a tender
from the joint venture.
Case study:
I worked for a contractor that submitted a tender worth several hundred
million dollars in joint venture with another contractor. However, neither
company had asked for the client’s approval to submit the tender as a joint
venture. Consequently the bid wasn’t accepted and we had wasted considerable
time and effort.
The letter requesting permission should highlight the reason for forming the
joint venture and what benefits it will bring to the client and their project.
Most clients will require that the joint venture partners be jointly and
severally liable for executing the project.

Also, before submitting the tender the joint venture parties should have a
signed heads-of-agreement, spelling out the terms of the joint venture.
The parties should agree:
1. the percentages each will have in the joint venture
2. who the lead partner will be
3. the resources each party will contribute
4. the name of the joint venture
5. the address for the joint venture
6. who will pay the costs of the tender
7. how the tender will be done and who will be responsible for the submission
8. a schedule (program) for preparing the tender
9. the rates for the resources each party will contribute to the project

Before the tender process starts there should be agreement on the rates
which will be used for pricing the works and what these include. For example,
the rates for the different levels of staff and whether these rates include for all
costs like sick and leave pay, as well as bonuses, and whether the equipment
costs include for spares and maintenance and if there are minimum hours the
items should be paid for.
Summary

1. Tenders should be compiled by people who are familiar with the company’s
resources and capabilities and who understand the construction process,
costs and methodologies.
2. Tender documentation should be checked to ensure all of the sections and
pages have been received.
3. The document must be carefully read and understood and any discrepancies
or problem clauses should be noted.
4. The contractor should visit the site and note anything which may impact on
the construction of the project.
5. It’s important to prepare and resource a tender schedule.
6. If required, work out the quantities for each task or item.
7. Get quotes for materials and for works which will be subcontracted.
8. All items, or tasks, should be priced from first principles and should allow
for the conditions that are relevant to the project and its location.
9. Price the overheads needed to do the works and add in any company
overheads which need to be included.
10. Decide on an appropriate and relevant profit margin and where it will be
added.
11. Check the project’s cash flow to ensure that the contractor has suitable
financial means to cover periods when it will be negative.
12. Prepare a schedule of risks and opportunities and if necessary take some of
these into account in the price, or qualify them out.
13. Submit a schedule of qualifications and clarifications which outlines what
the tender price includes, what has been excluded, and what has been
assumed.
14. If possible, provide alternative prices or methods of construction which
could be attractive to the client.
15. Ensure that the tender submission is complete and includes all the
documentation the client requested.
16. Check the tender calculations and ensure that the correct figures have been
entered into the submission.
17. Ensure that the tender has allowed for the likely project weather conditions.
18. Obtain the client’s permission before submitting a tender as a joint venture.
Chapter 4 – Securing the Project
It’s one thing to submit a tender, but even if the price is the lowest the
chances of being awarded the project are often less than 50%. In fact, it’s often
preferably to be awarded a project from second or third place since it means you
are getting a higher price. For many clients it’s not only about price – they want
a contractor who produces a quality product, on time, without any safety or
environmental incidents, with minimal fuss, no industrial relations problems and
without unwarranted additional claims. Experienced clients understand the
additional premium to engage a good contractor more than compensates for
delays or problems that may occur on their project when a cheaper contractor is
used. Though, unfortunately, some clients are only focussed on getting the
project as cheaply as possible – sometimes it is best not to work for them.
It’s important to make the bid as attractive as possible, sell the company’s
abilities to the client and demonstrate you’re professional. This is done by
submitting a complete and well-presented tender. In addition, respond in full and
in a timely manner to all post-tender correspondence, and be totally prepared and
responsive at post-tender meetings.
Open the door – price
Price is important; no client is going to talk to a contractor whose tender
price is a lot more expensive than that of the other bidders, or whose price is
over their budget. As discussed in the previous chapter it’s important to have the
right price, which not only ensures the contractor shouldn’t lose money on the
project but is also one that’s competitive when compared with the other bidders’
prices.
Sometimes Estimators can over think and overcomplicate a project, pricing
things that may not become a reality, making their price too expensive. During
the tender process it’s important to carefully weigh up the likely occurrence of
an event, and in some cases rather than pricing for the event the contractor can
choose to accept the risk of it occurring or exclude it by qualifying their tender
accordingly (Refer to Chapter 3 for more details on assessing and dealing with
risks in tenders). If the tender price is of interest to the client they will normally
invite the contractor to a tender clarification meeting where the qualification is
likely to be discussed. The client may accept the qualification or they may
discuss the potential issue, often clarifying it for the contractor. If it’s not as
serious as first thought the contractor could withdraw their qualification without
additional costs. In the worst case scenario the contractor may have to withdraw
the qualification and add additional money to compensate for the event.
However, at least the contractor has had the opportunity to meet the client and
promote themselves.
This doesn’t mean that the tender price should be absurdly low with
numerous qualifications, because very few clients will find this acceptable.
(Note that some client bodies will not accept tenders that contain qualifications
and a non-conforming bid, listing savings or proposed alternative materials may
have to be submitted together with an unqualified conforming bid). The
contractor must take on some risk, and the price should be a reasonable
assessment of the work, taking into account reasonable risks.
Discounts and savings
To reduce the price further, making the bid more attractive, it’s possible to
offer the client discounts and savings if they:
1. pay the monthly valuations earlier
2. reduce the amount of retention money held, or release it sooner
3. allow the contractor to replace the retention money with a surety bond
4. have specified the surety must be provided by a bank, allow the contractor
to provide a surety from an insurer rather than a bank (which is often
cheaper for the contractor)

Sometimes clients break down their projects into smaller separate tenders,
but if the contractor is interested in constructing a few of them there may be an
opportunity to offer a discount if the client awards two or more projects to the
contractor. There are normally savings to the contractor in using shared
resources, the benefits of which can be passed on to the client. In addition, the
advantage of having one large project made up of smaller projects instead of one
small one, may be attractive enough that the profit can be reduced and the saving
passed on to the client as a discount.
Understanding the client’s needs and priorities
By understanding the client’s priorities the contractor can ensure their
tender takes these into account. The tender submission should emphasise that the
contractor can achieve these criteria and priorities. For example, if the client is
concerned about safety then the contractor may need to allow for additional
safety personnel in the project price and as part of the presentation the tenderer
could emphasise their safety achievements on past projects as well as outline the
steps they will implement to ensure the project is constructed safely.
A tender that addresses the client’s needs and concerns may be favoured
over another tender, even if that one is cheaper.

The client’s priorities are often emphasised in the documents or discussed

at the tender site inspections. Also, if the contractor has a relationship with one
of the client’s personnel it’s possible to find out what their priorities are.
Some concerns the client may have are:
1. achieving the milestone dates
2. producing the correct quality
3. industrial relations harmony
4. the contractor’s ability to work around the client’s activities
5. the contractor’s expertise and knowledge
6. that the contractor has sufficient resources
7. the contractor’s ability to work with other contractors in restricted areas
8. that the contractor understands the project and its complexities

Case study:
We priced one project in joint venture with another contractor as the
project was too large for us to undertake on our own. During the tender process
we heard the client didn’t like working with joint ventures so in our tender
submission we tried to address all of the client’s concerns regarding joint
ventures and emphasise the advantages our joint venture would bring to the
project.
Often clients have completion dates and milestones that are difficult or
impossible to achieve. However, it’s not always the final completion that’s
important to the client, but rather for them to get beneficial access to parts of the
facility during the construction phase to enable them to start installing their
equipment. If the tenderer understands what the access requirements are, it could
be possible to give the client their access on the required dates without
committing to what might be an impossible task of handing over the complete
facility as one milestone.
The tender scoring and adjudication process
Often the client has a defined method they will use to score and adjudicate
the tenders which usually takes into account a number of factors including the
price. This process often follows a set formula which is outlined in the tender
document. The contractor must understand how this formula works, ensuring
they maximise their scores. The items the client will look at should be clearly
highlighted and must comply with the client’s requirements.
For instance, some clients may score the contractor’s price as 90% of the
overall score with the remaining 10%, say, being made up of various factors
such as the local ownership of the company, the number of indigenous
employees, the amount of money that will be spent in the local community, the
experience of the proposed construction team, the resources available for the
project and the contractor’s safety record.
The contractor shouldn’t overstate what they will achieve because there are
often penalties that will apply should they later fail to meet their commitments.
Often the contractor can improve their scores for some items by committing
additional money to them. However, the extra costs might eventually outweigh
any advantages gained from maximising the scores. For example; using local
suppliers may increase the costs, inflating the tender price, or the greater use of
local materials could improve the tender score, but their cost could increase the
tender price and outweigh this benefit.
Sometimes it’s possible to come up with alternative solutions and ways to
improve the way the tender will be scored. It’s worth spending time and effort in
ensuring the tender will receive the highest realistic scoring.

It’s also advantageous to consider how competitors will be scored since this
could influence both your price and how you decide to best maximise your
scoring opportunities.
Differentiating the company
I’ve discussed the importance of a well presented tender submission, as
well as portraying a knowledgeable and professional image at post-tender
meetings and negotiations. To win the project it’s imperative that the contractor
is able to sell the company, differentiating it from other contractors, and
convincing the client they are the best contractor for the project. To do this the
contractor should emphasise their:
1. reputation of successfully delivering similar projects
2. experience and knowledge
3. availability of resources
4. suitable personnel, highlighting their experience with similar projects and
their tenure with the company
5. reliable subcontractors and suppliers
6. excellent safety record
7. good quality work on other projects as well as their quality systems and
procedures
8. understanding of the project
9. commitment to meeting the client’s needs
10. financial capacity
11. proactive approach to avoiding and solving problems
12. ability to work with the client and their team
13. good environmental management record (their ‘green credentials’)

Do not talk badly of competitors unnecessarily, but do mention items or

considerations which you may have thought about, but which other contractors
might not have.
Post-tender correspondence
After the tender is submitted there’s usually correspondence from the client
which requires a response – often immediately. It is essential the tender
submission clearly indicates the name and contact details of the contractor’s
representative who the client can contact (particularly when the tender is
submitted just before a holiday period or when the Estimator is going on leave).
It’s embarrassing, and could cost the contractor a potential project, if the client
sends correspondence which isn’t replied to because the person it’s addressed to
is unavailable.
Correspondence from the client should go to the designated contractor’s
representative, who should coordinate the answers from the relevant experts
within the company, and then respond appropriately to the client. If the client
has provided insufficient time to gather all the required information for a
meaningful answer it will be necessary to request more time. If the client is
unable or unwilling to grant an extension the contractor may have to provide
their best estimate, ensuring that the client is aware it’s only an estimate and a
more accurate answer will follow.

When the client asks questions relating to the tender ensure answers:
1. address these questions
2. have taken into account all of the impacts, which may include changes to
the schedule, increased costs, additional overheads, delayed access, extra
mobilisation costs and impacts on the rest of the project (for example, even
what appears to be a small change in specification could have a major
impact on the schedule if an item has to now be imported)
3. are provided on time
4. are unambiguous
5. take into account previous responses
6. are framed in a positive manner
7. highlight reasons for some answers, where necessary
8. offer alternative solutions where the contractor is unable to comply with the
client’s requests
9. provide a revised tender price which includes the effects of previous
answers
10. are sent in a formal letter (if an answer is provided verbally in a meeting it
should be followed by a letter) addressed to the client’s nominated
representative
11. refer back to the original tender documents, terms and conditions, and
 exclusions and qualifications
12. are carefully thought through
13. including all supporting documents and calculations, are filed in the tender
file so that it’s possible at a later stage to understand how the revised tender
sum was arrived at

The answers will normally form part of the final contract price and
document.
Case study:
One of my projects had a financial problem because the person who
compiled the estimate was contacted by the client after the tender was submitted
and asked to provide a price to supply and install three hundred metres of
electric cable in the ground. The Estimator looked at what he considered was a
similar item in the tender and calculated that the cost for the additional cable
was eighty seven thousand dollars. He submitted the price in an unqualified one
line email to the client even though we had no specifications for the cable or its
installation.
When we were awarded the project the client insisted we had to do the work
for this price even though when we priced the installation accurately it came to
over five hundred thousand dollars. Before we even started the contract we were
going to lose more than four hundred thousand dollars – all because the
Estimator was rushed into giving an answer at the last minute.
(Incidentally, I must also question the client, since it should have been
obvious that eighty seven thousand dollars was far too cheap for a project in
that particular region!)
Case study:
Carrying on with the example above, compounding our problem further, the
Estimator was later asked to revise the project price to include another change.
When this revised price was submitted the cost for the additional cable wasn’t
added into this new tender price. The revised price was accepted by the client
and they awarded the contract for this new value assuming it included all their
previous questions and price revisions, including the eighty seven thousand
dollars to supply and install the cable.
From the above it can be seen that every time a revised price is submitted it
should be clear what’s included and what’s excluded, and should take into
account the previous questions and answers.
Unfortunately, often the questions are sent several weeks, or months, after
the tender was submitted and the Estimator has moved on to other tenders or
projects. It’s important the Estimator takes time to analyse and answer the
question, referring to, and reading the original tender submission to refresh their
memory. Failure to do so can result in costly errors.
Case study:
I worked on one project where the original tender price submitted was
nearly twelve million dollars. The tender was awarded for a value of six million
eight hundred thousand dollars. Between the tender submission and the final
contract award over five million dollars had been cut from the tender price. This
was achieved by the client accepting alternative materials and undertaking some
of the work themselves. In addition the tender team made savings in their
pricing. However, we could only find records of where half of these savings
came from. No one could remember how, or why, the balance of savings was
given. It was no surprise that we lost two million dollars on the project.
It’s essential when subcontractors or suppliers could be affected by these
questions that they are consulted to allow them to modify their prices if
necessary. Nonetheless, they do need to understand this mustn’t be treated as an
opportunity to add money to their quote without reason, making the contractor’s
tender price too expensive.

The fact that the client is talking to the contractor should be kept
confidential so the other bidders don’t hear of this. If they know the client is
talking to you they may come up with a strategy to ensure they are viewed more
favourably. Any subcontractors or suppliers involved in these questions should
be cautioned to keep them confidential.
Follow-up
If you haven’t heard from the client after a week or two it’s good practice to
contact them to find out the status of your tender and the project. This shows the
client you are interested in the project. You may also obtain some inside
information which could give you an advantage over other contractors.
If the client doesn’t like your price or tender try and find out the reason so
that you can improve your processes for the next tender.
The sooner you know your tender was unacceptable the sooner you can try
and secure other work
Post-tender meetings with the client
Many clients request the lowest tenderer, or maybe even the lowest three
tenderers, to attend a tender clarification meeting. Before the meeting the client
will usually send out an agenda.
In preparation for the meeting:
1. read through the agenda and ensure you’re prepared
2. go through the tender again to refresh yourself on the details
3. ensure that everyone attending the meeting is familiar with the project and
can add value to the discussion (often senior managers or executives from
the contractor attend, many of whom are unfamiliar with the tender and the
project constraints, leading them to make inappropriate comments,
promises and commitments – ensure they are fully briefed and understand
the risks and constraints of the project)
4. ensure you know the date, time and place of the meeting, as well as the
contact person and their details (it’s also useful to know the name of the
meeting room since I’ve regularly arrived for a meeting at a large
organisation and the receptionist has been unable to find the contact person
because they are busy meeting with another contractor)
5. take a complete copy of the tender submission, filed correctly, including the
calculations and the post-tender correspondence (there’s nothing worse than
being asked a question in the meeting and having to page through file after
file, looking for the relevant document)
6. take sufficient business cards, a note pad and pen

The size and the make-up of the contractor’s team attending the meeting
will depend on a number of factors:
1. the size of the project
2. the agenda provided by the client (for example, if there’s an item on quality
it may be prudent for the proposed project Quality Advisor to attend, or,
even perhaps the company’s Quality Manager)
3. who the client’s attendees are
4. what the client’s known priorities are (for instance, if safety is important
take the company’s Safety Manager as well as the proposed project Safety
Advisor)

Of course it goes without saying that everyone should be dressed neatly and
arrive for the meeting on time. It’s often useful to arrive early as it may well
provide an opportunity to see the other contractors being interviewed, or to meet
some of the client’s team informally before the meeting which could provide
some insight into their thoughts regarding the project and your tender
submission.

Case study:
We arrived for a tender clarification meeting to be told apologetically that
we wouldn’t be starting on time as the previous contractor had arrived late for
their meeting – not a good start for them! However, five minutes later the other
contractor walked out of the meeting looking embarrassed and we were called in
for our meeting almost on schedule.
Sometime later when I met the other contractor at an industry event I asked
why their meeting was so short and they told me they thought the meeting was
for another tender they had submitted to the same client. They arrived with the
documentation for that tender and were prepared to discuss that project, so
when the client started asking questions their replies related to the wrong
project. When the client couldn’t understand what they were referring to they
eventually figured out the confusion. Obviously the client was less than amused
and quickly terminated the meeting. Needless to say they weren’t awarded either
of the projects.
At the meeting:
1. introduce the team, explaining each person’s role on the project
2. ensure the contractor’s team is led by one person who may delegate others
in the team to answer particular questions
3. take notes at the meeting even if the client confirms they’ll be sending out
formal minutes
4. take time to answer the client’s questions; if uncertain ask them if it’s
possible to provide an answer later
5. listen carefully to the client’s concerns and try and address these during the
meeting as well as in post-meeting correspondence
6. at the end of the meeting summarise the questions that require answers, by
when they will be answered, and to whom the answer should be directed
(ensure there’s sufficient time to get the answers to the client)
7. appear positive, and if what the client is asking isn’t possible explain why
and offer alternative solutions
8. don’t make promises and commitments that cannot be kept
9. thank the client for inviting you to the meeting
Case study:
I’ve won projects by persuading the client during the tender clarification
meeting that we were the best contractor to undertake their project. One
particular example was a large project, which the client issued as two separate
tenders. We really wanted both portions but the client had already decided they
were going to award one portion to us and the other portion to a competitor.
During the tender clarification meeting I convinced them that if they awarded
the entire project to us it would be a large very important project for us and we
would commit our very best team to the project and treat it with the importance
that it deserved. This was obviously a risky proposal as the client may have
decided that if we weren’t going to commit our best team to the project if we
were only awarded one portion, then maybe they shouldn’t award it to us at all.
However I was able to provide such a compelling argument that the client
awarded us both tenders.
Some months later our competitor asked me how we had managed to be
awarded the complete project since they had been convinced they were going to
be given the one portion.
I’m sure I’ve probably also lost some projects at the tender clarification
meetings because of mistakes made or the incorrect answers provided.

After the meeting on returning to the office:

1. allocate the questions to the relevant staff and then coordinate the answers
into one reply to the client
2. when the minutes of the tender meeting are received check that they are
correct and are a fair reflection of what was discussed and agreed at the
meeting (if there is anything that you disagree with, address this in a formal
letter to the client)
3. if necessary send a letter after the meeting confirming the discussions and
any revisions to the tender offer made during the meeting
4. ensure the client’s questions are replied to within the agreed time
5. send a letter thanking the client for the opportunity to meet with them and
offer to answer any further questions they may have
Presentations
As part of the meeting agenda the contractor may have to prepare a
presentation. Understand what subjects are required to be covered in the
presentation and what the time limit is. If necessary call or email the client for
more details.
The presentation should preferably be in PowerPoint or similar. Ensure the
client will have suitable equipment or take your own, ensuring there’s someone
who can operate it.
Presentations should:
1. include the name of the company and the names of the people doing the
presentation
2. thank the client for the opportunity of doing the presentation
3. give a brief overview of the company including the company’s safety
statistics, achievements and policies
4. cover the items the client requested
5. provide examples of previous experience relevant to the project, including
photographs where possible
6. demonstrate why the company would be suitable to undertake the project
and what strengths the company brings to it
7. show the proposed organisational chart for the project with the names of
staff and an overview of their roles, qualifications and experience
8. exhibit that the contractor has thought through the project and understands
how it will be constructed
9. briefly run through the project schedule
10. highlight any concerns or risks the contractor has
11. address any concerns the client may have
12. provide a list of proposed major subcontractors and suppliers and outline
why they’re suitable
13. list major equipment that will be used and how it will be sourced
14. ask if there are any questions

It’s sometimes useful to leave a copy of the presentation with the client.
Tender negotiations
During the various discussions and correspondence the client may ask the
contractor:
1. to revise particular rates and the overall tender sum
2. revise the schedule
3. change their construction methodology
4. remove some of their tender exclusions or qualifications
5. to modify the project scope or specifications and price the changes

The contractor needs to review their tender to assess if the client’s requests
can be accommodated. In certain cases it may be possible to accommodate some
of them. Where they cannot be accommodated, the contractor needs to explain
and justify why their tender is correct, and why it cannot be changed. It might
also be possible to propose alternative methods or prices to enable the contractor
to meet some of the client’s requests.
In some cases it’s possible to go back to suppliers and subcontractors and
ask them to re-assess their quotes to see how they can accommodate the client’s
requests.
This is all part of the negotiating process and it’s important to try and
understand the client’s final position. Obviously if the contractor has a good
relationship with one of the client’s team it’s often possible to gain inside
information as to what the client’s real concerns are.
Ensure all copies of letters and calculations relating to these negotiations
are placed in the tender file as well as any new information the client may have
issued relating to their requests.
A word of warning – don’t secure the tender at any cost
Unfortunately some contractors can become obsessed with being awarded a
contract. They’ve gone through the process of preparing the tender, and now the
client is asking questions and calling them in for meetings. The negotiations are
proceeding well and the contractor can almost smell the success of being
awarded the project, but, the client is still requesting a reduction in the tender
price or refusing to accept some of the contractor’s qualifications. In the heat of
the moment it’s easy to give in to the client, provide a reduced price and accept a
contract which excludes some, or all, of the qualifications. At times, this is done
by senior management who don’t fully understand the project or their team’s
concerns, only wanting to return to the office to say they’ve been awarded a new
project thanks to their timely intervention.
I know some contractors are willing to concede almost anything during
these tender negotiations to be awarded the project. Sometimes, they even
believe they’ll be able to find a way during the course of the project to get out of
their commitments, or to recover the money they gave away. This often leads to
projects that go wrong, lose money and give the contractor a bad reputation.
I’m not saying the tender price is immovable, and nor am I saying the
qualifications are cast in stone. However, it’s important to do a reality check,
work out the minimum price and profit that makes the project worthwhile, and
consider the cost and risk of removing the problematic qualifications. After all, I
assume the original tender price was arrived at using logic and careful
calculation, and the qualifications were inserted for a reason – why then should
any of this change?

Sometimes clients pressurise contractors in a meeting to make an

immediate decision about something which will affect the outcome of the
negotiations. In this case, I suggest the contractor requests a break to confer with
colleagues and work through the consequences of the decisions, or preferably,
requests twenty-four hours to provide an answer. However, it’s important to
respond as soon as possible otherwise the client may lose interest and approach
another contractor.
Whatever happens with the negotiations, don’t make rushed and stupid
decisions simply to be awarded the project – decisions which may be regretted
later.
Bribery
At no time should the contractor try and influence the client’s tender
adjudication by offering their representatives bribes, or courting them in any way
which may appear as if the contractor is trying to sway the adjudication process.
This could result in the contractor being disqualified from the tender process,
and in certain cases even result in legal action.
Filing and storage of tender documents
It’s essential that the complete tender documentation is filed in an orderly
manner. This should include all documentation received from the client, the
tender submission, all correspondence, meeting notes and minutes.
Documentation shouldn’t be removed from the master file.
Subcontractor and supplier quotes, together with all correspondence
relating to their quotes, must be filed together with their assessments and
adjudication. It should be clear and traceable so project staff can follow the logic
of why a particular price was used.
The detailed tender calculations must be retained. These should clearly
show what assumptions were made and the equipment, manning, rates and
productivities used to calculate the price. They should also reflect changes made
during the tender negotiation phase and the basis for these changes.
If the project is awarded to the contractor then a copy of the full set of
tender documents and correspondence should be handed over to the project
team. The original master copy must be retained, filed and stored safely.
Summary

1. Securing the tender isn’t only about having the cheapest price, although it’s
important to come up with innovative ways to make the price attractive to
the client, such as:
1. offering discounts
2. proposing alternative solutions
3. offering savings
4. by not overcomplicating the project or pricing all possible risks and
eventualities
2. It’s also usually dependent on:
1. being able to differentiate the company from others
2. demonstrating that the company is the best one for the project
3. taking into account the client’s adjudication process
4. satisfying the client’s concerns and priorities
3. An important part of the tender process is the:
1. post-tender correspondence
2. tender clarification meetings
3. bid presentations
4. tender negotiations
4. During these processes the contractor should:
1. be professional
2. ensure answers they provide are clear and unambiguous, taking into
account the tender as well as previous correspondence, and are clear as
to what has been included and considered in the revised quotation
3. be positive, outlining alternatives or reasons why the contractor may
not be able to comply fully with the client’s requests
4. carefully think through questions, considering all impacts and
implications of any revisions
5. confirm all discussions in formal letters to the client
5. Care should be taken in the negotiation process that the contractor doesn’t
accept conditions or a price which will cause problems during the course of
the contract.
6. All tender documentation and correspondence must be filed in an orderly
way in a tender file.
Chapter 5 – Delivering the Project
In previous chapters we’ve discussed finding the right projects, ensuring
that the tender is compiled accurately considering all costs and risks, and finally
that the project has been secured. It’s now time to start the project and run it
efficiently to ensure that it makes money.
This chapter should be read in conjunction with Chapter 6 which deals with
reducing costs and overheads, since much of that chapter is relevant to running
the project.
Some readers may work in a small company, being the owner, Estimator
and Project Manage. You’ll probably think some of the processes outlined below
don’t apply to you – after all if you prepared the tender why should you have a
meeting with yourself to understand the tender process? But it’s often just as
important to review the tender, even if you did it, before starting the project,
because you are probably doing several tenders at any one time so it’s easy to
forget how you derived the particular price. It’s equally as important to follow
some of the other steps outlined below, such as planning the project, preparing
the schedule, meeting the client and so on.
Plan the project
It’s important to plan the project thoroughly before starting work, so the
more time available to do this the better. The planning includes:
1. thinking through the construction methodology and ensuring the methods
selected will be the most efficient and economical
2. preparing the project schedule
3. taking out adequate insurance
4. deciding what work will be self-performed and what will be subcontracted
5. ensuring the required resources are available and procured
6. ordering long-lead items
7. ordering materials which will be required to start the project
8. sourcing equipment
9. arranging the necessary permits
10. preparing and submitting the required paperwork to the client which may
include:
1. quality plans
2. safety plans
3. environmental plans
4. traffic management plans
5. method statements
6. job hazard assessments
Methodology
Careful thought should be given to the methodology of construction. Often
the client may have recommended or even specified a methodology, and usually
the Estimator would have proposed one in the tender. However, it’s often
possible to propose other methods of construction which could be more suitable.
There’s always more than one way of constructing a structure or facility, but
some methods will be more efficient and suitable than others, which will vary
between projects and locations.
Some factors to consider when preparing the method of construction are:
1. the workers’ safety
2. the facility or structure to be built
3. the project schedule
4. costs (for example in some areas labour costs are high so it’s advisable to
reduce the amount of labour required by using more machinery or
proposing precast solutions)
5. the client’s design
6. restraints imposed by the client such as:
1. their access requirements
2. the availability of services
3. coordinating with their other contractors
4. access to work areas
5. tie-in and disruption of existing services, processes and traffic
6. restrictions on imports
7. utilisation of local resources
7. the availability of:
1. equipment
2. skilled workers
3. staff
4. materials
5. accommodation
6. services such as power and water
8. the site conditions such as:
1. topography (for example steeply sloped sites may make it difficult to
set-up cranes)
2. ground conditions (for example unstable ground or rock may dictate
the rate of progress, the schedule and the type of equipment)
3. access to site (for example the roads may have load limitations which
limits the size of equipment or items which can be brought to site)
 4. traffic on and around the site which could slow deliveries or limit the
hours of work
5. congestion on the site and around the site (for example cranes required
to place heavy equipment might not be able to be set-up close to
structures)
6. the location of the work area (for example it may be elevated which
would restrict access for personnel and materials)
9. what methods the contractor’s personnel are used to, as well as their level
of skill
10. expected weather conditions during construction
11. the location of the project
12. resources available near the project site
13. the complexity of the project
14. the amount of repetition on the project
15. the degree of accuracy required for the finished product
16. the finishes required
17. the utilisation of resources
18. minimising risks
Project schedule
It’s important a schedule is prepared which should:
1. enable the project to be constructed in the shortest possible time, making
efficient use of the available resources, without jeopardising the quality,
safety or integrity of the project
2. take into account any client imposed restraints, such as; interfacing with
other contractors, access dates, working in and around existing facilities and
the availability of information
3. meet the completion dates that were committed to in the contract (unless the
project has changed from the one that was in the tender submission)
4. allow sufficient time for planning the project and for mobilisation (on some
projects it can take four weeks or more to get personnel through the
mobilisation process and on to site)
5. adequately show the type of resources required and when they’ll be needed
6. be approved by the client in writing as soon as possible (without an
approved schedule it’s difficult for the contractor to claim for variations,
late information, late access and extension of time)
7. clearly show when access is required to the various work areas
8. indicate when information is required (a separate ‘information required list’
should be prepared which can be updated weekly and discussed with the
client at the progress meetings, so the client can be aware of what
information is necessary in the next two weeks and notified when
information is issued late or when it’s inadequate or incomplete for
construction purposes)
9. be updated regularly (the update must be done correctly, focusing on the
critical path activities rather than the overall percentage complete)
10. be communicated to the relevant staff so they are aware of the key dates
and milestones (Supervisors are often only interested in their section of
work and what they need to do in the next couple of weeks, so it’s pointless
giving them the entire schedule to the end of the project since in many cases
it won’t be read and will only confuse them – rather give Supervisors a
snapshot of the schedule pertinent to their work, even perhaps giving it to
them in a pictorial form which can be easily read and displayed on their
office wall)
11. if needed, be discussed with Supervisors to make sure they understand what
needs to be done and why the sequence and resourcing shown is necessary
Don’t start before there is a contract in place
Without a contract there’s no agreement, no protection for the contractor
and no guarantee that the contractor will be paid for the work they do. Therefore
ensure that there is a signed agreement in place before starting work.
Furthermore, failure to agree the contract terms and conditions prior to
work starting means that when the contractor finally reviews them they have
often incurred costs on the project and aren’t in a position to persuade the client
to alter the terms and conditions to those that are more appropriate or acceptable.
Payment bonds, insurances and guarantees
It’s important these are in place before work begins. They are discussed
further in Chapter 9
Tender handover
The Project Manager must receive a full set of all the tender documents
including:
1. the tender submission
2. all tender correspondence
3. the tender documents, drawings and specifications
4. post-tender correspondence
5. copies of all subcontractor and supplier quotes used to price the project
6. the tender schedule
7. tender calculations and price make up, including the calculations for any
post-tender revisions

Every project should have a tender handover meeting which is attended by

the Estimator, the Project Manager and company support departments as
required.
The tender handover meeting should include:
1. the Estimator going through the tender submission
2. reviewing the risks and opportunities of the project
3. a discussion of the tender methodologies
4. a discussion of post-tender variations and correspondence
5. reviewing the construction strategy
6. gaining an understanding of the client’s concerns and goals
7. informing the company’s support departments of what’s required from
them
8. reviewing the urgent deliverables required before work can proceed
Client handover meeting
This is often called the kick-off meeting and is an opportunity for the
contractor to meet the client and to understand the rules for the project.
Normally the client would provide an agenda for this meeting. Some items
that should be discussed include:
1. introduction of both the contractor’s and the client’s team (their names and
responsibilities)
2. the procedure for issuing and receiving drawings
3. confirming the dates for the submission of project deliverables such as:
1. sureties and bonds
2. proof of insurances
3. the project schedule
4. quality plan
5. safety plan
6. environmental management plan
7. traffic management plan
8. mobilisation schedule
4. the requirements for submitting monthly valuations such as when it’s
required, the format and where it should be sent
5. who is authorised to issue and receive instructions and variations
6. who correspondence should be addressed to
7. availability and location of the services and utilities
8. the location of the laydown areas
9. permit requirements
10. the client’s restrictions
11. site security and requirements
12. date, time and place of project meetings
13. quality control procedures
14. safety procedures
15. confirmation that the project is running according to the tender schedule
16. confirmation of the site access

This meeting should be attended by the contractor’s Project Manager and

members of the project team such as Safety Advisor, Quality Assurance
Advisor, Planner and if possible senior management such as Project Director and
even on large projects the Estimator responsible for the bid.
Staffing the project
Senior managers should ensure the Project Manager has the support they
need. This may include additional training, such as familiarising them with
company procedures and policies.
In addition it’s advisable for the various departments (such as quality,
safety and human resources) to visit the project regularly, spending quality time
with the Project Manager, advising them on how to better manage the project.
I’ve often experienced head office staff briefly visiting a project and providing
little feedback, support or advice to the Project Manager. However, on returning
to Head Office they circulate a report to senior management which is critical of
the project’s performance. This doesn’t help the Project Manager!

Where possible, inexperienced staff on the project should be matched with

experienced staff. Recently employed staff should be matched with staff with a
longer tenure.
Case study:
One person, who’d previously been a Supervisor, was given his first project
in the role of Project Manager. He reported directly to the divisional General
Manager who, needless to say, was busy with other projects and securing work.
The Project Manager, with no previous experience and little training, was left on
his own without help or guidance on how to plan and run the project. To add to
the problems, the project wasn’t staffed correctly, with only a few inexperienced
support staff unfamiliar with the company’s procedures. Needless to say the
Project Manager soon ran into difficulties, as did the project.
The few times the General Manager visited the project he was critical of
how the project was being managed, but offered little help or assistance.
Eventually the Project Manager experienced a number of minor personal
breakdowns and had to be removed from the project. By this time the project had
turned into a mess, with financial and schedule problems, and the Project
Manager’s career was destroyed before it had even begun.
The first lesson from the above is to ensure a suitable person is placed in
the Project Manager position. It cannot just be about filling a position! The
person must have suitable experience, knowledge and training for the role.
Consideration should be given to the type, complexity and size of the project, as
well as the type of client. For instance a Project Manager who has managed large
road projects but never a building project probably isn’t the best candidate to
manage a complex building project.
Secondly, the Project Manager must know what’s expected of them. This
would include what project reports have to be produced and by when. They must
understand what their limits of authority are, the company procedures, and the
key performance indicators used to measure their performance.
Furthermore, the project must be staffed correctly. I’ve often been on
projects which were understaffed. In fact I’ve probably been guilty of having too
few staff on many of my projects. This creates stress for the Project Manager
and other staff, often resulting in them working excessive hours, sometimes
making inappropriate decisions because they’ve not had time to analyse the facts
correctly. Safety and quality are compromised because staff spend inadequate
time on site ensuring the work meets the required standards. Details get
overlooked. Productivity of the workers is often poor since they are not
supervised effectively and don’t have the materials and plant to execute the tasks
because their managers haven’t ordered them.
Of course the converse is also true and the project shouldn’t be over-
staffed. Too much staff not only leads to inefficiencies and additional costs but
can result in the staff becoming bored.

The number and type of staff required for a project depends on a number of
factors including:
1. the client’s specified requirements of the type and number of staff the
contractor must provide
2. the size of the project
3. the complexity of the project
4. the size of the client’s team
5. how good the client’s team is and whether they’ll be able to deliver quality
information on time
6. the duration of the project
7. whether additional shifts or night work is required
8. the skill level of the contractor’s workers
9. the construction methodology
10. whether the contractor will self-perform or subcontract work
11. the distance between work areas or the size of the area that the project site
covers
12. the type of work
13. the skills and experience of the contractor’s staff

Sometimes the contractor doesn’t have to use their most senior or

experienced staff on a project; in fact sometimes senior staff can be detrimental
on small projects as they:
 1. become bored and consequently unhappy
2. they are often expensive so aren’t cost effective
3. they may come with a big team
4. they are used to working in a big team, with the support of junior staff, so
are unable to work on a project where they are expected to do all the work
themselves

Some staff are more used to, or suited to, working on their own. When
they’re placed on a large project working with others and sharing their resources
they become unhappy and cause problems.

Staff must:
1. be aware of their areas of responsibilities
2. know who reports to them and who they report to
3. understand what documentation and deliverables they are responsible for
and when these must be completed (for example updating schedules,
handing over safety documentation and submitting time sheets)
4. be aware of their limits of authority and the authorisation processes
5. understand the company’s systems, standards, policies and procedures
6. be competent, with the required knowledge and experience to fulfil the
tasks they’re required to do
7. deal with clients, their representatives, subcontractors and suppliers in a
professional manner
8. be able to work as a team with the rest of the contractor’s staff

The project should have an organisation chart which shows the staff, their
positions, responsibilities and reporting structures.
Inductions
All personnel working on the project should attend an induction held by the
contractor. This induction should include:
1. a welcome by the Project Manager
2. an overview of the project
3. an overview of the work the contractor is engaged to do
4. project progress so far and upcoming milestones
5. the project rules
6. orientation of the project site including the location of access routes, first-
aid facilities, muster points, evacuation routes, eating areas, toilets, and
offices
7. accommodation arrangements including the accommodation rules
8. transport arrangements
9. working hours
10. disciplinary and grievance procedures
11. quality expectations
12. safety including:
1. accident and incident reporting procedures
2. personal protective equipment to be used
3. project safety rules
4. particular safety risks and hazards pertaining to the site and the work
5. the location of first aid stations
6. emergency contact numbers
7. the location of muster areas
13. environmental including:
1. handling, separating and disposal of waste
2. potential environmental hazards on the project
3. dealing with accidental spills
4. environmentally sensitive areas which should be avoided
5. dealing with the local wildlife on the project
14. the site management structure
15. the company’s values and policies

Many of the industrial relations, safety, environmental and quality issues

and incidents on a project can be avoided if all personnel are aware of the
applicable procedures, requirements and policies. The time and effort spent on
giving a well prepared induction will save unnecessary costs and unhappiness
later.
Even when you’re the sole person working on the project it’s still
worthwhile familiarising yourself with the hazards and rules of the work site.
Design and construct projects
Design and construct projects usually require the contractor to manage and
coordinate the design process. It’s important that the contractor:
1. appoints reputable designers and architects who have:
1. the required knowledge and skills to undertake the design
2. design indemnity insurance adequate to cover the contractor should
there be an error with the design
3. sufficient resources to deliver the information and drawings in
accordance with the schedule
2. ensures the design meets the client’s requirements in terms of; aesthetics,
durability, maintenance and running costs, specifications, output,
sustainability and other special requirements including maintaining access
where required
3. confirms the design complies with the local bylaws, codes and legislation
4. checks that the design is suitable for the climatic conditions
5. confirms that all permits are in place
6. confirms the final product will meet all safety requirements and legislation
and will be safe to use and occupy
7. ensures the design:
1. is cost effective
2. uses local materials where possible
3. can be built using the skills available
4. utilises the available equipment
5. can be built safely
6. can be built in the time specified by the client
7. does not unduly disrupt traffic or services
8. takes into account the weather during construction
9. allows for the ground and site conditions
10. takes cognisance of access restrictions

The contractor should appoint a suitably qualified and experienced person

to manage the design process.
Regular meetings should be held with the design team to review the design
and ensure that the information is issued in accordance with the project schedule.
It’s also necessary to ensure that the client does not add to the project scope,
change the parameters of the design, or unnecessarily withhold design and
drawing approvals during this period.
 Design and construct projects provide the contractor with an opportunity to
produce a design which meets the client’s requirements but is also constructible
and economical to construct using the contractor’s resources and expertise.
Site services and facilities
Site facilities such as offices, toilets and lunch rooms must:
1. be sited in an area which is conveniently located to the work areas but will
not be in the way of future structures
2. be safe and structurally sound and weatherproof
3. have sufficient lighting and ventilation
4. be in good condition and erected neatly, so they portray a good image of the
company
5. be affordable
6. comply with the legislative requirements including satisfying local bylaws
and labour agreements
7. be large enough to accommodate the expected peak numbers of people,
allowing for expansion if necessary
8. have their layout approved by the client
9. be able to be easily removed at the end of the project
10. if necessary, allow for the client’s and subcontractor’s requirements
11. be set up quickly to enable work on the project to commence
12. have offices which are comfortable enough for staff to work in, with
sufficient furniture and storage space
13. have adequate communications
14. have secure storage for confidential documentation
15. have information technology access points, including computer servers and
internet connectivity

Sometimes it’s possible to use and modify existing buildings and facilities
which could save money and time.
Site facilities should be kept neat, tidy and clean, since this promotes safety,
productivity and the image of the company.

Site services such as water and power must:

1. allow for peak consumption including all the subcontractors’ and
commissioning requirements
2. comply with legislative requirements
3. be planned to not interfere with construction works and be protected from
damage
4. allow for possible interruptions in supply (where necessary additional
storage or backup facilities may have to be installed)
5. be metered if the contractor is paying for usage
Subcontractors
Subcontractors can play an important part in the success of the project. It’s
important that subcontractors aren’t chosen purely on price. The subcontractor’s
ability to deliver the project on time and to the required quality and safety
standards is equally important. I’ve worked on projects where the selection of
the cheapest subcontractor ended up costing the project more money than if a
more expensive subcontractor had been selected.
Subcontractors are viewed by the client as an extension of the contractor
and a failure by the subcontractor can adversely affect the contractor’s
reputation.

Some important points to note when managing subcontractors are to ensure:

1. the contractor’s person managing the subcontractor understands:
1. the subcontractor’s scope of work
2. who is responsible for supplying what
3. how the subcontractor is reimbursed
2. the subcontractor:
1. complies with the safety requirements
2. produces work of acceptable quality
3. works according to the project schedule
3. the subcontractor receives access and information on or ahead of schedule
and isn’t delayed by the contractor or other subcontractors
4. regular meetings are held with the subcontractor to discuss safety, quality
and environmental matters, as well as progress on the project and any
delays and claims, and that minutes of these meetings are distributed to the
relevant parties
5. subcontractors sign acknowledgement for the receipt of the drawings and
information issued to them
6. where relevant, the subcontractor supplies shop drawings in accordance
with the project schedule, including allowing for obtaining the required
approvals from the contractor or the client
7. communication with the subcontractor of a contractual nature is in writing
(any verbal instructions should be followed up in writing)
8. only the contractor’s delegated responsible staff communicate with the
subcontractor
9. action is taken as soon as it appears that the subcontractor could be in
trouble
10. the subcontractor is forewarned of the contractor’s intention to back-charge
 them for work or services supplied by the contractor and that these charges
are invoiced regularly
11. the subcontractor is paid in accordance with the contract
12. all guarantees and warranties are in place before the final payment is
released
13. the subcontractor has suitable quality, safety, environmental and industrial
relations procedures in place that comply with the project requirements
14. subcontractors don’t begin work until there’s a signed contract in place and
they’ve supplied the required sureties and insurances
15. the subcontractor’s staff, equipment and their own subcontractors are
approved by the contractor
16. the subcontractor’s personnel attend the contractor’s project induction
17. correspondence from the subcontractor is promptly dealt with
Understand the contract
Many contractors lose money because their Project Managers have failed to
understand the contract or have not acted in accordance with the contract. These
failures include amongst others:
1. not submitting valuations on time or with the correct supporting
documentation
2. not ensuring the contractor is paid on time
3. carrying out work outside the project scope
4. not ensuring the client meets their contractual obligations
5. failing to submit claims and variations timeously
6. not following the correct insurance claim procedures
7. failing to meet the project milestones

It’s therefore important the Project Manager carefully reads the contract,
noting important items and asking for advice when they are unsure of anything.
Quality control
Rework due to poor quality workmanship and materials causes major
additional costs. It’s essential that proper systems are put in place to monitor and
control quality and that these are implemented from the start of the project.
Refer to Chapter 6
Safety procedures
Projects must be run safely and in compliance with the safety legislation,
the client’s requirements and the contractor’s own safety standards.
Safety must be set up and applied correctly from the start of the project and
management and workers must comply with the project safety requirements.

All projects should have:

1. safe equipment
2. sufficient and appropriate personal protective equipment which must be
worn in the work areas
3. the correct safety signage
4. sufficient first-aid and firefighting equipment
5. a sufficient number of people trained in first-aid and personnel able to use
the firefighting equipment
6. access to a means of communication in the event of an accident
7. emergency response procedures in place which personnel are aware of
8. emergency contact details readily available
9. suitably trained and certified personnel that can safely operate the plant and
equipment
10. regular tool-box meetings to discuss safety concerns and changes in
operational procedures
11. procedures in place to prevent alcohol and drug abuse
12. proper tagging procedures to ensure the equipment is regularly checked and
in working order
13. lock-out procedures to prevent the unauthorised use of equipment which
isn’t safe or that’s being worked on
14. safety awareness training
15. on larger projects, safety committees
16. accidents and incidents reported and investigated
17. potential hazards communicated to all personnel
18. hazardous materials stored in a separate lockable location with the material
data sheets accessible
19. flammable liquids stored in a well-ventilated store away from flames
Environmental
It’s important that projects comply with environmental legislation as well as
with the client’s environmental plan and permit conditions, along with the
contractor’s own environmental certifications and policies.
Suitable care must be taken to eliminate:
1. dust
2. noise
3. air pollution
4. stormwater run-off
5. erosion and silt deposition
6. fuel, oil, chemical and other hazardous material spills
7. contamination of the ground and surroundings
8. the risk of fire
9. the spreading of weeds
10. waste (which should be recycled where possible)

Care should be taken to protect fauna and flora, including fencing off
sensitive areas and ensuring workers stay within the designated work areas.
Drawings
The proper and orderly control of drawings is essential to the success of the
project.
1. A drawing register should be set-up and maintained. This should be
compared to the client’s register and any discrepancies reported
immediately.
2. Drawings issued to subcontractors, suppliers and staff should be issued
under cover of a transmission note which should be acknowledged and
returned by the recipient.
3. A master copy of all drawings must be kept in the project site office. These
drawings must:
1. be filed correctly according to drawing number, and if necessary, in
their various sections
2. never be removed from the master file unless they are replaced by a
revision that supersedes them
3. not be removed from the site office
4. not be defaced or written on
5. be kept up-to-date and superseded drawings should be marked
‘superseded’ and removed
6. be available on drawing tables where they can be easily referred to
4. Drawings must be stamped with their date of receipt.
5. Drawings must be issued to the relevant person.
6. A master set of all the superseded drawings should be kept in the site office
so that drawing changes can be tracked if necessary.
7. The Project Manager must:
1. be aware of recently issued drawings
2. be aware of what drawings and information are outstanding
3. ensure drawings are issued to the correct people
4. ensure Supervisors are using the correct drawing revision
8. Supervisors should:
1. have access to a clean, dry table on which to lay out their drawings
2. maintain their drawings in a file so they aren’t mislaid
3. remove and clearly mark superseded drawings
4. ensure they are working off the latest drawings
5. report any problems or discrepancies with drawings to their Section
Manager or Project Manager
9. Drawing errors, ambiguities or conflicts must be reported in writing to the
client.
10. Shop drawings should be:
1. checked by the contractor to ensure they are correct
2. monitored and tracked to ensure they are submitted to the client
timeously and that all comments and changes are returned to the
originator as speedily as possible
Milestones
It’s essential that the contractor meets the project milestones. Failure to do
so may result in:
1. the contractor incurring penalties
2. additional costs to the contractor because they remain on the project longer
than anticipated
3. the contractor losing credibility with the client
4. the client’s contractors and work impacting on and restricting the
contractor’s access

Therefore it’s essential that Project Managers and project staff clearly
understand what has to be achieved to meet the milestones, and to track progress
on the critical path on a daily basis if necessary.

If it appears that progress on the critical path, or in an area that’s required to

meet a milestone, is slipping then appropriate action may have to be taken
including:
1. employing additional resources
2. moving resources from other less critical areas
3. working extended hours on critical activities
4. giving priority to critical items in the division of services, equipment and
materials on the project
5. dedicating key staff to the area

If it appears that the contractor will not meet the date:

1. discuss with the client how they can give be given partial access to meet
their needs
2. see if the client can help in any way
3. as a last resort, if it’s totally impossible to meet the milestone give the client
as much warning as possible (with sufficient notice the client may be able
to adjust their dates, reducing the impact and costs caused by the delay)

To meet a milestone the contractor must understand the requirements for

the handover, including:
1. what work must be completed
2. the commissioning requirements
3. tie-ins to existing services
4. test results (on some projects the facility may have to be completed and
 commissioned, and then run for several days so that the operations of the
facility can be tested before it will be accepted as being complete)
5. operational permits and licenses
6. operational and maintenance manuals, as well as other documentation
specified in the contract
7. agreeing and completing punch lists
8. training of the client’s operations and maintenance staff
9. supply of spare parts
10. safe access for the client’s equipment and contractors
11. operation of any services, which may rely on other parts of the facility
being completed such as power plants and water treatment plants

Company management must ensure the project staff understand the

milestone requirements and are focussed on achieving them and have the
required resources.
Daily records, and daily reports
It’s important that all projects maintain daily records which should:
1. be accurate
2. be (preferably) signed by the client’s representative
3. record the following information:
1. weather conditions
2. numbers and types of personnel and equipment including those
provided by subcontractors
3. delays
4. major equipment and material deliveries
5. important tasks completed
4. be completed daily

These records could be important should there be a dispute or variation

claim.
Meetings
Projects should have regular meetings with the client which are minuted.
Project Managers should:
1. go to these meetings well prepared with the information requested from the
previous meeting, if not already provided previously
2. ensure that the minutes are a fair reflection of the meeting and are accurate
3. have a list of points that need to be discussed and raise these under the
correct sections in the meeting
4. take notes of items that need to be actioned
5. close out items in the minutes as soon as possible
6. immediately on returning to the office action items raised in the meeting
7. ensure that the meeting agenda covers items such as; access, information
required, outstanding drawings, variations, drawing approvals, delays,
progress, other problems or concerns and payments

When possible senior company management should attend client meetings

since:
1. it’s an opportunity to meet the client
2. it provides support to the Project Manager
3. it affords an opportunity to understand how the project is going and whether
the client is happy with the contractor’s performance
4. they can raise issues which concern them
5. clients usually appreciate it when the contractor’s senior management take
an interest in the project
6. it gives the client an opportunity to raise any concerns they may have with
the contractor’s site management team
Project photographs
Project photographs are useful to:
1. record progress, particularly if they have the date and time recorded on
them
2. show variation and additional work
3. record accidents and incidents
4. record insurance events
5. record equipment or materials that arrived on site damaged or in a poor
state of repair
6. compile advertisement material
7. include in company newsletters so others in the company can see what’s
involved in the project
8. be included in presentations to prospective clients, particularly when trying
to secure a tender for a similar project
Permits and documentation
Ensure all permits are in place before work starts and that these are kept up
to date. Even if it’s the client’s responsibility to obtain the permits the contractor
should check these are available because the project could be stopped if permits
aren’t valid, resulting in delays and even causing the contractor to have to
demobilise from the project. The client may be unable to obtain the permits
which will result in the cancellation of the project, possibly causing financial
problems for the client and resulting in the contractor not being reimbursed for
their costs.
Permits and documentation vary between regions so it’s important that the
contractor is aware of the latest requirements and if necessary obtains
appropriate advice.
Liaison with the estimating department
Project Managers should regularly provide feedback to their estimating
department. This feedback could include:
1. the performance of suppliers and subcontractors
2. mistakes in the pricing of the project – both positive and negative
3. difficulties or advantages of working with the client and their design team
4. new methods of construction or new materials
5. labour and equipment productivity

In addition it’s often useful to invite the Estimators to site so they can
witness first-hand how the project is being constructed and compare this with the
way it was tendered. In visiting the project the Estimator may even notice items
the contractor is undertaking which aren’t in accordance with the original tender
scope or conditions and which should constitute a variation.
Finishing the project
Many projects are financially successful until the end, when costs suddenly
spiral out of control. The main reason for the additional costs is because the
project isn’t completed on time. When I say completed, I don’t just mean handed
over, I mean one hundred percent finished. Many Project Managers focus only
on handing over the project. However, there’s normally more to a project than
this. It includes finalising punch lists, finishing and submitting all paperwork
(including as-built drawings, quality data packs, guarantees and warranties) and
concluding all the contractual obligations (such as commissioning and testing).
To facilitate the timely completion of the project a completion schedule
should be prepared near the end of the project. This would include:
1. finishing the outstanding items
2. commissioning
3. connecting to existing services and structures
4. completion of the contractor’s punch-list items
5. final punch-listing by the client
6. preparation of handover documentation such as quality records,
commissioning results, operating manuals and guarantees
7. clearing of the temporary site facilities and services

Some of the items which should be considered at the end of the project
include:
1. obtaining the certificate of practical completion
2. getting the release of sureties or bonds and returning them to the institution
which issued them
3. requesting the release of retention
4. putting items of equipment off-hire and transferring them from site
5. demobilising all offices and facilities
6. reinstating laydown areas and access roads, including obtaining signed
acceptance from the client
7. agreeing the final accounts with the client
8. settling accounts with subcontractors and suppliers
9. handing back all accommodation
10. disconnecting services
11. transferring or terminating personnel
12. moving personnel records to the head office
13. handing over all spare parts and client-purchased materials to the client
14. clearing unused materials
15. sorting, filing and archiving project documentation
16. disposing of project-purchased assets
17. handing over quality documentation, commissioning data, spare parts lists
and warranties to the client
18. completing the final cost report
19. submitting the final project invoice to the client
Summary
To successfully complete a project it’s necessary to:
1. plan the project including developing a construction methodology which is
appropriate, cost efficient, safe and meets the client’s requirements and
specifications using the available resources
2. prepare a schedule and then use this schedule to monitor progress to ensure
the work is carried out in the correct sequence and on time
3. ensure a contract which adequately protects the contractor is in place before
work starts
4. confirm all payment bonds, sureties and insurances are in place
5. have a formal handover of the tender to the contractor’s project team
6. hold a handover or kick-off meeting with the client
7. staff the project with adequate numbers of suitably trained and experienced
staff who understand their duties, the project requirements and the
expectations around their performance
8. have all personnel on the project attend an induction to inform them of the
site rules, safety hazards and project requirements
9. if the project includes a design component, manage and coordinate the
design process
10. establish suitable and sufficient site services and facilities
11. manage subcontractors properly to ensure they comply with their
contractual obligations
12. understand the terms and conditions of the contract
13. institute the appropriate quality systems to ensure the quality meets the
client’s specifications and the contractor’s own systems and standards
14. ensure all work is safely executed in accordance with safety regulations and
legislation, in terms of the client’s requirements and meeting the
contractor’s own safety standards
15. ensure compliance with all environmental legislation and permits
16. put in place proper drawing and document control systems
17. achieve the contractual milestones
18. maintain accurate and detailed daily records which should preferably be
signed by the client
19. have regular meetings with the client which are minuted
20. take photographs to record progress, incidents and variation work
21. ensure all permits are in place
22. provide feedback to the estimating department
23. finish the project completely, on time
Chapter 6 – Reducing costs
Let’s consider the following example. If a project is valued at eleven
million dollars and was tendered at a 10% profit then the project should make a
million dollar profit. (Remember the profit is normally added to the cost, so an
eleven million dollar project with a 10% profit would have ten million dollars of
costs and a million dollars of profit). Say the project actually has costs of twelve
million dollars so the contractor loses one million dollars. To recover the one
million dollars the contractor must complete another eleven million dollar
project with a 10% profit margin. After completing the second eleven million
dollar project, assuming the contractor has made the tendered profit of one
million dollars, the contractor has covered their loss from the first project.
They’ve completed twenty two million dollars of work and made no money, yet
they still have to pay their overhead costs.
Indeed, it is difficult to recover from losses.
Now imagine the same company has office overheads of a million dollars.
(These are the costs to run their office such as the office rental, telephones and
salaries). The contractor has to carry out another eleven million dollar project at
a 10% profit to cover these costs. At the end of these projects the contractor has
completed thirty three million dollars of work and has not made one cent of
profit.
Now, imagine another contractor who doesn’t lose money on any of their
three projects of eleven million dollars each. Further, the contractor operates a
small, more modest office, and the office overheads are only six hundred
thousand dollars. After completing the three contracts they have made a profit of
two million four hundred thousand dollars. (Three projects each made one
million dollars profit less the company’s overhead costs). This would make
many contractors happy! It’s been achieved by projects not losing money and by
keeping office costs modest.
Of course, if the second contractor was to make an additional 2% profit on
each of the projects they would make an additional six hundred thousand dollars
(two hundred thousand per project) which would make their total profit now
three million dollars.

Consider though, that every project is normally tendered to make a profit,

so a project that makes less than the tendered profit has actually lost money.
That’s right, even though the project has made a profit, as long as it’s less than
the tendered profit the project has lost money.

Much of what is said in this chapter may seem basic, but it’s amazing how
many basics are ignored or overlooked. Many items could sound petty, but to put
it in perspective, let’s consider a company that is undertaking work at a 10%
profit margin, so to earn a profit of one thousand dollars the company has to
complete ten thousand dollars of work. Therefore by wasting a thousand dollars
it’s equivalent to having to do an extra ten thousand dollars of work. Which is
easier – to do ten thousand dollars of work to cover a loss of one thousand
dollars, or to actually not waste the one thousand dollars in the first place?
If you can save a thousand dollars here, and a thousand dollars there, then
fairly quickly you’ve saved ten thousand dollars, which is additional profit that
in the normal course of events would have required the successful completion of
a one hundred thousand dollar project.
Case study:
I recently had a small renovation done at my house. The contractor doing
the ceilings and partition boards employed a subcontractor for the installation.
The subcontractor installing the boards arrived at 7am, but the boards only
arrived at 9am. When the boards arrived they were too long to be lifted by hand
onto the second floor. A fifteen minute rain squall came through and the boards
couldn’t be lifted off in the rain. The delivery vehicle left without offloading the
boards and the subcontractor went home unhappy because they weren’t able to
do any work. Two people wasted their whole day. The delivery vehicle had to
return the following day. Because the boards were too long they had to be cut on
the truck before they could be moved upstairs. To compound the problem there
were too many boards ordered resulting in 20% of them not being used. In
addition the wastage in cutting the boards probably resulted in a further 15%
waste.
The end result was that the final labour cost was nearly double, and the
material cost was about 35% more than it should have been.

If the correct quantity of material had arrived, when it should have, in an

appropriate size, these additional costs could have been avoided.
Yet what I have described is fairly typical for many projects, and it’s
sometimes surprising contractors make a profit at all.
Work smarter
I always maintain there are many different ways of constructing something,
or carrying out a task. Some of these are obviously wrong. However, there are
usually a number of different options which are correct. But some are more
correct than others. By this I mean that all the correct options will end up with
the required end product, it’s just that some choices will result in a better
organized and safer project, with a shorter schedule, requiring fewer people and
less equipment, and will overall be more efficient and cost effective than the
other options.
It’s therefore important not to pick the first method of construction that
comes to mind, but rather to consider various options, weigh up their risks and
benefits, and then select the best.
Plan
An important aspect of reducing unnecessary expenditure is to ensure the
work is planned ahead of time so that:
1. it’s not delayed by lack of access
2. all materials are available on site when they’re required
3. the appropriate equipment is available
4. the preceding necessary work has been completed
5. sufficient and competent personnel are available
6. the appropriate paperwork has been completed and submitted (such as
method statements, test results and job hazard assessments)
7. the appropriate tests and inspections are completed

There are often additional costs due to poor planning because:

1. personnel and equipment are standing idle waiting for access, materials or
equipment
2. management use their valuable time to make emergency arrangements to
procure materials, organise access and rearrange work sequences, instead of
managing the project
3. materials which aren’t on site have to be expedited at additional expense
4. there are delays to the project schedule
5. there’s a knock on delay to follow-on trades and subcontractors
Schedule
A properly constructed schedule can save money. This can be achieved by:
1. moving the critical path through different activities to find the optimum
construction sequence with the shortest overall duration, thus saving on
project overheads
2. ensuring the different activities are scheduled in such a way they minimally
impact the access required for other tasks
3. arranging activities so the utilisation of resources is smoothed out and is
relatively even, so that resources aren’t idle or have to be demobilised and
then remobilised again
4. sequencing activities so that specialist equipment has continuous use,
doesn’t stand idle or have to be brought back onto site at a later date (for
example try and arrange that all heavy lifts on site are done by a large crane
in one visit, or that road surfacing equipment only has to be brought to site
once to complete the roads)
5. ensuring that the client’s milestones are met so that the contractor doesn’t
incur penalties
6. scheduling tasks in the correct sequence so they don’t have to be redone
later
7. taking into account the available resources within the company, as well as
those required from subcontractors, so that the tasks can be carried out in
the time allowed on the schedule
8. allowing for design, design approval and manufacturing times to avoid
delays
9. allowing for any impacts due to adverse weather, and where possible
schedule tasks that may be affected by poor weather to happen in a more
favourable season
10. allowing sufficient time for the client to approve the contractor’s
management plans and method statements
11. taking into account the time required for the issuing of permits
Access
Lack of access, or poorly planned access, adds to the cost because:
1. it delays work and impacts the schedule
2. it may result in subcontractors being unable to work resulting in them
charging standing time and possibly even moving off site
3. personnel may have to stop work to allow other work to proceed, resulting
in them being idle, or having to relocate to another work area
4. poor access may slow processes down, for example delivery trucks have to
use longer or slower routes, or workers have to walk lengthier routes to
reach the work area which impacts their productivity
5. access may be dangerous, reducing productivity and endangering personnel
6. materials may have to be double handled
7. larger lifting equipment may be required to access the areas

It’s important to plan access at the start of the project by:

1. scheduling activities so they don’t interfere with each other, taking into
account:
1. access to work areas, in particular the requirement for scaffolding
2. the impact of lifting equipment and lifting operations on other
activities
3. access for delivery vehicles
4. the installation of large and heavy items
2. planning access routes so they:
1. are safe
2. require minimal maintenance
3. take into account future activities and structures
4. are the shortest, most efficient ones possible
3. planning storage and stacking areas so that:
1. they don’t block or restrict access
2. they are close to the work areas
3. materials can be easily delivered and removed as required
Safety
Safety must be appropriate and relevant to the project.

Poor safety could result in injury, disablement and death as well as

additional costs due to:
1. it resulting in an accident which may result in:
1. management requiring time to investigate
2. the worker being absent for a period of time while being paid
3. a key worker, such as a crane or excavator operator, or a supervisor,
being injured, resulting in other workers being unable to work
affectively, or even a section of work standing
4. a key piece of equipment being damaged
5. completed work being damaged, resulting in repair costs and delays to
the project
6. an increase in insurance premiums
7. poor morale which impacts productivity
2. the project being closed down by the client, or a government body, for
safety violations
3. fines being imposed for safety violations
4. unsafe work conditions which affect productivity

Inappropriate implementation of safety measures could result in:

1. potential safety issues not being addressed
2. additional expenses being incurred due to unnecessary safety procedures
being implemented

Poor safety performance will reflect poorly on the contractor and clients
may not award projects to a contractor whose safety is poor.

In many small companies the owner performs tasks on site and there’s
always the risk of injury. When this happens it could be catastrophic – not only
will the owner lose income while they are injured but the project may not be able
to continue in the owner’s absence. In fact the whole company may come to a
standstill since the owner literally holds the keys to everything. Staff, suppliers
and subcontractors might not be paid as there’s no one to authorise the
payments. Projects may stop, and the company will quickly lose its hard fought
reputation. Indeed, there is more than one business that has failed due to the
owner becoming seriously ill or injured.
Quotes & tenders
Often Project Managers place orders with suppliers that are convenient, or
who they know. Sometimes these suppliers or subcontractors aren’t briefed
properly on the task, requirements and restrictions, resulting later in variations to
their quoted price.
To obtain the best prices ensure:
1. that at least three quotes are obtained
2. that the supplier:
1. has all the tender drawings
2. has the correct specifications
3. is aware of the contractor’s terms and conditions
4. understands the project’s quality systems and requirements
5. is aware of the project conditions which may impact them, such as
specific labour agreements and access requirements
6. understands the safety and environmental requirements if they are
doing work on site
7. is aware of what the contractor will provide and what they must
provide, so costs aren’t duplicated
8. understands the delivery or completion dates
9. has the delivery address
10. knows what guarantees and warranties are required
11. is advised of particular concerns or requirements
12. (if shop drawings are required), understands the requirements for
submitting them and the time required for their approval
3. quotes are in writing

It’s important the contractor doesn’t just pass on the client’s drawings,
contract conditions and specifications without reviewing them to ensure that
there are no inconsistencies, and that they are all appropriate to the
subcontractor.
Adjudicate quotes and tenders
Often orders are awarded to the cheapest subcontractor, or supplier, who
ends up in fact not being the cheapest when the contractor incurs additional
expenses to manage them, or because the subcontractor later submits variations
for what they perceive are additional works but were items allowed for by other
subcontractors in their tenders.
When adjudicating quotes and tenders ensure that the supplier or
subcontractor has:
1. allowed for the correct product
2. evaluated all the applicable drawings
3. priced all the items
4. met the specifications
5. conformed with the schedule
6. complied with the warranty periods
7. met the required quality standards and documentation
8. complied with the site specific conditions
9. included all taxes and duties
10. allowed for transport
11. included their temporary facilities, equipment and services
12. adequate insurance in place
13. agreed to the payment terms and conditions
14. included for preparing of designs and drawings
15. allowed for site measurements or providing templates
16. included for receiving and handling of materials supplied by the contractor
or the client
17. not incorporated any unsuitable or unacceptable conditions
18. sufficient resources available to do the work

In addition:
1. check what additional costs will be incurred for items excluded from the
subcontractor’s price, or for services, facilities and equipment which the
contractor must supply
2. take into account additional travel or supervision costs which may be
incurred to inspect the manufacturing process
3. compare the quotes with the allowances in your tender

The quotes must be adjudicated fairly, allowing for all additional costs.
Negotiate with suppliers and subcontractors
It’s beneficial to develop relationships with suppliers by using the same
ones on a regular basis, and visiting them to explain who you are, what the
company does, your current projects, and how they can assist and benefit from
the relationship.
Most suppliers have various trade discounts which are given to companies
that regularly purchase from them. These discounts often depend on how much
business the company provides. Always ask for a discount.
A large order may result in a cheaper price compared to several smaller
ones, so it’s always a good idea, where possible, to place the full order at the
start of the project, and then schedule the deliveries at intervals over the project
duration.
Often suppliers are willing to offer early payment discounts, but then it’s
important they are paid within the specified period to take advantage of the
discount, because paying even a day late may mean the discount is forfeited.
Developing relationships with suppliers and ensuring they are paid on time,
will usually result in more efficient service, favourable payment terms (which
helps cash flow) and possibly even discounts.
Nevertheless, it’s important that contractors continually check that their
regular suppliers are providing the best service and cheapest prices, so it’s
essential to also get quotes from other suppliers.
Orders
Poorly written or incomplete orders can result in the wrong material being
supplied, or the project paying more for an item than was agreed.
Orders must:
1. be clear and unambiguous
2. have the project name
3. have the date of the order
4. be checked to ensure it’s as per the agreed quote
5. include an order number
6. have the supplier’s name and contact details
7. include a complete description of the product
8. reference any standards, specifications and drawings with which the
product must comply
9. have any specific manufacturing instructions and details
10. specify the delivery date
11. include the arrangements to transport the item (if the supplier is providing
the transport include the full delivery address, instructions and a map)
12. in the case of large items, include the arrangements for who is responsible
for unloading and stacking
13. have the product price, specifying the unit of measurement and what’s
included in the price
14. specify the terms of payment and trade discounts
15. include the address where invoices must be sent
16. specify the warranties and spare parts required
17. include the name and contact details of the person issuing the order
18. be signed by an authorised person (this may depend on the value of the
order, since personnel are often allowed to sign orders only up to a
particular value, and more senior management are required to sign orders
with a greater value)
19. be acknowledged by the supplier so there is a record that the supplier has
received and accepted the order
Labour only subcontractors
Labour only subcontract orders must be clear and unambiguous so no
additional and unexpected costs are incurred. These contracts should specify:
1. what’s included in the wage costs such as:
1. allowances
2. leave pay
3. paid public holidays
4. bonuses
2. overtime rates and when they apply
3. who from the contractor will agree the hours worked, and that this is done
daily
4. who is responsible to supply personal protective equipment
5. who covers the costs for mobilisation, inductions and medicals
6. who supplies and pays the costs for transport and accommodation
7. who pays for replacing unsuitable workers
8. who is responsible for implementing discipline
9. the insurances required
10. the wage agreements the subcontractor must use
11. special project rules and working hours
Subcontractor orders
Additional costs are often incurred due to poorly worded subcontract orders
which fail to spell out the contractor’s and subcontractor’s responsibilities,
leading to claims, disputes and unhappiness. Subcontractor orders must be clear,
unambiguous, without contradictory conditions and clauses and should include:
1. the scope of works
2. reference to drawings where necessary
3. reference to the particular specifications
4. the quality procedures, documentation and testing
5. the safety requirements
6. particular and special conditions pertaining to the project, including specific
labour conditions and agreements
7. the schedule, including highlighting key dates and any discontinuities in the
subcontractor’s work
8. commissioning requirements
9. spare parts, guarantees and warranties required
10. payment conditions and procedures for submitting valuations
11. mobilisation procedures and requirements
12. documentation required before work starts
13. warranties, sureties, bonds and guarantees required
14. samples required
15. shop drawings required as well as their submission guidelines and the
approval time and process
16. documentation required to close the contract out
17. the contractor’s right to ask for the removal of unsuitable subcontractor’s
staff or equipment from the project
18. penalties or liquidated damages applicable for non-performance
19. the right to vary the subcontract works, including the reduction in scope
20. termination clauses
21. the obligations of each party
22. the contract price (include a breakdown if necessary or reference pertinent
rates)
23. procedures for lodging variations

The document should be signed by authorised representatives of the

contractor and the subcontractor.
Manage subcontractors
Once a subcontractor is appointed they must be managed. Failure to do so
can be costly to both the contractor and subcontractor.
Poorly managed subcontractors can result in the following:
1. Poor quality workmanship which has to be redone, delays the schedule, and
costs money to repair.
2. Contractual disputes which cost time and money to resolve.
3. If the subcontractor is overpaid the contractor may not recover the money.
4. If the subcontractor leaves the project without completing all of their work,
another subcontractor may have to be appointed to complete the work at
additional cost.
5. If the subcontractor falls behind schedule it will impact on the project
schedule and other activities.
6. The subcontractor may injure someone.
7. If the subcontractor uses materials of an inferior quality, or which don’t
meet specifications, they will have to be replaced, causing delays and
adding costs.
8. Miscommunication could result in the subcontractor doing work
incorrectly, so instructions should be clearly given in writing.
9. Failure to give access to the subcontractor on time may result in them
charging standing time.
10. Allowing the subcontractor to perform work prior to agreeing the price may
result in the work costing more than if the contractor had appointed another
subcontractor to do the work, or had the opportunity to negotiate with the
subcontractor.
11. Failure to ensure the subcontractor cleans their work areas results in the
contractor incurring this cost, and uncleared rubbish could cause a safety
hazard.
12. Releasing final payments before the subcontractor has completed all punch
lists, and delivered all documentation and guarantees, may result in these
being delayed, or not being received at all.

In addition, poor work by subcontractors will damage the contractor’s

reputation since the client views all work on the project as if it was performed by
the contractor, even if it’s done by a subcontractor.
Materials
The poorly managed supply of materials can result in wasted and additional
costs because:
1. they don’t meet the specifications or quality requirements (in particular,
care should be taken that imported goods meet the local building codes)
2. permission hasn’t been sought or granted from the client to use a particular
product resulting in the material being rejected
3. materials of the incorrect specifications are used
4. they aren’t adequately insured against damage or theft
5. they’re too large and cannot be installed
6. they’re too heavy to be handled and installed with the available lifting
equipment, resulting in delays and additional costs to mobilise alternative
equipment
7. the material is difficult to handle, has inadequate lifting points, or is
packaged incorrectly
8. the item is difficult to fix in position because inadequate steps have been
taken to ensure it can be secured and kept in position during construction,
resulting in delays and additional costs
9. materials are not adequately protected from impact or weather damage
during transport or installation, resulting in damaged goods arriving on site
which may result in delays
10. the incorrect quantity of material is ordered resulting in a surplus or a
shortage of material
Coordinate and plan deliveries
Projects often incur unnecessary costs because deliveries aren’t planned or
coordinated.
These costs are as a result of:
1. trucks standing waiting to be offloaded because:
1. suitable offloading equipment is unavailable
2. the offloading area isn’t ready
3. there isn’t suitable access to the offloading area
4. the documentation, including risk assessments or lifting studies aren’t
available
5. personnel required to offload are not available
2. materials being offloaded in the incorrect place requiring double handling
to move them to the correct area
3. trucks are turned back empty because:
1. they are the wrong size or type of truck
2. the item isn’t ready
4. the delivery trucks are too big, or awkward, to access the site
5. trucks going to the incorrect delivery or collection address
6. the materials not arriving in the correct order, with the materials required
first arriving last
7. materials arriving late
8. materials arriving too early resulting in them being double handled
Reduce waste
At the end of every project I’ve been involved with there have been surplus
materials left over. These are often as a result of:
1. the incorrect quantity of material being ordered
2. duplicate orders being placed
3. material of the wrong specification or size being ordered
4. the material supplied was of an inferior quality and couldn’t be used

Of course sometimes the surplus material is a result of the client changing

drawings after the material has been ordered, in which case the client should be
charged for these, and they should be handed over to them.

Other causes of wastage are as a result of:

1. Material breakages due to it being damaged during transport, offloading,
handling, or using the incorrect installation procedures. Sometimes some of
the damage can be avoided by changing the way the material is packaged,
handled or transported. For instance if material is palletised by the supplier
– which could be at an additional cost – not only can the material be
offloaded and handled more easily, thus reducing costs, but there will also
be fewer breakages.
2. Contamination of materials which is a particular problem with concrete
aggregates, or road building materials, which become contaminated when
they’re mixed with other materials, or with the ground they’re dumped on.
Sometimes trucks aren’t cleaned properly between products, resulting in the
next product being contaminated. Occasionally goods aren’t handled
correctly at the supplier and become contaminated there.
3. Products being applied incorrectly because:
1. they aren’t prepared or mixed correctly which results in the work
having to be redone
2. the product may be applied too thickly – for instance concrete slabs
may be formed and poured too thickly, paint and epoxy coatings
applied too thickly, or joints formed too wide requiring additional
sealant material
4. More product is mixed than can be used, resulting in the unused product
having to be discarded.
5. Incorrect storage, which may result in materials being damaged by water,
dust or heat.
6. Keeping materials beyond their shelf life which results in the material
having to be discarded.
7. Poor housekeeping on a project may result in materials being mislaid or
damaged by being walked or driven over.
8. Materials are supplied in standard lengths or sizes which usually have to be
trimmed to fit where they’re required. Often the offcuts can’t be used
elsewhere. If thought isn’t applied to what the best suitable size is then the
quantity of these offcuts can be large.

The additional costs to the project are:

1. the cost of the additional materials and their transport to site
2. offloading, handling and storing them
3. the cost to dispose of the additional, broken or contaminated material which
includes:
1. handling and loading
2. transport
3. dump fees
Alternative materials
Sometimes there can be savings by using alternative materials because:
1. they cost less
2. they are easier to install because:
1. they are lighter
2. they require fewer fixings
3. they are easier to handle
4. the size is more convenient
3. a different size reduces wastage due to:
1. there being fewer cuts
2. there being fewer and shorter offcuts
3. there being fewer laps
4. them not being as easily damaged during transport and handling
4. they result in cheaper transport costs
5. there may be fewer breakages during transport, handling and installation
6. they may be more durable which later saves on maintenance costs
7. they could shorten the installation time, thus shortening the schedule

In addition, there may be other benefits of using alternate materials such as

they may:
1. be safer to handle and install
2. provide a better finish

It’s usually necessary to seek the client’s approval to use a different

material, but if the client incurs additional design costs, they will be reluctant to
grant approval. However, it’s often in the project’s interests, in which case the
contractor must demonstrate this, or alternatively offer the client a saving to use
these materials.
Reconciliation of materials
Comparing the quantity of material delivered with the quantity invoiced to
the client may show a difference, which could be due to:
1. the client being invoiced for less than they should be
2. materials being stolen on the site, or en-route to site
3. materials being wasted
4. materials being applied too thickly
5. suppliers invoicing for more than they supplied
6. materials being mixed in the incorrect proportions

It’s important to reconcile materials regularly so discrepancies are detected

early, which allows action to be taken to prevent further losses, and possibly
even to recover the losses incurred.
Price increases
Price increases are inevitable on most projects with a long duration. It’s
possible to reduce the impact of these increases by:
1. being aware of when the increases will happen:
1. ask suppliers to advise you in advance of when an increase will come
into effect
2. many industries adjust their prices at the same time every year
3. being aware of any external factors which may influence the cost of an
item, such as volatile foreign exchange rates and increases in labour,
raw materials or fuel which could impact the cost of the item
2. before an increase takes affect it may be possible to purchase the
outstanding material and:
1. store it on site
2. ask the supplier to store it
3. store the material at another location

However, these solutions may mean that material is

damaged by the weather, has to be double handled on site, or
have additional storage costs, which makes these solutions
more costly and unviable.
3. when the order is placed it’s sometimes possible to request the supplier to
fix the price, although this may mean paying a premium
Alternative transport
Transport can be a major component of the cost of items so it’s often worth
looking at alternatives. There’s sometimes an option of using transport collecting
material from another company on the project, or close to the site, that’s
returning empty.
However when arranging transport check:
1. the type of vehicle, as some trucks may not be suitable (for example the
item may be too wide or long for the truck, or if the truck doesn’t have
sides it could be unsuitable for the load)
2. the capacity of the vehicle (you may think you are paying less for a load
when in fact its capacity is less)
3. the items are insured
4. how easy it will be to offload the vehicle (some covered trucks might have
to be offloaded by hand, adding to the costs)
5. the delivery times (some trucks could only be scheduled to arrive late, even
after hours, or have a longer travel time)
6. the roadworthiness of the vehicles (un-roadworthy vehicles might not be
allowed onto site and in addition they are at risk of breaking down or being
involved in an accident)
7. any additional costs such as standing time, or restrictions such as the time
allowed to load and offload the vehicle
8. that the loads go directly to and from the site, not via a staging area, where
they may be reloaded onto other vehicles, with the possibility of damage or
theft
Labour productivity
Labour is often a major component of the costs on a project. It sometimes
accounts for more than 50% of the costs meaning even a 10% improvement in
efficiency can result in an additional 5% profit. Of course the converse is true,
and if labour is 10% less efficient than expected then the profit is reduced by
5%.
But it’s usually more than just the direct costs of the workers.
Low productivity means more workers are required, which adds additional
costs for accommodation, transport, mobilisation and supervision. Poor
productivity also impacts the schedule which can result in the client imposing
penalties for late completion as well as the contractor incurring additional
overhead costs.
Poor labour productivity is sometimes obvious when there are people
standing idle on site. However, often the poor productivity isn’t picked up before
there are delays to the schedule, or the cost reports show labour losses. Usually
by then it’s too late to rectify the problem.

It’s imperative to analyse why there’s poor productivity. There’s some truth
in the saying ‘a busy worker is a happy one’. Workers who are idle tend to chat
to colleagues, even influencing and interrupting others who are working, and
start to see and create problems where there weren’t problems before.
Poor productivity could be a result of:
1. having too many people on the project
2. the area being too congested or cluttered
3. poor supervision
4. waiting for access to work areas
5. waiting for equipment or materials
6. having the incorrect equipment or materials
7. equipment breakdowns
8. insufficient equipment to move and lift materials
9. materials difficult to handle and work with
10. insufficient resources of one trade and too many of another resulting in one
trade waiting for the other to complete their work
11. workers aren’t sufficiently skilled
12. workers may be unhappy because of poor working conditions or clashes
with other team members, their supervisor or management, which often
results in them performing tasks slowly
13. poor discipline
14. lengthy meetings with workers or with supervisory staff
15. the project isn’t planned and coordinated and the subcontractors’ and
client’s activities impact on the work
16. poor safety and housekeeping resulting in:
1. lost time due to incidents
2. the project being shut down due to poor safety
3. accidents leading to poor morale
4. key people being injured and unable to work
5. tasks being done more slowly
17. fatigue (it’s important to ensure workers don’t work excessive and long
shifts or work on rest days and project breaks)
18. a high turnover of personnel which is disruptive, leading to poor
productivity because new personnel have to learn the project rules, systems,
procedures, and tasks, and work with new team members
19. workers are frequently moved between the tasks in the course of the day,
resulting in:
1. lost time when they pack up tools and move, as well as going through
safety briefings and explanations of the new task
2. reduced productivity since they’re unable to gain familiarity with the
task or other team members (there’s a learning curve to most tasks and
as workers become used to performing a task they usually become
more proficient and more productive)
20. management is indecisive and fail to make timely decisions
21. access routes and roads are poorly planned, becoming blocked or restricted
22. storage and stacking areas aren’t planned and become unsafe or
inaccessible
23. long distances between work areas, the toilets, offices and stores
24. poor performance of subcontractors
25. work areas have inadequate lighting making it:
1. unsafe
2. difficult to ensure the correct quality
3. leaving dark areas where workers cannot be observed
26. personnel don’t work their full hours, they may take extended lunch and tea
breaks and arrive at the work site a few minutes late and leave early (often
this can amount to thirty minutes for each person, every day, so it’s
important Project Managers set the right example with their own time-
keeping, and enforce good time-keeping on the project from the beginning)
27. adverse weather such as rain, wind, high temperatures and low temperatures
(steps can be taken to limit the disruption such as; moving workers to other
 areas, providing adequate protective clothing, allowing sufficient rest
breaks, reducing work hours, planning projects to ensure much of the work
is done before the onset of poor weather, making buildings weather-tight as
soon as possible and lifting items at times of the day when it’s less windy)

Sometimes poor productivity is a result of the client. The reasons must be

ascertained so measures can be implemented to rectify the situation, or so that
variations for the additional costs caused by the client can be submitted. Reasons
may be because of:
1. late information
2. drawing changes resulting in rework
3. lack of access or late access
4. the client’s or their subcontractors’ activities impacting the work

It is important that Supervisors and Project Managers are made accountable

for their worker’s productivity. Labour productivity should be monitored on
each project on all sections. Feedback must be provided to Supervisors and
workers, and suggestions made as to how the productivity could be improved.
Pay the correct wages
Project Managers must read and understand the industrial relations
agreements governing the project. These may include the prevailing labour
legislation and project, union and company agreements. Employees’ wages and
conditions must be in accordance with the relevant agreements which often
differ between projects.
Many projects incur additional costs because they don’t manage the hours
and pay of personnel correctly which could be because:
1. the hours personnel work aren’t recorded correctly
2. people aren’t paid the correct overtime rate or the rate is applied incorrectly
3. people aren’t booked absent when they’re not at work
4. leave forms aren’t submitted (including annual and sick leave)
5. people are paid the incorrect rates
6. deductions for tax aren’t applied correctly and in accordance with the latest
legislation
7. the incorrect deductions are made from their pay
8. people are paid allowances they aren’t entitled to
9. rates of pay or allowances aren’t adjusted when personnel are transferred to
another project
10. people deliberately falsify their attendance
11. errors are made when completing time sheets
12. people leave work before their shift is complete
Industrial relations
Management must apply industrial relations policies in a fair and consistent
manner in accordance with the project labour agreements and labour legislation
(which changes from time to time). Failure to do so can impact the costs of
doing business because:
1. personnel are overpaid which:
1. adds to the costs
2. causes people who weren’t overpaid to be unhappy, affecting their
productivity
2. people are underpaid which results in:
1. them being unhappy leading to poor productivity
2. management spending time resolving the problem
3. some instances, legal disputes which cost time and money to resolve
3. rules aren’t uniformly or correctly applied leading to poor discipline which:
1. can affect the project safety
2. takes management time to resolve when there are issues
3. impacts the company’s reputation
4. affects productivity
4. disciplinary processes aren’t carried out correctly, leading to people being
unfairly dismissed resulting in:
1. the person being reemployed and paid wages for the time they weren’t
working
2. legal costs
3. wasted management time
4. poor discipline amongst other employees when they see the dismissed
person reinstated

Companies should:
1. have suitable industrial policies and procedures in place which comply with
legislation
2. educate management and supervisory staff on the application of these
procedures
3. ensure that company policies and procedures are updated when legislation
is changed, and that projects are aware of these changes
4. make sure all staff apply these policies and procedures consistently and
fairly
Control overtime
Often projects work excessively long shifts, or work weekends and public
holidays. These longer hours are normally paid at overtime rates which could be
anywhere from 50% to double the normal rate. Obviously the workers aren’t
double, or even 50%, more productive during this time. In fact the opposite is
normally the case and as fatigue sets in the productivity declines. In addition,
some of the supervision and management may be absent during this time which
can result in workers being poorly managed and supervised.
Sometimes when overtime isn’t controlled, personnel will work on a
weekend when they earn the overtime or penalty rates, and then take a day off in
the week which would have been paid at normal rates.
Workers may be poorly controlled on weekends and they arrive on the
project intoxicated, or they don’t work the hours they claim they have worked.
Another problem when work is carried out afterhours is that key personnel
may be absent; for instance, if the crane operator decides not to work then other
workers may be unable to do their work.

It’s therefore important when overtime is necessary that:

1. only work that has to be done after hours is performed
2. only those that are required for these tasks are allowed to work
3. the hours are carefully logged and monitored
4. there is adequate supervision present
5. the work areas and equipment are accessible
6. key personnel are present
7. the hours of individuals are monitored to ensure they don’t exceed the
legislated hours, or the prescribed hours for the project
8. workers are monitored to ensure they don’t become fatigued
9. workers are paid correctly and in accordance with the prescribed overtime
rates
10. all arrangements are in place for transport and access to the site
11. the client is aware work will be done afterhours
12. the project isn’t breaking any codes or regulations regarding noise
restrictions or similar
Damage to equipment and property
Many projects incur additional and unnecessary costs when equipment or
property is damaged.
Damage may be caused when equipment:
1. is operated by unauthorised, unlicensed or poorly trained operators
2. is operated by operators under the influence of alcohol or drugs
3. is used in the incorrect application
4. is not maintained correctly
5. is overloaded
6. has the incorrect parts fitted, or is filled with the incorrect lubricants or
fuels
7. isn’t checked for damaged or worn parts
8. doesn’t have the oil and lubricant levels checked regularly
9. is used in dangerous or unsuitable work areas where something may fall on
it, or where it could fall over or become bogged down
10. is parked with its keys in the ignition which allows for unauthorised use or
theft
11. is parked in unsafe areas at the end of the shift where it could become
flooded or damaged
12. isn’t working with a spotter in restricted places
13. operators don’t check the machine after returning from a break to ensure
it’s safe to operate, or don’t assess what circumstances have changed in the
interim which may affect the safe operation of the equipment
14. operators don’t understand their tasks
15. is working in proximity to people and other machines and the operator isn’t
aware of them
16. operators are careless

Furthermore theft and vandalism also results in additional costs, so

equipment should be parked and stored in a secure area.
I’ve also experienced operators deliberately damaging their equipment
because they are unhappy with the company, Supervisor or Management or
because they are trying to slow the project down.
Tasks must be planned and coordinated to reduce the interaction between
different items of equipment which could come into contact with one another.
Put items off hire
Often projects forget to put items off hire when they’re no longer required.
Alternatively suppliers are verbally notified the item is off hire and there’s no
written record of this which can result in the item remaining on hire.
Small tools are frequently hired and then placed in the project store, or
Supervisor’s office when they are finished the task, where they remain for weeks
or months, and in some cases even remain in the office when it’s transferred to
the next project. Over a period of time the hire costs mount and become
significant.
Externally hired equipment
Projects often incur additional unnecessary hire charges because:
1. breakdowns aren’t reported in writing to the supplier
2. the breakdown hours aren’t recorded on the time sheets
3. the time sheets aren’t signed off and agreed daily
4. hours are booked which weren’t worked, such as lunch and tea breaks
5. the item didn’t work the minimum agreed hours
6. the item wasn’t checked for damages or worn items, like cutting edges and
tyres, when it arrived on the project and the contractor is later charged for
these repairs when the item is returned to the supplier
7. the contractor undertakes repairs and maintenance which the supplier was
responsible for
8. additional insurance is added to the hire cost despite the item already being
covered by the contractor’s own insurance
9. the contractor hasn’t read and understood the terms of the hire agreement
10. the level in the fuel tanks wasn’t checked and recorded when the item
arrived on the project, yet, the supplier expects the same item to be returned
to them with the fuel tanks full (on large equipment these tanks could hold
several hundred litres of fuel)
Negotiate reduced rates for inclement weather, low usage, and site closures
When a large quantity of items is on hire, or when there are expensive hire
items, it’s prudent to agree with the supplier that hire isn’t charged when the
project isn’t working, like over long-weekends or builders’ breaks. Alternatively
it may be worth putting the items off hire during these breaks and rehiring them
when the project restarts.
When placing the order negotiate with the supplier for reduced rates, or
even no charge, for periods of adverse weather when the item cannot be used.
Similarly, agree the minimum daily, weekly, or monthly hire hours that the
equipment supplier requires and ensure that the project can provide these hours.
Equipment productivity
On some projects, such as earthmoving projects, the hire costs of plant and
equipment can be significant and improving its productivity can improve the
project’s profit.
Poor equipment productivity:
1. can adversely impact the schedule
2. could result in additional equipment having to be brought onto the project
3. causes the available equipment to have to work longer hours
4. impacts on labour productivity by:
1. resulting in operators working longer hours
2. requiring additional operators
3. holding up and delaying other activities and workers

Reasons for poor productivity of plant and equipment are:

1. the area is too congested or cluttered
2. poor or inexperienced supervision
3. waiting for access
4. waiting for equipment or materials
5. equipment breakdowns (for example if an excavator breaks down the trucks
it was loading often have to stand)
6. poor operator discipline
7. lengthy project meetings with operators or supervisory staff
8. the project isn’t well planned and coordinated
9. poor safety
10. operator fatigue resulting in accidents or poor productivity
11. poor or inexperienced operators (they may operate the machine slowly or
not at its full production)
12. a high turnover of operators
13. having the incorrect machine, or one which is underpowered for the task
14. using machines for inappropriate tasks (I often see loaders on site being
used to cart minor materials around which could easily be transported in a
wheelbarrow or utility vehicle)
15. machines are frequently moved between tasks, resulting in lost time due to
the travel time and re-orientation of the operator
16. management is indecisive and doesn’t make timely decisions
17. access routes and roads are poorly planned, becoming blocked or restricted
18. work areas have inadequate lighting
19. operators don’t work their full hours, often taking extended lunch and tea
breaks, arriving at the work site a few minutes late and leaving early
20. adverse weather such as rain which causes machines to get stuck and roads
to become slippery
21. the item isn’t rigged or set up correctly, or isn’t using the correct set of tools
or attachments (for example cranes parked in the wrong position or with the
incorrect rigging will slow down lifting operations, and excavators with the
wrong type of bucket may damage the machine and impact the time to do
the task)
22. mismatch of pieces of equipment that are dependent on one another (for
instance, the correct size and number of trucks must be matched to the size
of the loading excavator as well as to the task and site conditions)
23. poor scheduling of refuelling and routine maintenance
Theft
Theft can be a major problem in some areas and it’s important to have
sufficient security in place. Theft results in:
1. the direct costs of replacing the items
2. costs to transport and handle the replacement items
3. the item being unavailable (for example, personnel who have their tools
stolen are usually unable to work, and the theft of an excavator’s battery
could result in the excavator standing for hours, even days, waiting for a
replacement)
4. delays to the schedule
5. specialist tradespeople may have to return to the project, at additional cost,
to install the replacement item
Prevent problems from occurring
A large portion of additional costs on a project could be avoided if the
contractor’s management team anticipated problems, and implemented steps to
prevent them from arising. Some of these problems may be caused by:
1. errors with the drawings, or the information supplied by the client
2. drawings or information issued late
3. approval of shop drawings or designs by the client taking longer than they
should
4. materials not arriving on time
5. failing to order materials
6. poor performance from subcontractors
7. the incorrect material or poor quality material being supplied
8. access restrictions
9. poor quality work
10. insufficient resources
11. industrial relations problems
12. safety concerns
13. material handling difficulties

Many of the issues can be prevented if the contractor plans the project
correctly, choosing a suitable construction methodology, planning access,
preparing an effective schedule and having sufficient and suitably qualified
personnel. Adequate preparation for the project as well as for individual tasks
will also help prevent problems from arising.
Alternative designs
Consider alternative designs which can:
1. save time and shorten the schedule
2. be safer to construct
3. be constructed using fewer resources
4. be constructed using equipment the company owns or that is readily
available
5. be constructed using fewer skilled personnel, or using personnel with skills
that are readily available
6. achieve a better quality
7. use materials that are readily available or cheaper

For instance by changing elements of concrete structures to precast units it

may be possible to build most of them off-site and install them using fewer
skilled people. Sometimes a relatively minor change, like changing column sizes
to suit standard formwork, can achieve savings with minimal impact on the
design.
Some changes may be more significant and could entail the contractor
incurring design fee costs and accepting some of the design risk. It’s necessary
to carefully weigh up the benefits versus these additional risks and costs.
Coordination of services
On many projects coordinating the installation of services can be important
so that:
1. services don’t clash which often results in:
1. delays while alternate solutions and routes are considered
2. additional costs when the service that has already been installed has to
be rerouted to accommodate the other services
2. the services that needs to be installed first, for instance the deepest
underground services, are installed before the other ones
3. when underground services share a common route they are installed
together before the trench is closed
4. structures take the services into account and allow for all penetrations and
other requirements
5. in some cases, it may be possible to make use of the same access
scaffolding
Install services correctly
Poorly installed services often result in quality problems during
construction, or, in some cases, long after project completion.
To prevent problems services should:
1. be installed in accordance with the project specifications
2. be installed by suitably qualified tradespeople who should be managed by
knowledgeable supervisors
3. be tested before they are covered up to ensure there are no leaks or damages
4. have suitable corrosion protection
5. be installed in the correct position and level
6. be firmly secured so they cannot work loose
7. be clearly recorded on as-built drawings, and where possible on the ground,
so they can be located by follow-on trades so that they aren’t damaged

Poorly installed services lead to:

1. additional costs to repair them
2. burst water pipes which can flood buildings causing further damage
3. other completed work being damaged when the repairs are carried out
4. embarrassment with the client
5. the client’s operations being disrupted
6. dangerous situations, particularly with faulty electrical cables or burst high
pressure pipes or gas mains

I’ve often incurred huge costs redoing finished areas damaged when poorly
installed services had to be repaired, or even in some cases, because the service
had been accidently omitted.
Damage to existing services
Existing services are often damaged when excavations are being carried
out. In fact clients often joke that if they don’t know where the underground
services are they should call a contractor in, and they’ll quickly dig them up. Of
course this isn’t so funny for the contractor, especially if they damage a fibre
optic cable which costs thousands of dollars to repair. In fact contractors
definitely don’t want to damage existing services because:
1. the repair costs can be large
2. when a high voltage electrical cable is damaged there’s a risk someone will
be electrocuted
3. work is often held up until the repair is completed, which may take several
days
4. often a cable is unknowingly damaged, but remains operational, and only
later, after the contractor has installed concrete floors and finishes the cable
fails, resulting in the completed work having to be broken up to repair the
fault
5. if an electrical cable feeding the site is damaged it could mean the site is
without power for several hours or days, impacting the schedule and
productivity
6. the client and neighbouring businesses will be unhappy if the contractor
disrupts their services (even claiming for losses incurred)

It’s important that the contractor:

1. obtains all the necessary permits before excavating, drilling, cutting into, or
demolishing structures
2. ensures they have located all the known services
3. clearly marks these services (I cannot tell you how many times we’ve
damaged known services because they weren’t marked)
4. protects the services where possible
5. ensures all newly installed services are clearly marked on the ground and on
drawings
6. ensures workers are aware of the services and take precautions not to
damage them
7. clearly highlights the risk of damaging the services in risk assessments and
at prestart meetings
8. uses personnel that are adequately trained and competent, so they don’t
accidently operate a machine in a way that damages a service
 Damage to services applies to overhead ones as well, and the contractor
must take steps to ensure that construction machines don’t come close to
overhead power lines or structures, as this could result in a fatal accident.
Protection of existing structures and new work
Projects regularly incur additional costs because new work is damaged by
the follow-on trades. This damage results in:
1. additional repair costs
2. personnel being taken off other tasks to carry out the repair which may
impact the schedule
3. possible delays to the handover of sections (particularly if a replacement
item has to be ordered, and it has a long-lead time)

Case study:
On one of my projects someone damaged a roof sheet while working on the
completed roof. The hole was three centimetres in extent but the whole sheet had
to be replaced. The problem was the roof sheet was about forty metres long and
had been rolled on site by a specialist machine which had since left and was
available only several months after the project was completed. In addition,
because of the way the sheets were laid, several of them had to be removed to
replace the damaged one. Carelessness on the part of one worker cost us several
thousand dollars to repair the damage.
To reduce the chance of damaging completed work:
1. sequence the work so items that can easily be damaged are installed as late
as possible, and tasks which require heavy equipment as early as possible
2. all workers should be encouraged to take pride in their work and that of
others, taking care not to damage the finished product
3. protect finished items where possible
4. prestart meetings should reiterate the need for care, and highlight methods
to be implemented to protect the finished work
Quality
Poor implementation of quality management systems and poor
workmanship can result in additional costs because:
1. work has to be redone
2. it delays the schedule while defective work is replaced which:
1. may result in penalties
2. increases overhead costs
3. impacts on follow-on trades and tasks
3. it’s expensive to remove waste generated by demolishing defective work
4. redoing work takes resources away from other tasks
5. redoing tests that have failed costs money and causes delays
6. when defective work becomes apparent after the project has been
completed the contractor has to return to the site to carry out repairs (often
these disrupt the client’s activities and consequently have to be done after
hours, making it even more expensive)
7. the incorrect tests are performed, or tests are done more frequently than
required
8. tests have to be redone because they weren’t witnessed or documented
correctly
9. the repairs aren’t done correctly resulting in them being redone
10. the quality systems and documentation are too complicated and
cumbersome, which takes additional personnel to implement, and delays
the schedule

To minimise additional costs caused by poor quality, or the failure to

implement quality systems correctly:
1. a project quality plan must be in place which complies with the project
requirements and legislation
2. quality systems and documentation should be implemented from the start of
the project
3. management shouldn’t tolerate poor work
4. all personnel must understand the acceptable quality standards and take
pride in their work
5. suitably skilled personnel must be employed
6. suppliers and subcontractors must understand the quality requirements and
documentation required, and must be able to satisfy them
7. ensure that the work and materials comply with the specifications and
 quality requirements
8. testing must be done in accordance with the specifications and quality plan,
and must be done by appropriately trained and qualified persons, using the
correct equipment, calibrated in accordance with the supplier’s
recommendations, and witnessed by the appropriate persons
9. repairs of defective work must be done correctly
10. setting out must be done in accordance with the drawings, and must be
checked against existing structures, and if there are doubts about the
correctness of the setting out, then questions must be raised
11. the most recent drawing revisions must be used and personnel must
correctly interpret drawings and raise any concerns or uncertainties they
may have about the information
12. workers must have access to the appropriate tools and equipment to be able
to meet the quality requirements
13. work methods and procedures should be implemented to make the
construction as simple as possible, and to where possible eliminate the
possibility of poor workmanship
14. materials must be stored and handled correctly to prevent them being
damaged
15. materials and equipment must be installed in accordance with the
manufacturer’s instructions
16. adequate lighting must be provided in the work areas

Personnel must understand the consequences of their mistakes. The

importance of good quality work must be stressed from the start of the project.

Of course, sometimes it isn’t necessarily a quality problem but rather the

client has unrealistic expectations about the quality they will get. This can be
anticipated and avoided by:
1. submitting samples before work starts and obtaining the client’s approval
for their use
2. preparing mock-ups or prototypes for the client to approve
3. getting the client to accept work as it proceeds so corrective measures can
be taken early if it’s not to the required standard
4. when the client has specified cheaper finishes or materials, explaining to
them that these could compromise the quality of the finished product

Non-conformance reports must be prepared for all defective work to ensure

that the defect is remedied correctly and the problem doesn’t reoccur. It’s also
useful to track the cost of defective work as many staff don’t appreciate how
costly their mistakes are.
Quality documentation
Not carrying out the required tests and inspections, or not keeping records
of these inspections, can be expensive.
Case study
Our company constructed a major new airport. Part of the contract
included the installation of several kilometres of fuel lines from the fuel storage
area to the aircraft parking areas. The line consisted of twelve metre long steel
pipes welded together. A few months before the airport was due to be completed
the client asked for the quality documents for the fuel line. As part of the quality
procedures each of the pipe welds was x-rayed. However the x-ray records
couldn’t be found.
The fuel line was a critical component and leaks would create a safety
hazard, as well as an environmental issue and result in the loss of expensive fuel.
The client insisted each of the pipe joints be exposed and re-x-rayed. By this
stage the line was closed up, and much of it passed under the completed
concrete taxiways and aircraft aprons.
The excavation, re-x-raying and reinstating of the areas cost several
hundred thousand dollars. Additional resources were brought in from other
projects to ensure the task was timeously completed and didn’t delay the opening
of the airport.
In all of this, rumours in the press abounded, and the bad publicity
continued for months after the project was completed.
The quality documentation must:
1. be simple and easy to carry out
2. be done as the work proceeds
3. comply with the specifications and the client’s requirements
4. not be done just for the sake of completing paperwork; the person
completing it should physically inspect the items to ensure their compliance
with the specification
5. have a copy retained by the contractor at the end of the contract (I have had
cases of the client misplacing their copy resulting in us having to replace it)
6. make provision for reporting, investigating and tracking non-conformances
and deviations
7. include copies of all tests
Ensure repairs are done correctly
I’ve often seen repairs and rectification work done hurriedly, sometimes
even in secret – afterhours. This is obviously unacceptable and results in
additional costs.
1. Repairs must be done correctly so that the structural integrity of the
structure isn’t impacted and in such a way that it’s aesthetically acceptable.
Poorly executed repairs have to be redone, either during the construction
period or, sometimes, long after the project has been completed.
2. Usually the repair process must be approved and witnessed by the client’s
representative and they’ll often insist the work is redone if they haven’t
approved the method.

There are often different ways of fixing a problem and the contractor must
select one taking into account:
1. the aesthetics of the repair (it’s often cheaper to do a patch job, which may
however look terrible and be a constant reminder to the client of the
contractor’s mistake)
2. the cost of the repair, although cheapest isn’t always best
3. the durability of the repair (you don’t want to have to return to fix the
problem again)
4. delays the repairs cause the project
5. disruptions to the client’s activities
6. the client’s acceptance of the repair method
7. the structure’s integrity

Sometimes the best solution is to demolish the structure completely and

rebuild it correctly.
Modifying existing structures
Modifying and cutting into existing structures is inherently unsafe since:
1. existing services may be damaged
2. the structure can be weakened, leading to collapse
3. partly demolished structures can be unstable while they are made good, or
until new structures are completed (severe weather, additional loads or
vibrations may lead to their collapse)
4. the machines carrying out the cutting or demolishing can cause excessive
vibrations, or impose additional loads on the structure resulting in damage
or catastrophic failure
5. the impact of falling debris onto existing structures can cause excessive
loading and damage
6. falling debris can cause injury

To prevent accidents care must be taken to ensure:

1. all services are located and protected, isolated or rerouted
2. an engineer checks the strength of the structure to ensure it will be
structurally sound while sections are being demolished and rebuilt
3. only areas approved by the designer are cut or demolished
4. the remaining structure is adequately braced to allow for construction
activities as well as for adverse weather conditions
5. the remaining structures and exposed areas are protected to avoid weather
damage to the existing facilities
6. once all work is complete an engineer checks the structure before the
temporary bracing or props are removed
7. work is done by suitably qualified personnel who are adequately supervised
and aware of what is required and the precautions that should be put in
place
8. areas are clearly demarcated and barricaded both during demolition and
while there are potentially unsafe areas, so that people and equipment aren’t
endangered
Inspect existing property
Often work involves building new structures within an existing facility. At
times access to the site is along current public or private roads. Some projects
are adjacent to properties which may be affected by construction activities. In
these cases there’s always the risk of the existing facilities being damaged by the
construction activities. The owners will always expect their property to be in the
same condition, or better, after the construction is complete.
To ensure the contractor isn’t liable for damage they didn’t cause, it’s
important that a pre-construction survey and inspection is done to record existing
defects and damages. This report should be handed to the owners before work
begins, so that they have the opportunity to corroborate the defects.
In addition, the contractor should notify the owner if they see someone
damaging the facilities, especially if there’s a possibility the owner may think
the contractor has caused the damage.
At the end of the project the contractor should repair any damage that they
caused, and then request the owner to inspect their property. If the owner is
happy they should sign an acknowledgement that they’re satisfied with the
condition of their property and the contractor isn’t liable for damages.
Photographs with date imprints are an invaluable form of recording both the
pre-construction inspection and the post-construction inspection.
Survey of existing structures
Often contractors work on structures built by others. It’s important to verify
that these have been constructed in the correct position and to the correct height.
Some of these checks may include:
1. verifying bolts and other imbedded items are the correct size and are in the
correct position
2. checking excavations are the correct size, depth and in the right location
3. ensuring earthworks terraces and embankments are at the correct level and
location
4. making sure the area is safe – this particularly applies to deep excavations
5. checking that the structures comply with specifications
6. noting pre-existing damages to the structures

Failure to detect and report these errors in writing may result in the
contractor redoing the work at their own cost. In addition, if earthworks levels
are incorrect the contractor could use more materials than they had allowed.
Before work starts the client must be notified in writing of the discrepancies
and given the opportunity to undertake the appropriate rectification, or instruct
the contractor to make the necessary modifications.
Avoid survey and setting-out errors
Probably some of the most expensive errors I’ve experienced on projects
have been due to setting-out errors. These errors can be caused by:
1. misreading or misinterpreting drawings
2. using equipment which has been damaged, not checked for accuracy or not
calibrated
3. using the wrong setting out marks
4. using the incorrect information
5. not checking the accuracy and position of existing structures
6. inexperienced staff
7. drawing errors
8. arithmetic errors

These errors can result in major costs when structures in the wrong position
have to be demolished and rebuilt, or follow on structures have to be modified to
conform to the wrongly built structures. Often this also delays the project.
To avoid errors ensure that:
1. all setting-out is double checked
2. survey instruments are regularly checked and calibrated
3. personnel responsible for the setting out are competent
4. setting-out information is clearly given, preferably on a drawing, to the
person doing the work
Drawing control and management
Many errors occur because supervisors and subcontractors use the incorrect
drawings, the wrong revision or superseded specifications.
This results in:
1. delays when work has to be redone or the correct material hasn’t been
ordered
2. additional costs to redo the work
3. poor morale of personnel because they have to redo work
4. clients becoming frustrated

Refer to Chapter 5 for mitigating measures.

Avoid fines
Projects Managers must ensure the project has all the environmental
approvals, construction permits and licenses in place. Without these work could
be stopped and fines imposed.
There should be strict compliance with all of the permit conditions, local
bylaws and safety and environmental legislation. Failure to comply could result
in fines as well as work being stopped, which is costly and results in delays.
Often permit conditions and legislation vary between regions, states and
countries, so the Project Manager must be familiar with the conditions that
pertain to each project.

Fines can be incurred on public roads due to speeding, overloading,

incorrect loading, expiry of vehicle registrations and parking in restricted or
limited time zones. All staff should be aware of their obligations when operating
company vehicles and adhere to the road rules which may vary between regions.
Overloading not only results in a fine but the truck is usually impounded
until the load is sufficiently lightened to comply with the legal limits. This
means some of the load must be transferred to another truck which results in:
1. the delivery being delayed
2. the transport company charging standing time while the truck is impounded
3. items possibly being damaged or going missing during the reloading
process
4. the requirement for another truck
5. lifting equipment and personnel having to go to where the truck is
impounded to assist with transferring the load
Close out projects correctly
Failure to complete projects correctly, including completing all paperwork
and documentation, results in increased costs due to:
1. the project extending beyond the contractual end date, often resulting in the
application of penalties or liquidated damages
2. resources remaining on the project longer than budgeted for
3. resources not being released to other projects where they’re required, which
negatively impacts those projects
4. retention money and sureties being retained longer by the client
5. insurances remaining in place for a longer time
6. the contractor incurring additional overheads, such as the costs of facilities,
accommodation, vehicles and security remaining on site longer

It’s therefore important that the completion of the project is well planned
and coordinated so that all items are completed as soon as possible.
Close final accounts
When a project is completed it’s essential that the final account and contract
sum is agreed with the client as soon as possible. This includes agreeing all
variations, as well as deductions, charges and penalties which the client may
wish to impose.
Often, as soon as work is complete, the client and contractor transfer staff
from the project and it sometimes becomes difficult to contact the people with
the knowledge and authority to agree the final account. This could result in the
process dragging out over several months, or longer. In addition, when the site
offices are demobilised contract documents get muddled and even lost, or they
are archived and become hard to retrieve, making it difficult to compile the final
accounts.
In the chaos of demobilising some items may be overlooked and not
charged to the client.
The delay in finalising the accounts affects the contractor’s cash flow
because the client cannot make final payment before the value has been agreed.
Punch lists and maintenance
Punch lists should be drawn up and attended to as soon as possible after the
work is completed. Failure to do this:
1. often delays the completion of the project
2. results in personnel remaining behind after the project is completed to
attend to the items, resulting in additional costs which include overheads
such as accommodation, transport and supervision
3. delays the release of retention money and sureties
4. extends the contractor’s warranty period resulting in them being liable for
defects for a longer period
5. causes the personnel left behind attending to the items to become frustrated

The client should be advised of items which aren’t the contractor’s

responsibility.
Expense and vehicle claims
Expense claims should be checked to verify that the purchases are
legitimate costs, the receipts are attached, and the expenses are correctly cost
coded.
Vehicle claims must be checked to ensure that the vehicle has only been
used for business purposes and approved private use.
Recovery of deposits
Contractors often pay deposits for accommodation, services, permits, and
sometimes, even for hiring equipment. A schedule of these deposits should be
kept to enable them to be recovered at the end of the project. Often the people
who authorised the payment of the deposits leave the project before the end, so
it’s important that staff closing the project are aware of what deposits should be
recovered and who they should contact to arrange for their payment.
Plan the release of resources
As projects near their end, resources such as equipment, personnel and staff
have to be moved off site. This has to be done in a planned, controlled manner so
that the project doesn’t have unutilised or underutilised resources which add
unnecessary costs. But, it also needs to be done in such a way that the project is
completed as quickly and efficiently as possible.

Removing externally hired equipment from the project is relatively easy,

though the following should be done to avoid additional costs:
1. ensure that the item has completed all the tasks it’s required to do
2. notify the supplier in writing of the date that the item will be off-hired
(giving them sufficient notice in accordance with the hire agreement - some
items may require a week or more notice)
3. arrange transport to remove the item
4. ensure that the item is cleaned and has all its parts and attachments ready
for collection
5. ensure that staff are aware of when the item will be collected
6. timeously notify the supplier should plans change

Internal equipment is slightly more complex because it’s in the company’s

interests to ensure that it’s usefully employed, either on the project or elsewhere.
The project should timeously notify other projects and the internal hire
department that the item will become available. Unfortunately most Project
Managers think only of their project, and not of the company as a whole, and
often place internal items of equipment off hire without prior notification.
Companies should maintain a schedule of their major plant and equipment
showing the project the item is currently on, the expected release date, and
where it’s planned to move to next. This allows other Project Managers to see
what’s available and assess if they require the item. This schedule also enables
the tender department to see what equipment is available which could affect the
projects they tender on as well as their methodologies and pricing. For this
schedule to be effective it must be regularly updated, and Project Managers need
to provide accurate information regarding their requirements and their
equipment release dates.
If an internal item of equipment doesn’t have another project to go to the
Project Manager should ensure, where possible, similar pieces of externally
hired equipment are released from their project first.
 The company should also maintain a schedule of its staff with their names,
occupations, their current project, when they’ll be released and which project
they are scheduled to move to. This schedule assists the tender department since
they are able to see who is available for new projects.
Project Managers need to notify the human resources department and other
Project Managers in advance of when they will be releasing personnel, and what
their skills and experience are, so they can be transferred to other projects.
If the company doesn’t have a position for a person then the project will
have to terminate their employment. Since this process can take several weeks,
depending on notice periods and union involvement, it’s important that it is
started as soon as possible so people aren’t idle on the project.
When termination is necessary:
1. ensure senior management and the human resources department are advised
of the process
2. if necessary, advise the client or unions
3. ensure contract employees are terminated before permanent employees
4. ensure the process is:
1. in accordance with legislation, the person’s employment contract, and
relevant industrial relations agreements
2. a last resort when there aren’t other opportunities on the project, or
within the company, including the option of redeploying the person in
another role
3. fair
5. give the appropriate notice to the individuals concerned
6. ensure the correct termination documentation is prepared
7. make sure the full pay is calculated, including all notice pay, bonuses and
leave pay

Wrongful termination may result in extra costs, including additional pay

and legal costs, as well as having the potential to cause industrial relations
problems on the project.
Minimise weather losses
Rain, wind and storms can cause damage to the project which delays the
works and costs money to repair.
Losses can be minimised by taking suitable precautions such as:
1. securing the work area at the end of the shift, or when severe weather is
expected
2. protecting equipment and materials which may be damaged by rain or wind
3. protecting open excavations with berms to prevent storm water runoff
entering them
4. ensuring drainage is planned and maintained to steer storm water away
from the work area
5. removing equipment from areas which may become flooded

It’s important to note that storms can sometimes occur without warning, or
rivers rise unexpectedly. We had an instance when we returned after a weekend
to find the river had risen significantly, flooding our work areas and submerging
some of our equipment.
Manage the use of company assets
Irresponsible use of company assets can result in large costs. These costs
include staff using mobile phones for personal calls, company vehicles for
private travel or company internet access for personal business. Sometimes
projects incur replacement or repair costs because assets like telephones,
computers and company vehicles are stolen or damaged in accidents. It’s
important that these assets aren’t placed in situations which expose them to theft
or damage.
Often the individual costs can be small, but in companies with a large staff
complement the cumulative costs can be high.
Some companies set limits on the kilometres staff are allowed to travel in
company vehicles, or limits on mobile phone usage in a month. Usage however
can vary between different projects and these restrictions may need to be revised
on a regular basis.
One company I worked for circulated a list with the company vehicles,
mobile phone, and internet costs, arranged from the highest to the lowest with
the person’s name, the asset number and the project name, to Project Managers
and Directors. It was then easy to see who was using assets excessively, and by
checking the previous month’s lists it was possible to see who the serial
offenders were.
Communication with staff – buy in
Monitoring and reducing costs isn’t something that can be left entirely to
the Contract Administrators or Project Managers. Rather it’s something that all
project staff should be aware of so that measures can be implemented to save
costs. It’s important that Supervisors are made aware when their section is losing
money and what steps need to be put in place to rectify the situation.
Summary
By reducing costs it’s easily possible to increase the profitability of the
company. Ways in which costs can be reduced are:
1. working smarter
2. planning projects carefully
3. implementing the most suitable and efficient schedule to meet the client’s
requirements
4. ensuring that there is access to the work area
5. performing the work safely
6. obtaining a number of quotes in a process where the supplier is fully
conversant with the requirements of the job
7. adjudicating these quotes to ensure that they have allowed for and included
all items and costs
8. giving suppliers and subcontractors clear unambiguous orders and contracts
9. managing subcontractors to ensure that they perform their works in
accordance with their contract
10. ordering the right quantity of the correct materials, and ensuring they are
delivered to the project on time and that the project is ready to receive them
11. investigating alternative materials which may be cheaper , easier to install,
or less expensive to transport
12. considering alternative designs which may improve the constructability of
the project
13. arranging suitable transport for materials and equipment, and coordinating
deliveries
14. considering alternative forms of transport
15. regularly reconciling the materials delivered with those invoiced to the
client and investigating any discrepancies
16. maximising both the labour and equipment productivities
17. ensuring industrial relations policies and discipline are implemented in
accordance with legislation, in a fair and uniform manner across the whole
company
18. paying personnel correctly
19. controlling and limiting the amount of overtime worked
20. protecting property and equipment from being damaged
21. putting equipment off-hire when it’s no longer required
22. paying the correct hours and rates for hired equipment
23. negotiating discounts, better rates and payment terms for equipment and
materials
24. ensuring that projects comply with legislation and traffic ordinances to
avoid paying fines
25. preventing theft
26. anticipating and preventing problems from occurring
27. coordinating the installation of services and ensuring they are installed and
tested correctly
28. avoiding damage to existing or new services
29. protecting existing and new work
30. ensuring structures are set out and constructed in the correct location
31. working to the latest drawings
32. ensuring all work and materials comply with the required quality standards
and specifications, and that suitable quality systems are in place
33. planning the close out of projects to ensure all structures are completed, and
all documentation is submitted in accordance with the client’s requirements
34. recovering deposits at the end of the project
35. planning the demobilisation of resources
36. managing the use of company assets to maximise their effective utilisation
37. ensuring all staff are aware of how important it is to avoid unnecessary
costs
Chapter 7 – Maximising Revenue
The best way to ensure projects are profitable is to ensure that the client
pays for all the work that is undertaken, and it’s paid for as soon as possible after
it’s been completed. This seems obvious, and yet I’ve found that many Project
Managers, Project Directors and business owners aren’t good at submitting
interim valuations on time, getting the final accounts agreed with the client, or
submitting variations correctly and in terms of the contract.
Monthly valuations
Valuations must be submitted on or before the agreed due date, addressed
to the correct person, be in accordance with the contract and include the required
supporting documentation and calculations. The incorrect submission may result
in the contractor not being paid on time, sometimes even the following month,
impacting the contractor’s cash flow.
The Project Manager needs to understand the basis of the valuation which
may be:
1. measuring the actual work completed in the month
2. measuring the progress against the contract schedule, and then claiming the
percentage complete
3. claiming the value of a milestone when it’s achieved

Where possible the projects should maximise the revenue claimed in the
monthly valuations by:
1. making sure that all work is claimed
2. over-claiming where possible
3. ensuring milestones are met so that they can be incorporated in the payment
4. making the valuation date as late in the month as possible
5. ensuring that variations and claims are submitted and approved quickly so
that they can be claimed
6. claiming for unfixed materials where applicable
7. claiming as much of the indirect costs or preliminaries as possible

Remember, it’s better for the contractor to have the money sitting in their
bank account than in the client’s. However, when compiling cost reports, ensure
the over-claims in the valuation are excluded from the revenue used in the
report.
Variations
Most contracts will change and vary from the works that were originally
tendered for. Contractors must ensure that they are paid for all additional work.
Variations can be due to the following:
1. additional scope
2. errors and omissions in the document
3. changes to drawings
4. delays due to:
1. late access
2. late information or drawings
3. the client making changes to the completed works
4. unforseen weather conditions
5. unforseen project conditions
6. the client’s contractors or workers impeding or preventing access
7. the client-provided services being unavailable, being of insufficient
quantity, not provided to the point specified, or provided late
8. the client-supplied equipment or materials arriving late, in insufficient
quantities, or not to the correct quality
5. changes in specifications
6. changes in working conditions such as:
1. unexpected ground conditions, for example, rock
2. encountering hazardous materials
3. the discovery of artefacts
4. the unexpected presence of underground water
7. changes of commercial or contractual conditions
8. the client delaying or changing milestone dates, or requesting the schedule
to be accelerated
9. drawing errors and drawing coordination problems
10. changes of law within the state or country
11. the client or their contractors damaging completed work

It’s vital to read through and understand the contract and tender documents,
as well as the related correspondence. It’s important that the contractor regularly
compares construction drawings and specifications with those issued at tender
stage to ensure that they haven’t changed.
Continually ask the questions:
1. ‘Are we constructing what we tendered for?’
 2. ‘Are the site conditions as expected at tender stage?’
3. ‘Has the client fulfilled all their obligations in the contract?’

Sometimes the variation is as simple as submitting a revised rate for an item

or task because the description of the item priced at tender stage has changed, for
example because:
1. the height or dimensions have changed
2. the quantity has changed
3. the specification is different

The client must be notified of variations as soon as the contractor becomes

aware of them, and certainly within the time specified in the contract. Failure to
do so may mean the contractor loses their right to claim.
The contractor should ensure that the person preparing the variation has the
required knowledge and experience to prepare the claim. If there’s any doubt as
to the validity of the claim, or what should be included, seek advice from experts
within the company or from outside providers. The cost of getting proper advice
is often far outweighed by the revenue that can be earned by an expertly
formulated and drafted claim.
Preparing and submitting variations and claims
Variations and claims should have as the minimum:
1. a description of the event
2. the cause
3. the date of the event
4. the event’s impact
5. steps taken to mitigate the impact
6. the cost and time impacts of the event
7. the supporting documentation attached, or refer to supporting
documentation referencing:
1. contract clause numbers
2. relevant drawing numbers
3. the pertinent schedule item numbers
4. correspondence relating to the event
5. the relevant specifications

It’s essential that this supporting documentation is relevant,

supports the claim and isn’t contradictory (any contradictions
need to be explained).

The claim must be:

1. lodged within the time frame specified in the contract
2. addressed to the correct person
3. delivered to the correct address

As part of formulating the impact of the event all calculations and schedules
should be included. The claim schedule should reference the approved contract
schedule. Calculations should reference where the facts and figures came from
and how they were put together, and they should be checked for arithmetic
errors.
It should be noted that claims must be well thought through to ensure all
possible costs have been included. It’s very difficult, if not impossible, to go
back later and submit a revised claim requesting more money. Where possible
discuss the claim with the relevant staff to hear what ideas they have, and
whether they can suggest other costs or opportunities that may have been
overlooked.
Costing variations
Variations should include:
1. labour costs including:
1. the base wages
2. overtime
3. non-productive time such as paid breaks, travel time, time to prepare
hazard assessments, inductions, and so on
4. allowances
5. statutory levies such as for training
6. leave pay, bonuses, sick leave, pension, and so on
7. personal protective clothing
8. personal small tools
9. accommodation (if applicable)
10. travel (where necessary)
2. material costs including:
1. the actual material cost
2. transport of the material to site
3. offloading and handling
4. protection and packaging
5. quality procedures and tests
6. wastage due to breakages and cutting
7. cutting (unless this has already been included in the labour cost)
8. fixings
9. royalties
10. insurances
11. duties and taxes
3. equipment including:
1. hire costs
2. unproductive time
3. mobilisation and demobilisation costs
4. insurances
5. fuels and lubricants
6. wearing parts such as cutting edges, drill and moil points
7. maintenance
8. supporting vehicles such as fuel and service vehicles
9. attachments and ancillary items
4. demolishing existing structures including:
1. loading and transport of waste materials
 2. temporary supports and bracings
3. dump fees
5. supervision and management costs including:
1. the basic salary
2. allowances
3. leave pay and bonuses
4. accommodation and transport
5. computers and mobile phones
6. off-site staff such as Contract Administrators, and Planners
7. project insurances and sureties
8. costs of permits
9. profits and overheads
10. access equipment
11. offices and facilities
12. additional security
13. protection of existing and completed structures
14. additional design and drawing costs
15. subcontractors’ costs including the contractor’s mark-up

It’s also important to assess the effect the variation has on the schedule
which may result in:
1. the overall project duration being extended
2. the variation impeding or delaying other works
3. the variation requiring resources from other tasks which then impacts on
their completion dates
Assist subcontractors with claims
Some subcontractors are unsophisticated when it comes to submitting and
preparing variations. When these variations are due to changes or additional
work requested by the client it’s usually in the contractor’s interests to assist
subcontractors with these claims since:
1. the more revenue the subcontractor receives the more likely it is that they’ll
be profitable, making them happy and more prepared to provide good
service and less likely to lodge claims against the contractor
2. in most cases the contractor gets additional profit on the subcontractor’s
claim
Site instructions
Clients often request contractors to undertake additional work, or change
work already completed. Many of these requests are verbal. Contractors must
ensure that instructions:
1. are in writing
2. are signed by an authorised representative from the client
3. are clear and unambiguous
4. are only accepted by the contractor’s authorised representative
5. allow the contractor to claim for additional costs or time caused by the
instruction
6. have wording acceptable to the contractor

Sometimes wording on instructions can be ambiguous making it seem that a

section of works is being redone because of the contractor’s poor quality, or
fault. When the contractor submits a variation the client’s Contract
Administrator may be reluctant to pay the contractor for the additional work
since it appears from the instruction the work is due to a failure on the
contractor’s part.
Often clients use their standard site instruction form which has a printed
statement to the effect that there’ll be no cost or time variation for the
instruction. These clauses should be struck out by the contractor because at this
stage they’re usually not in a position to understand all the implications of the
instruction.
Normally a site instruction should be priced by the contractor before they
proceed with the work.
Delays
The full costs of delays are seldom all considered. The delay could result in:
1. the contract schedule being extended, meaning that the contractor remains
on site longer than allowed for and incurs additional costs for:
1. the site facilities
2. staff salaries and associated costs
3. the extension of the bonds, sureties and insurances
4. equipment
2. the inefficient and unproductive use of personnel and equipment which:
1. cannot be used at all
2. are only partly utilised
3. the work moving into a season with unfavourable weather conditions which
wasn’t allowed for in the schedule or tender, causing further delays and
inefficiencies
4. material prices increasing in the interim
5. the activity happening when other contractors are working in the area which
then adversely impacts productively
6. an activity being undertaken out of sequence which may result in:
1. access being limited when it’s completed
2. the work area becoming congested due to other activities happening
simultaneously
3. specialist equipment, subcontractors or personnel not having
continuity of work resulting in them having to return to site at a later
date entailing additional mobilisation costs and in some cases the
equipment or subcontractors may not be available when they are
required again, which could result in further delays
4. damage to works already completed
7. materials which have been ordered having to be stored because the site isn’t
ready to use them, resulting in storage costs and double handling, and the
associated risks of damage and theft
8. disruption of cash flow because the project’s end date is extended, deferring
the release of retentions and securities
9. subcontractors are delayed resulting in them claiming delay costs

Many of these costs are difficult to demonstrate and prove to the client.
Frequently, clients don’t understand the consequences of their actions. The
contractor should do whatever they can to ensure that the client delivers access
and information in accordance with the schedule requirements so that the project
isn’t delayed.
Acceleration
Unfortunately, contractors often end up placing more resources on a project
than were allowed for at tender stage. This is often due to:
1. the scope of works increasing
2. the client providing access, drawings or information late
3. the client requiring earlier access or completion
4. the contractor being delayed by the client’s contractors or workers

Often the client forces the contractor into accelerating the work by not
accepting the contractor’s revised schedule taking these factors into account.
This is obviously unacceptable, and while the contractor has some obligation to
try and accommodate the client, the client has an obligation to accept
responsibility for changes and delays resulting from their actions, and to
compensate the contractor for the costs incurred in mitigating delays, and
achieving earlier completion dates.
It’s preferable that any acceleration claim is agreed with the client before
the contractor incurs the additional costs of acceleration.
The contractor needs to put the delays onto the approved contract schedule
and demonstrate their entitlement to an extension of time. Once the entitlement
is established the contractor can investigate shortening the schedule to comply
with the client’s revised information and dates. In doing so the contractor must
establish what impact this new acceleration schedule has on the works, and what
additional resources are required to achieve the new schedule.
This new acceleration schedule must be formally submitted to the client
together with the claim for acceleration.
Should the client fail to acknowledge the claim, still insisting that the
contractor complies with the original contract schedule, then the contractor must
notify the client that they are proceeding with constructive acceleration and that
they expect to be paid compensation for this in terms of their claim.
Logging variations
Variations should be logged in a register so that:
1. the contractor tracks and ensures that they have priced them
2. the contractor follows up ensuring that the client has approved them
3. the contractor carries out the work (variations are sometimes overlooked or
forgotten resulting in the contractor having to do them after they’ve
completed the contract, or in the worst case, even having to redo completed
work to comply with the variation request)
4. the contractor is reminded to claim for the work
Getting paid for the variation
It is one thing to submit a variation, but it also needs to be approved and
paid. Often clients are slow to approve claims, and the process for payment may
take even longer, particularly if the project budget has been exceeded.
Normally, once a client has accepted a variation they have to issue a
contract amendment or change order, and contractors are usually not paid for the
variation until one is issued.
Many contractors carry out additional work in good faith, in accordance
with a site instruction, but then it’s either not paid, or isn’t paid in full, because
the client disputes the costs that the contractor has claimed.
Project Managers should track variations, and ensure change orders are
issued. Often I’ve waited several months for these to be processed.
Change orders must be in writing and should:
1. have the correct variation value
2. have conditions which are acceptable to the contractor
3. include acceptable completion dates
4. be signed by both parties
5. have a clearly defined scope
6. refer to the terms of the original contract

Failure to check these details may result in the contractor inadvertently

agreeing to conditions or milestones which aren’t acceptable, or having a change
order which isn’t valid.
Don’t exceed the value of the order or variation
This sounds fairly simple and yet it’s a common mistake. Project Managers
must be aware of the value of an order or variation and constantly track and
update the value of work done to ensure that it’s not exceeded. The client is in
their rights to not pay for work completed in excess of the order. Sometimes the
client might not have the funds available to pay for work in excess of the order.
Even if they agree to pay the additional value, they will be unhappy that the
value was exceeded and they were given no prior warning of this. Furthermore,
payment may be delayed while the client amends the order.
The Project Manager should timeously warn the client if the value will be
exceeded so that the order can be amended. Often clients take several weeks to
issue a revised order. The contractor may be instructed to cease work (in any
event it would be prudent for the contractor to stop and wait for the amendment
as there’s always a risk the client won’t agree to pay for further work) while they
await the revised order, resulting in the contractor’s resources standing idle.
Re-measurable contracts
When finalising re-measurable contracts based on the client’s bill of
quantities ensure that:
1. the actual quantities are measured accurately
2. the description of the item or task hasn’t changed
3. the specifications are the same

Check the overheads and ensure:

1. that they are claimed in full
2. depending on the terms of the contract, that they are adjusted if the final
quantities, value or the time period are varied
Day-works, cost recovery and cost reimbursable contracts
These are contracts, or variations, where the client has agreed to pay the
contractor for their actual costs plus a mark-up, which includes the contractor’s
profit and overheads. Sometimes the client agrees to pay the contractor a set rate
for every hour that the contractor’s personnel or equipment work on the task.
Before undertaking work on this basis it’s important to agree:
1. the basis of the charges, what the client will pay for and what’s included in
the rates
2. how the contractor will be reimbursed for unproductive time (for example
moving personnel and equipment between tasks)
3. how the contractor will be recompensed for their site overheads, facilities,
supervision and management
4. who from the client has the authority to agree and sign for the hours worked
5. what the client will be providing
6. what the contractor’s mark-up is
7. the type of records and proof required by the client to substantiate the costs
8. if there’s an overall maximum value that shouldn’t be exceeded

It is important that accurate records are kept of all costs and hours worked.
These costs may include amongst others:
1. transport of personnel, materials and equipment
2. handling and offloading of materials
3. taxes
4. wastage and breakages
5. insurances
6. royalties
7. mobilisations and inductions
8. safety equipment and clothing

Hourly records of work performed should be signed daily by the client’s

representative.
Staff undertaking the work must understand how the client will be paying
for the work and what items they should be recording.
Records should agree with the numbers recorded in the daily diaries and
weekly reports to prevent confusion, and the possibility the contractor is
reimbursed for a lower number of people.
If there is a maximum value for the contract or variation order it should not
be exceeded and the client should be advised well before this figure is reached.
Punch lists
Clients often include items on their punch lists which are:
1. not included in the original scope or specifications
2. damages caused to the facility by the client’s employees or their
subcontractors
3. normal maintenance items which should be for the client’s account

The contractor should advise the client that these items constitute a
variation and not attend to them unless they have been issued with a variation.
Escalation and rise-and-fall calculations
Some contracts allow the contractor to claim escalation, or rise-and-fall, on
the value of work done. (This subject is discussed in Chapter 3.) I’ve seen many
projects neglect to claim for the rise-and-fall, or they calculate the amount
incorrectly.
Some escalation formulae can be complicated, so ensure that they are
applied properly. Also, check that the figures used in the calculations are correct,
applicable to the region and are the ones nominated in the contract.
Dealing with cost increases
With long duration projects, costs will inevitably increase. Ideally these
increases should have been allowed for in the tender calculations. However,
when preparing variations, particularly those of large value, it’s worth
considering the cost increases, and where possible adding them into the
variation.
Additional work
While working on a project it’s often possible to obtain additional work,
either from the same client or another one that’s working on the site. If this work
can be carried out at the same time as the original project there’s potential to
share resources between projects which improves utilisation.
I have often constructed projects, then remained on site to construct further
phases, which have been profitable for the company.
Sometimes, we have provided services to other contractors on a project, for
instance selling concrete from our concrete mixing plant or hiring out equipment
like cranes. Naturally, care should be taken that this doesn’t interfere with the
progress of the main project. In addition, ensure that there is a purchase order in
place which has acceptable payment conditions and takes into account items
such as insurance and liability. We’ve had instances where we have struggled to
be paid for work we undertook for smaller contractors, and in a few cases, even
righting off the debt.
Alternate sources of income
Sometimes there are alternate avenues of revenue on a project. One of these
is to advertise on hoardings, scaffolds and even on tower cranes. Normally
permission must be sought from clients and local authorities. Some advertising
can be lucrative, however, care should be taken that the adverts don’t appear
tacky and diminish the professionalism of the contractor.
Again, these alternate sources of revenue must not detract from the primary
goal, which is to complete the project successfully.
Investment income
If the company is operating profitably, with a positive cash flow, it should
have cash in the bank. It’s important that this cash is invested where it can
receive the maximum revenue, but where it’s readily available should the
company require it to cover operational expenses. Some contractors make a large
portion of their profit by managing their cash flow carefully and earning
additional income from the invested funds.
To be able to invest surplus funds to earn the best return it’s essential the
company has accurate budgets and cash flow projections.
Contract bonuses
Sometimes clients are willing to pay bonuses for early completion. Even if
these aren’t offered in the tender it could be something which is negotiated with
the client if it’s known that they are desperate to move into the facility ahead of
schedule.
Payment of subcontractors and suppliers
Payment of subcontractors and suppliers should be done in accordance with
the agreed terms and conditions. Payments should:
1. be made on time so that discounts can be claimed
2. have the relevant retentions withheld from them
3. not be released without completion and receipt of:
1. warranties and guarantees
2. a signed final account
3. the completed punch lists
4. the required spare parts and manuals
5. all commissioning data
4. be checked to verify:
1. the subcontractor has completed the work they’ve claimed
2. the work complies with the specifications and quality requirements
3. all materials have been received undamaged
5. only include claims and variations which have been agreed with the
contractor and where necessary the client
6. only be made for unfixed materials if this is in accordance with the
subcontract agreement and providing the required guarantees or sessions
have been received

Ideally the subcontractor shouldn’t be paid more than the contractor has
claimed from the client.
Supplier payment terms
By negotiating better supplier payment terms the contractor may be able to
pay suppliers later, which helps the contractor’s cash flow, making the company
more profitable.
Alternatively it may be possible to negotiate a discount if the payment is
made earlier.
Back-charges and services supplied to subcontractors
While it shouldn’t be the contractor’s aim to make a profit by deducting
money from subcontractors, it’s often necessary to back-charge a subcontractor
for costs the contractor incurred on behalf of the subcontractor. These costs
include:
1. services supplied to the subcontractor which they should have allowed for
and provided such as:
1. accommodation
2. transport
3. clearing their rubbish
4. access scaffolding
5. providing lifting equipment and offloading facilities
6. provision of water or power
7. offices and other site facilities
8. plant and equipment for their work
9. personnel
2. repairing work damaged by the subcontractor
3. repairing the subcontractor’s defective or poor workmanship

Sometimes these costs can be significant. Subcontractors should be

timeously warned that they will be charged for services and what the costs are.
When necessary, they should be given sufficient written notice to rectify
problems. Where possible, time sheets for equipment supplied should be signed
daily, and the back-charges should be agreed and invoiced monthly so that the
subcontractor is fully aware of their liability.
Failure to notify the subcontractor, or get them to sign for the services
received, often results in disputes, even ending with the contractor having to
withdraw their invoices.
Insurance claims
Certain events and damages are covered by the contractor’s or the client’s
insurance policy. The Project Manager must be aware of what these events are,
what the excesses or deductibles are, and the process to follow to claim against
the policy. Failure to notify the insurer timeously, or to record and report the
event, could render the claim invalid.
Furthermore the contractor must ensure that they have taken all mitigating
steps to prepare for and prevent an event from occurring, otherwise they may
find that their claim is repudiated by the insurer. For instance, if a vehicle is in
an accident and it was found the driver didn’t have a valid licence, the vehicle
wasn’t properly maintained or was un-roadworthy, the insurer probably won’t
pay for damages. The same applies to items damaged in a flood where the
contractor didn’t take proper precautions to prevent the works from being
flooded.

Equally important is to ensure that the insurer is given accurate information

when the insurance policy is purchased and that they are advised of any changes
in the project. Failure to do this could render the policy null and void.

Insurance claims should include all the costs associated with carrying out
the repairs and making good damage including:
1. the material costs including transport, insurance and handling
2. all labour costs
3. costs of cleaning, removing and disposing of debris
4. protection of the undamaged work which is affected by the repair work
5. demolition of damaged structures
6. supervision and overhead costs
7. damage to plant and equipment
8. temporary support or access structures
9. subcontractors’ costs associated with the damage

Unfortunately most insurance policies don’t cover for consequential

damages. Any delays caused by the event, including their resultant costs, won’t
be covered.
Negotiate better payment terms with the client
By negotiating better payment terms with the client the contractor can
improve their cash flow which saves on interest charges.
Refer to Cash flow in Chapter 8.
These terms should be included as part of the tender submission, although
some may be negotiated after the awarding of the contract.
Recovery of GST, VAT, duties and other taxes
The contractor should obtain specific advice regarding the recovery of GST
and other taxes and duties paid because legislation varies between countries and
states and can change over time.
It’s important that all receipts, invoices, and other paperwork are kept so
that company administrators are able to submit them in order to recover monies
owed. These documents usually have to be tax receipts and in some cases may
require specific information to be included on them.
The flip side to duties and taxes is to ensure that the client is charged for all
duties and taxes that are for their account. For example, when items are imported
there may be import duties and clearing charges which the contractor often
neglects to add to their price.
Ensure that the client pays
As discussed previously one of the biggest risks to most contractors is not
getting paid for their work. The contractor may have done everything in their
power to ensure that they are paid, such as submitting invoices on time and
having all day-works, site instructions and variations signed by the client.
Unfortunately after all of this, and even despite the good intentions of the client,
problems occur and clients experience financial difficulties. It’s therefore
important to pay close attention to any rumours or news reports regarding the
client’s financial wellbeing, and to investigate these as soon as possible. If
necessary, call a meeting with the client to discuss the reports that you’ve heard
and to understand whether they have sufficient money to pay for the project.
Since the value of work carried out increases every day, the longer the
contractor works, the bigger the risk becomes, and the greater the amount of
money that’s owed. Unfortunately, the contractor cannot just stop work, because
this may put them in breach of contract, which would give the client cause to
terminate the contract and not pay them at all.

When there’s a risk the client will be unable to pay, the contractor should:
1. when the valuation payment is late immediately formally notify the client
they are in breach of contract
2. follow the requirements in the contract for termination, ensuring all
notifications are addressed correctly
3. delay major material deliveries and purchases where possible
4. delay work where possible, providing this won’t jeopardise the contractor’s
rights under the contract
5. delay mobilising further equipment or people to site where possible
6. remove equipment which isn’t essential to the works
7. check the validity of payment guarantees
8. take precautions to limit the effects of the non-payment on their cash flow
9. if possible negotiate that the client pays at least a portion of the outstanding
money
10. if the client is unable to pay the outstanding money, and the contractor has
clearly followed all due process, then the contract should be terminated
Summary
The contractor should maximise their revenue by:
1. ensuring that monthly valuation claims are submitted timeously and in the
correct format
2. maximising the amount claimed in each valuation
3. claiming all the variations that they are entitled to
4. ensuring that variations are submitted in accordance with the contract and
include all additional costs incurred by the contractor
5. recording, reporting and claiming for all delays caused by the client or their
contractors
6. claiming for the costs incurred to accelerate the works
7. finding additional work on the project
8. ensuring that damages caused by an insurable event are correctly processed
and claimed
9. investing surplus cash to maximise income, while retaining sufficient funds
to cover the company’s operating requirements
10. paying subcontractors and suppliers on time, in accordance with the
conditions in the order, and ensuring that they have completed all the work
claimed
11. ensuring that subcontractors are correctly charged for services supplied to
them
12. recovering taxes and duties
13. negotiating better payment conditions with the client
14. ensuring that the client pays all claims due, on time

Chapter 8 – Financial Management
Many small companies literally live from hand-to-mouth, receiving money
from one project and spending it on another, with no idea how profitable they
are, or whether they have made money on a project or not. Their only clue to
their overall profitability is their bank account, but unfortunately, some owners
mix their personal and business accounts, so even this is a poor barometer. The
poor control of finances sometimes means that contractors continue to undertake
projects which aren’t profitable. In addition, they’re often unable to claim back
monies they’re entitled to from the tax authorities.
Larger companies generally have sound financial systems in place which
are easy to operate and can give cost updates in real time for every project.
Unfortunately, every system is only as good as the operators and the quality of
the information that goes into the system. There are some systems that are
complex and provide lots of detailed information that’s not used by most
contractors.
Some construction companies use systems that are more appropriate for
other industries, while others use systems which were more appropriate to a time
when they were smaller, and they’ve outgrown them now.
Even when there are adequate financial systems in place many business
owners and managers don’t understand some of the basic accounting principles
which cause them to make inappropriate choices or expensive mistakes. It’s
therefore important that business owners and managers understand the systems
the company is using and that they also have a basic understanding of
accounting principles.
Just as important is to ensure that the system is operated correctly across all
divisions and facets of the company.
Contractors need to be disciplined in their approach to project and company
finances. Deviations from set procedures can quickly result in uncertainty
amongst staff, financial mismanagement, loss of financial control and even
bankruptcy.
I would also always urge contractors to be financially conservative since
the contracting environment is continually changing with unexpected events
happening when least expected, such as clients being unable to pay, contracts
being cancelled, accidents, disruptive weather events or a shortage of work.
Contractors who have stretched their financial resources might be unable to cope
with these challenges.
Cost controls and reporting
Cost reporting and cost controls for individual projects are important since:
1. they provide an indication as to what types of project are profitable and
should be targeted by the company
2. the information can be used to improve the accuracy of tenders
3. they assist the company with their financial forecasts and budgets
4. when a loss is detected it may be possible to prevent further losses and even
to recover some of the money
5. it makes project staff accountable

The reporting systems must:

1. be simple to operate
2. provide information that can easily be analysed
3. be compatible with other financial and operating systems the company uses
4. be adaptable to use on small and large projects, as well as different types of
projects, so that one common system can be used throughout the company
5. if possible tie-in with the information provided from the tender process
6. provide reliable information
7. provide information that is current

Not only should companies have a good cost system, but equally
importantly, they must ensure that the information produced is analysed and
used to improve the company and project performance and operations.
Cost to completion
Cost to completion is a form of project cost reporting. In this method an
estimate is made of all the costs that are expected to be incurred for the
remainder of the project and these are added to the costs already expended. The
total costs are then compared with the expected final revenue.
To make the results more accurate it’s possible to split the costs into
different sections like labour, materials and equipment, or even more detailed
into subsections of different materials.
The reliability of this method of cost reporting depends on the accuracy of
the data for the costs incurred to date and also requires that accurate forecasts are
made for the future costs. It goes without saying that the expected final revenue
should also be accurate and take into account any deductions or reductions in
revenue.
Cost versus allowable
Another method of cost reporting is to compare the actual costs incurred to
date on the project with the revenue earned so far. This can be done for the
project as a whole, for individual tasks or for different cost codes such as labour,
plant and material.
The accuracy of this method depends on the correctness of the calculations
of the costs as well as the accuracy of the revenue against which the costs are
compared.
Cost reporting using the schedule
If the schedule has been correctly resourced it’s possible to calculate the
resources that should have been expended according to the schedule and
compare these with the actual resources expended. This can usually be done for
manpower and equipment.
Cost codes
To enable accurate cost reports to be prepared codes should be allocated to
the different tasks or trades. These cost codes should:
1. be simple and easy to use
2. be uniform across all projects
3. have a prefix unique to each project
4. allow for expansion for future new items, materials and activities
5. be allocated from the start of all projects
6. be used by everyone associated with the project
7. be understood by all personnel using and allocating them
8. tie-in with the codes used in the tenders

If the costs and the revenue of the different tasks and items can be correctly
allocated to a cost code, it’s possible to get an accurate portrait of whether that
task, or item, is making or losing money, and appropriate steps can then be taken
to rectify losses.
Investigate losses – don’t cover them up
When a project loses money it’s important to establish the reasons for the
loss so that further losses can be prevented, and if possible, so the losses can be
recovered. There are many reasons for a loss including:
1. wastage
2. poor productivity (Refer to Chapter 6)
3. poorly planned and organised projects
4. defective materials
5. theft
6. poor quality work resulting in rework
7. poor performance of subcontractors
8. failing to claim for work done
9. changes to the working conditions caused by the client such as:
1. delayed access
2. increased scope
3. variations and changes
4. the late issuing of drawings and information
5. changes to the schedule
6. restrictions on work hours
7. changes in specifications or tests required
8. client-supplied services not being available or not in the required
quantities
10. site conditions different to those tendered for such as:
1. the presence of rock
2. other contractors impacting on the work
3. the client’s activities impacting the works
4. the presence of hazardous materials
5. available borrow pits being further from the work site or more difficult
to access
6. the material having different properties than specified, making it more
difficult to work with
11. unusual adverse weather conditions
12. incorrect tender assumptions or calculations

If the losses are due to the client, or to changed conditions, it should be

possible to submit variations for the additional costs. If the loss is due to the
contractor then management needs to identify steps to mitigate and recover the
losses. Sometimes the loss is due to mistakes in the tender and there’s little the
project team can do. However, it’s important that the estimating team is made
aware of the errors so they don’t occur again.
Project Budget
Each project should have an accurate budget. The purpose of a budget is to
provide an estimate of the profit or loss the project will make. The budget should
be as accurate as possible and should be updated during the course of the
contract to take into account any changes in circumstances or errors in the
assumptions made when the budget was first prepared.
Case study:
I started work with a new company and was given a project to manage
which had been running for two months. The budget for the project was broken
down into material, labour, equipment and subcontractor costs. Referring back
to the tender I couldn’t find how the numbers were derived. After asking several
people I finally found out that the manager had looked at the contract sum and
simply proportioned the various cost components, as he thought best. There was
no science in what he had done, and yet for the rest of the project every month
he would compare the cost report with the budget and tell me we were making
money on materials but losing money on labour. A completely nonsensical and
pointless exercise!
The budget is usually derived from the estimate for the tender. Ideally the
Estimator has accurately calculated the cost and quantities of materials, labour,
equipment and subcontractors required for each activity. In addition they should
have calculated the cost of management, supervision and overheads to manage
the project, and to all of this added profit and overheads. Using this as a basis the
Project Manager should check that these costs and assumptions are valid and
revise them to take into account any changed circumstances.

When the Project Manager plans and starts the project they may find:
1. that the Estimator has made errors, either over or underestimating the costs
2. they are able to procure materials more cheaply
3. they may decide on a different methodology which may for instance reduce
the labour costs but increase the material costs
4. the client may have added to, or reduced, the size of the project compared
with the tendered project
5. by changing the methodology the overall duration of the project may
change which affects the management, supervision and overhead costs
6. equipment that the Estimator thought was available is no longer available,
resulting in more expensive methods and equipment being used

Using a proper and accurate budget the project can obtain an accurate
measure of whether the project is making or losing money.
Of course preparing a budget shouldn’t only be an exercise to find negative
errors and to downgrade the forecast profit, but it should also look at potential
upsides so that it’s an accurate forecast. Many of the budgets I prepared for my
projects showed we would achieve a better profit than the tender – and in most
cases we even exceeded these profit expectations.
Company Budget
From the various project budgets the company should prepare an overall
budget which would also include an estimate of all the company’s running costs
and overheads which aren’t covered by the individual projects. An accurate
budget is necessary:
1. to show shareholders or owners what profits or losses to expect
2. if the company requires additional finance from lenders
3. so that owners and shareholders aren’t paid out money which may be
needed later to finance the company
4. to plan purchases of equipment
5. to ensure that there are sufficient funds to pay loans and liabilities
6. to ensure that the company’s cash flow remains positive
7. to set a target for additional work the company must win
8. to measure the performance of the company
Levels of authority and financial controls
It’s important that companies have proper financial controls in place as well
as suitable levels of authority to make purchases and payments. Without them
people are free to spend money as they decide and there’s a risk:
1. items which aren’t required are purchased
2. money is stolen
3. the company has insufficient funds available to cover operating expenses
4. the company purchases items which they cannot afford
5. payments are duplicated
6. mistakes are made when people who don’t have the experience or
knowledge are allowed to make or authorise payments

Most companies should have a clear policy of what individuals are allowed
to sign or agree. Some of these would include:
1. payment to subcontractors and suppliers
2. payment of wages and salaries
3. placing purchase and subcontractor orders
4. submitting tenders
5. submitting variations
6. signing contracts
7. authorising time sheets
8. making capital purchases

Different levels of authorisations are usually put in place which depends on:
1. the magnitude of the cost
2. what the item is
3. the frequency of authorisation
4. the level of trust with individuals
5. the size of the company
6. the person’s position in the company

Sometimes, with items of large value there may in fact be a whole process
of authorisation which needs to happen in sequence. For instance a subcontractor
payment may have to be compiled by a Contract Administrator, then checked
and authorised by a senior Contract Administrator, who then passes the payment
to the Project Manager who checks and signs it before giving it to the Contract
Director for authorisation, and sometimes, with particularly large payments, the
Divisional Manager may have to finally authorise the payment. These multiple
authorisations can be cumbersome and take time, but when large payments are
made they are particularly important to ensure that mistakes aren’t made with the
payment. Of course they are only effective if each individual actually checks the
payment, and I’ve had cases where incorrect calculations have been made and
these weren’t picked up despite the payments being authorised by three or four
different individuals.
Sometimes the authorisation process can make it difficult to operate a
business. This is particularly the case in small companies where the owner has to
authorise all payments. Often the owner is out of the office trying to secure more
work, resolving problems on a project or away on leave. When they cannot be
found to authorise a payment it may mean a supplier or subcontractor isn’t paid
on time, or even that wages and salaries aren’t paid. In these cases it’s important
that there are other individuals who are more readily available delegated to the
task.
Of course it doesn’t help the process if projects don’t submit their
paperwork on time and send payments through at the last minute. As a Project
Director I found it frustrating when payments were sent to me for authorisation
on the afternoon before they were due to be paid (or even sometimes on the day
payment was due), since I wasn’t necessarily always in the office.
It’s also important that when the person who has to authorise payments is
going to be unavailable for an extended period, or over the period when
payments normally need to be processed, they delegate other suitable people to
authorise on their behalf.
Checks and controls
In this day and age of theft and fraud it’s important to have sufficient
checks and controls in the operating systems to pick up and, more importantly,
to deter fraud.
These checks should include ensuring that:
1. the item has been received and complies with the quality requirements and
the specifications
2. the work has been carried out in accordance with the order including
supplying all quality documentation, spares, and warranties and completing
all commissioning
3. the value invoiced does not exceed the value on the order
4. deductions have been taken into account
5. the agreed discounts have been taken
6. retention is withheld where applicable
7. the correct amount of tax is added
8. the invoice hasn’t been previously paid
9. there aren’t any arithmetic errors

To facilitate some of the above it may be necessary for the appropriate

people, who have the required knowledge, to check and confirm the item has
been received and complies with the requirements of the order.
It’s also essential that the payment process is clear, so that it’s possible to
follow what the payment is for, and what deductions have been made and why
they were made. If it’s not clear it’s possible that when future payments are
made the supplier receives more money than is due, or deductions are accidently
reversed.
To enable this checking process it’s important to tie-up the order, invoice,
delivery, batch and payment numbers. Equally important is to ensure documents
are filed and stored in the correct place and sequence and are readily available
for several years in case disputes with suppliers arise later.
Documentation
It’s important that all documents and invoices are kept and filed so that the
accountants can accurately calculate all expenses associated with running the
company. Some small company owners mix their personal expenses with the
company expenses, which either means they declare less expenses than they
actually incurred, or, they end up declaring expenses which weren’t legitimate
which could expose them to being penalised when tax authorities conduct an
audit.
All documentation should be kept for a minimum of five years. Some
countries have laws requiring documentation to be kept longer (for instance in
Australia it’s seven years), and I would certainly advise that it’s kept as long as
possible. The documentation should be kept in an orderly system where it can
easily be accessed when required. The storage areas must be weather-tight, and
be checked for the presence of rodents and insects.
Case study:
I’ve had occasion where I’ve had to look for documentation that was stored
in a stifling hot sea-container. The documentation was all jumbled making it
almost impossible to locate what was required. The documents became more
mixed-up every time someone looked for another document. Furthermore, the
container wasn’t waterproof and leaked when it rained resulting in much of the
documentation being illegible and useless.
Computer records must be safely stored in a location where they can’t be
damaged by fire or heat.
There are specialist companies who provide safe document storage,
although it is advisable to inspect these premises to ensure they’re what they are
promised to be.
Fraud
Fraud is a major problem faced by most companies, much of it carried out
by employees of the company. Unfortunately most fraud remains undetected, or
if it’s detected it’s usually too late and little of the stolen money is recovered.
The best way to prevent fraud is to employ trustworthy individuals, but even
with the best reference checks and employment procedures it’s impossible to
guarantee this. Even the most trusted employees can be tempted to commit fraud
when presented with an opportunity to make easy money, or if they become
addicted to drugs or gambling, or their home and financial circumstances change
causing them to resort to stealing.
Some types of fraud include:
1. misuse of company property such as vehicles and telephones
2. charging the company for fuel or other purchases which were purported to
be for company use and weren’t, or charging for travel costs which weren’t
company related
3. using company materials and equipment for their private work (like
building or renovating their home)
4. misusing a company credit card
5. falsifying time sheets by adding additional imaginary people, or adding
extra hours for employees
6. asking suppliers or subcontractors to inflate their invoices on condition that
a portion of this is paid to the employee
7. hiring of company-owned equipment to a third party and pocketing the
payments for the item

Case study1:
I’ve known a director that built houses using people and materials from
their projects, all paid for by the company. When it appeared this practice was
condoned it made it difficult for the rest of us to ensure that others in the
company didn’t do the same thing because they saw the practice was accepted.
Case study 2:
The name of our company consisted of four initials. The person responsible
for receiving and processing payments made to the company opened a bank
account for a company they created with a name consisting of four words which
began with the same letters of our company name. When a cheque was received
in our company’s name, instead of banking the cheque in our account she
deposited the cheque in the account she created with the similar name.
Sometimes when a client phoned to ask for our company’s bank details so they
could transfer a payment directly into our account, she gave them the details of
the account she had created.
The problem was only detected because we had systems in place which
picked up the discrepancy between the actual money paid into our account with
the receipts issued. However despite her going to prison not all the embezzled
money was recovered.
Case study 3:
We used to rent houses for our employees to stay in while they were based
on a project. On one particular project we rented a property for our Project
Manager and his family. Unbeknown to us, he sent his family back to their
family home and he moved into one of the houses used for single
accommodation. He terminated the lease on the property rented for him and his
family. He didn’t inform our Head Office that the lease was terminated, but,
instead he pretended that the person letting the property had changed their bank
account and gave our accounts department details of a new account where the
monthly rent should be sent. Fortunately our accountant spotted that the new
account was in fact the same account into which his salary was paid. The
scheme ended before it had begun. However, we’ll never know where else he
defrauded the company.
The best way to prevent fraud is to ensure there are systems in place which
remove the temptation to steal and that prevent theft from occurring. There
should also be sufficient checks and controls in place to detect fraud when it
does occur so it can be stopped.

Sometimes the fraud is perpetrated by people outside the company. Some of

the more common types of fraud would be:
1. hacking into the company’s internet bank account
2. paying with fraudulent cheques
3. issuing of guarantees which don’t have the correct company name, contract
sum, date or which may in fact be fake which are then worthless should the
company need to claim against them
4. stealing cheques made out to the company
5. invoicing for materials not delivered or for work which wasn’t carried out
6. supplying substandard materials
7. double invoicing for the same item
8. not delivering the full quantity shown on the delivery note
9. charging for repairs and spare parts which weren’t required
10. charging exorbitant fees for basic services
 Apart from fraud there is the risk of common theft which is covered in
Chapter 11.
Cash flow
Negative cash flow probably causes more construction businesses to run
into financial trouble (leading to their closure) than any other cause. Even a
profitable project can cause a company financial problems if the cash flow is
negative.
Negative cash flow is when the contractor is paying money to suppliers,
equipment hire companies and subcontractors or in wages and salaries before the
client has paid for the work that has been completed.
Unfortunately most construction projects are usually cash negative to some
extent. Many clients hold 10% cash retention until the end of the project when
this is reduced by half. This means that if the project is tendered at anything less
than a 10% profit the project is usually automatically cash negative until at least
the end of the project.
In addition, most clients only pay the contractor thirty days after the
contractor submits an invoice. These invoices are normally submitted at the end
of each month. Many contractors pay their workers fortnightly or in some cases
weekly. This means as a minimum the contractor has paid out up to seven weeks
of wages before the client pays for the work that these personnel have
completed. Smaller contractors sometimes have to pay suppliers before they will
release materials.
There are, however, a number of other factors that make the cash flow
situation even worse. Many projects have payment terms longer than thirty days.
In addition some clients habitually pay progress claims late or not in full. Of
course, the ultimate knockout blow for many contractors is when clients don’t
pay at all. This could be a result of the client disputing the value of work,
defaulting on the contract or going into liquidation.
Yet, even with the odds stacked against contractors, they often make their
cash flow situations worse by submitting their progress valuations late, accepting
payments late or not claiming fully for completed work.
In my book on project management I cite an example of one company that
had completed over ten million dollars of work on a cost recovery basis but
didn’t have any of it signed off and approved. They had invoiced for only five-
hundred thousand dollars of the work. This was obviously very stupid and was
wrecking their cash flow. Most companies couldn’t carry this negative cash
flow. Yet, many companies don’t claim all the work they’ve done in the month.

To improve the cash flow situation contractors must submit their monthly
progress valuations on or before the due date. Some clients only run progress
payments on a particular day in the week, or month, so missing a submission
date could cause the client to delay payment by up to a month. The valuations
must be submitted in the required format and with the required supporting
documentation since many clients will use any excuse to delay or reject a
monthly claim. It’s important to track the progress of the payment through the
client’s payment system. With major clients there may be several people that
check and approve the valuation and payment. Sometimes, the process is
disrupted when someone is absent, or the claim simply gets ‘lost’. I’ve had more
than one client who consistently paid progress claims late, always with some
excuse about our valuation being late, the claim being incorrect (either
arithmetic errors, insufficient supporting documentation or disagreement with
our progress) and people in the approval process being absent. Of course many
of these problems were only reported to us when the payment was due, despite
the client having had the claim for thirty days.
It’s also important to ensure that all the work done is claimed in the
valuation.
Often the monthly valuation is due, say, on the twenty-fifth of the month
which normally means the contractor prepares it on about the twenty-third, while
the valuation is actually for the full month. This means that about a week’s
worth of work is carried out after the claim is prepared. Often clients will accept
that a forecast of the expected work in the last week is included in the valuation.
Obviously the contractor has to be reasonably sure that this work will be
completed because if it isn’t, and the claim exceeds the actual work done, there’s
a possibility the client will reject the valuation in its entirety, which would delay
the payment.
With some clients it’s possible to add a few extra days of progress into the
valuation because by the time they actually review the claim (which may be
several days after the valuation was submitted) the extra work has been
completed.
Some contracts are structured such that payments are only made when the
contractor achieves particular milestones. It’s important that Project Managers
understand what these milestones entail and ensure they are met. It’s obviously
pointless to achieve 99% completion if payment is only made for 100%. Often
contractors take several weeks to complete the last few items (which may just be
completing documentation), which delays payment.

As mentioned, retention monies held by the client impact a contractors’

cash flow considerably, and yet, many contractors fail to recover them as soon as
they can. For retention to be released contractors must fulfil certain obligations
in terms of the contract which includes handing over the works as well as
submitting various documents (such as quality documents, as-built drawings and
guarantees) and completing all punch list items. It’s vital that these obligations
are met as soon as possible to enable the release of the retention, as well as to
enable the warranty period to commence which will culminate in the release of
the final retention. It’s then important to track the warranty period, and
timeously request that the client undertake the final inspection at the end of this
period, thus enabling the release of the final retention.
Many clients don’t pay for materials which aren’t fixed in place on the
project. Clearly these materials (particularly large value items) should be kept to
a minimum and only delivered to the project when they’re required to be built in.
This is sometimes difficult to control, and if there are delays with the delivery it
can result in the project being delayed with costs which far outweigh the benefit
to the cash flow of receiving the materials ‘just-in-time’. Where possible
contractors should build in large expensive items before the monthly claim is
submitted. Deliveries can also be planned so that they arrive at the start of the
month rather than the end of the preceding month.

Contractors can do many things at the time of preparing the tender to

improve their cash flow such as:
1. checking that the client can meet their financial obligations on the project
2. researching whether the client is known to pay the full value of the monthly
valuations on time
3. negotiating more favourable payment terms which may include:
1. paying the valuation within a shorter period than stipulated in the
tender
2. being able to submit invoices at an earlier date or more frequently
3. the client withholding less retention
4. payment for unfixed materials on site
5. reducing the amount of retention withheld
6. replacing the retention money with a surety bond
7. asking the client to provide a payment guarantee which could ensure
that if they got into financial difficulties the contractor could claim
against it
8. requesting the client to make an advance payment (particularly to
cover the purchase of major items of equipment or material)
9. structuring the tender in a manner that a larger portion of the project
overheads are paid at the start of the contract, or that work done earlier
in the project has a higher value than work done later (I’ve run many
 contracts with over-claims running in excess of a million dollars just
by structuring the tender correctly and ensuring that our monthly
progress valuations were maximised)
4. requesting the client release retention money earlier by:
1. shortening the duration it’s held
2. releasing it in tranches as milestones are achieved
5. reducing the value of the guarantees
6. allowing the guarantees to be released earlier or when the important
milestones have been achieved

Variation work often negatively affects the cash flow.

Case study:
One of my contracts had a tender value of eight-hundred thousand dollars.
However, in the course of the project we submitted numerous variations because
the scope increased. We also encountered rock which wasn’t allowed for, and
the client consistently delayed the project because they provided access and
information late. We submitted all variations timeously during the course of the
project and eventually the value of the contract was nearly two million dollars.
Our client, nonetheless, consistently refused to deal with these claims, which
meant they didn’t issue the required variation orders and consequently we
weren’t paid for these variations. Only after we took legal action did our client
eventually agree to consider our claims. We finally agreed on a final contract
value of one million six-hundred thousand dollars which was double the original
contract value. The delay by the client in agreeing the value of the variations
meant we were paid nearly six months after most of the work was completed –
which had a crippling effect on our cash flow.
Even with a more responsive client the contractor can wait several months
to be paid a variation since many clients have to go through a process to approve
them and issue the amended order. In some cases, the variation may result in the
client’s approved contract value being exceeded, which may require them having
to apply for additional project finance – causing further delays. It’s therefore
preferable that contractors don’t undertake variation work until a variation order
is in place. To pre-empt problems the contractor must notify the client
immediately a variation is noticed. These variations should be priced
immediately and the client urged to agree a value and issue the appropriate
variation order as soon as possible.
When undertaking work which is re-measurable, if the contractor isn’t
vigilant, they may find that the contract is complete and only when doing the
measurements and settling the final account realise that the quantities have
exceeded the tender quantities resulting in the contract value being exceeded.
Therefore, contractors should ensure drawings are measured as soon as they are
received and the client timeously advised if there’s a chance the contract value
will be exceeded.

Payment terms of subcontractors and suppliers also affect cash flow. Where
possible, contractors should negotiate terms of thirty days or more. However,
whatever happens, the contractor must ensure suppliers and subcontractors are
paid in accordance with the conditions of their respective orders and contracts.
Late payments not only result in the contractor losing payment discounts, but
can also lead to a breach of contract. In addition, once a contractor gets a
reputation of paying late it’s difficult to negotiate more favourable payment and
financial terms with suppliers in the future. It’s important for contractors to build
a reputation with their suppliers and subcontractors of paying fairly and on time.
Don’t trade on over-claims – but do over-claim
Where possible the contractor should claim for as much work as possible in
the interim valuations as it’s always better to have money in your bank account
than in the client’s and it improves the project’s cash flow. However with any
over-claim it’s important that when the cost report is compiled the revenue in the
report is adjusted to remove the effects of the over-claim so that the cost report
doesn’t produce a false result.

Case study 1:
One company I worked for had a number of projects that were showing
healthy profits. However, as the projects progressed, these profits evaporated,
with many turning into losses. So what was the problem? Well, the cost reports
had merely compared the costs with the monthly valuations. These valuations
were grossly inflated, yet, no adjustments were made in the reports for these
over-claims. The dramatic reversal in fortunes was because towards the
projects’ end the client’s valuations were less than the costs incurred because
the Project Manager had previously already claimed revenue for work which
wasn’t yet executed.
Case study 2:
Another project I worked on was not achieving the budgeted profit so the
Managing Director insisted that we factor in additional revenue from claims we
would lodge against the client and the subcontractors. This obviously caused
problems when some of these claims didn’t eventuate.
It’s dangerous to assume the client will pay for a variation or claim
because:
1. the client may not approve the variation
2. the client may find errors in the variation and only pay part of the claim
Tax
Unfortunately all companies have to pay tax if they make a profit (unless
based in a tax free haven). There are different taxes that have to be paid at
different times which vary between regions and countries. Some of these taxes
include:
1. tax on the company profits
2. payroll tax
3. GST or VAT
4. tax deductions from employees’ wages
5. local rates or taxes on properties
6. special taxes

Failure to pay these taxes on time may result in penalties.

It’s best to obtain expert advice so that the company is structured to
minimise the amount of tax, to maximise deductions (such as for depreciation),
and to claim for subsidies or payments (such as for training and employing
apprentices).
Tax can become complicated when working in different states and countries
and the company needs to have a good understanding of how the tax regime
varies between the countries to ensure the correct tax is paid on time and also
that tax isn’t paid twice. Some of these countries may even have different tax
year ends.
On occasion investment advisors and accountants invent intricate and
complicated plans for avoiding tax. Care needs to be taken with these schemes as
many aren’t legal, while others simply defer the tax liability to another year.
These schemes often cost more money than they’re worth, and many are risky
and nothing but a ploy to defraud the company of money.
Joint ventures
Sometimes two or more contractors form a joint venture, combining their
resources to construct a project. For all intents and purposes the joint venture
operates as a separate company in which each of the contractors owns a share
(which is in accordance with their percentage participation in the joint venture).
A new company, in the name of the joint venture, is usually registered for tax
purposes with its own bank account. The joint venture is normally run by an
executive committee made up of representatives from the different parties and in
accordance with the joint venture agreement.
The committee meets monthly to review progress, cost reports and bank
statements, and to take decisions regarding capital expenditure, investment of
surplus funds, the payment of profits and the distribution of assets at the end of
the project.
Each company invoices the joint venture for staff and personnel they have
seconded to the project as well as for their equipment hired to the joint venture.
These invoiced amounts should either be at predetermined and agreed rates or at
their proven costs.
The joint venture normally places orders, in the joint venture’s name, with
subcontractors and suppliers, and then pays for the work done.
The joint venture will be audited and be required to pay taxes as any other
company would.
Only once the joint venture has settled all its liabilities and the project
reached the end of the defects warranty period can the joint venture company be
wound up and closed down.
Save for the lean times
Construction is a very cyclical business, experiencing years when there’s
sufficient work (sometimes even too much), followed by years when there’s
insufficient work and lower profit margins. It’s not only important that
contractors are able to adapt to these lean times, but they also need to have
sufficient funds to cover their recurring payments as well as to cover their
operating cash flow requirements.
I’ve seen contractors in good times go out and purchase new equipment,
offices and vehicles and pay their directors and owners large bonuses and
dividends. Unfortunately, these same companies often ran into financial
difficulties when the construction market became difficult and they were unable
to pay for the extravagant purchases they had made, they had insufficient work
for the new equipment or had to reduce their staff complement making the extra
space in their new office redundant.
Summary
To be able to operate effectively construction companies need to be
financially sound. This not only entails making a profit on all their projects but
also means they must manage their cash flow so they have sufficient funds to
pay their ongoing expenses.
In order to manage their financial position properly contractors should:
1. prepare regular cost reports for each project
2. have suitable financial controls and levels of authorisation in place
3. implement measures to prevent and detect fraud
4. prepare cash flow forecasts for individual projects as well as the company
as a whole
5. seek ways to improve their cash flow
6. find the causes for losses and take action to prevent further losses and to
recoup the money lost
7. prepare project budgets
8. prepare a budget for the company
9. get expert advice to minimise tax but always ensuring that their tax affairs
are up to date and are within the legislated guidelines
10. file documentation correctly and store it where it’s easily retrievable and
won’t be damaged
11. take care when setting up joint ventures to ensure that there are proper
agreements in place between the partners and that the finances of the joint
venture are kept up to date and comply with legislative requirements
12. ensure that the company has sufficient funds to cover the lean times
Chapter 9 – Contractual
Larger clients issue the contractor with a contract which is used to govern
the project. Unfortunately some contractors don’t read these contracts which
could result in:
1. the contract being heavily biased in favour of the client
2. the contractor not performing the work in accordance with the contract
3. the contractor binding themselves to contractual conditions which they are
unable to fulfil
4. the contractor not ensuring that the client fulfils their obligations under the
contract

Failure to read, understand and comply with the terms of the contract often
results in:
1. the contractor failing to claim their entitlements in terms of the contract
2. the contractor forfeiting their right to claim
3. expensive and lengthy legal disputes

When dealing with smaller clients such as home owners, contractors

usually use their own form of contract which they issue to the client. In many
countries there are standard forms of contract which can be used for this
purpose. When issuing a contract to a client it’s important to ensure the contract
is:
1. appropriate to the type of work (for example it’s usually inappropriate and
unnecessary for a contractor constructing garden paving to issue the
homeowner with a twenty page legal contract)
2. clear and unambiguous without contradictory clauses
3. is fair and reasonable
4. legally binding

When drafting contracts there’s always the temptation to overcomplicate

the contract, or to delete clauses and insert new terms and conditions which may
be more onerous to one of the parties. When this happens it can result in clauses
being contradictory, even making the contract unenforceable.
It’s good practice to obtain appropriate legal advice when drawing up
contracts or signing them.

What is a contract?
The contract is an agreement between the client, who contracts to pay for
certain work, and the contractor who agrees to perform the work. It’s there to
protect both parties and sets out their respective rights.
The contract should include the following:
1. signatures of the authorised representatives from all parties
2. the names and addresses of the contracting parties
3. include a scope of works or reference to drawings
4. the location of the project
5. the date when the contract comes into effect
6. the tender sum or value
7. milestone dates or a schedule (or reference to a schedule)
8. payment terms and conditions
9. reference to the tender documents (if these form the basis of the contract)
10. include the contractor’s exclusions that were made in their tender
submission (if these were agreed to by the client in the tender negotiation
process)
11. the responsibilities of the various parties
12. specifications (or refer to specifications)
13. the defects and warranty periods
14. procedures for submitting variations
15. penalties or liquidated damages (their quantum, when they will be applied
and, if applicable, a maximum value)
16. a termination clause
17. dispute resolution procedures
18. definitions of the terminology used
19. particular conditions applicable to the project site (such as wage
agreements, working hours, restrictions on access to site, security, safety,
environmental concerns and the use or protection of existing or
neighbouring property)
When does a contract exist?
For a contract to exist there must be a formal offer which must be accepted
in an unequivocal way. (In other words if a painter submits a quote for painting
a house and the homeowner tells the painter he likes the price it doesn’t mean
the homeowner has accepted the painter’s price and appointed them to do the
work. For a contract to exist the homeowner would have to say something to the
effect that they accept the quote and would like the painter to undertake the
work).
The contract can be verbal, which can be as legally binding as a written
agreement, though, a verbal agreement is often problematic since it’s difficult to
prove what was said and agreed.
An offer can be withdrawn before it’s accepted provided that the
withdrawal is explicit and is preferably in writing. (To use the same example
above it won’t be good enough if the painter submits the quotation and in later
discussion with the homeowner says he’s not sure if his price is correct, rather,
the painter needs to formally state they’ve submitted the wrong price and are
withdrawing their quotation.) Sometimes clients include clauses in their tender
documents which prevent the contractor from withdrawing their price once it has
been formally submitted.

In certain cases a contract may not exist if for example:

1. one of the parties is; a minor, mentally impaired, bankrupt, a prisoner, or
under duress or unfair influence
2. the agreement includes false statements
3. the contract is fundamentally flawed
4. one of the parties knowingly causes the other party to commit an illegal act
5. there’s a condition precedent (for example the client states they need to find
finance for the work and they are unable to do so)
6. an act of God makes it impossible to carry out the terms of the contract (for
example a builder is contracted to renovate a house but before they start the
house burns down)

It is, nevertheless, important to be familiar with the laws governing the

contract as these differ between countries, impacting on whether the contract is
legally binding.
The legal basis of the contract
The laws governing the contract vary from country to country and aren’t
always the laws of the country where the project is located. Often clients or
managing contractors are based in a different country and elect to use the laws of
their home country. The laws and legal systems may be unfamiliar to the
contractor and disputes may have to be referred to the judicial system in that
country, which will require the contractor to travel there to pursue their claims.
As discussed in Chapter 3 it’s preferable during the tender stage to get the
client to change the legal basis of the contract to one familiar to the contractor.
Failing this it may be appropriate to obtain legal advice from a person familiar
with the legal system specified in the contract.

The same contract – but is it?
Contractors often become familiar with particular contract conditions, or
repeatedly work for a client using the same contract conditions. It’s however
important to read each contract carefully, because contract conditions can often
appear the same, but, there may be a subtle rewording of clauses which impacts
the way the contract is read and administered.
Memorandum of understanding
A Memorandum of Understanding (MOU) is sometimes used as a first
stage in establishing a contracting relationship between two or more parties to
indicate a common line of action. A MOU can be legally binding providing it:
1. is signed by the parties
2. clearly identifies the subject matter
3. identifies the intention
4. there’s an offer and an acceptance

In addition the MOU would normally identify a way forward to establishing

a formal contract.
A MOU can be useful to clients and contractors when negotiating projects,
or trying to resolve disputes, and it serves as an important method to summarise
progress made at a meeting.
Letters of intent
Sometimes the client hasn’t completed preparing the contract documents
but is in a hurry to get the contractor to start work. In this case they may issue a
letter of intent, or similar document. These documents are often only a couple of
lines long and offer the contractor little protection if things go wrong.
In general I would prefer not to start work without a contract since it’s
usually difficult to negotiate changes to the contract once the contractor is
already on site and spending money.
If a contractor has to work with a letter of intent then the letter should:
1. be signed by an authorised representative of the client
2. be signed and acknowledged by the contractor
3. be dated
4. have the correct names of the contracting parties
5. refer to the tender conditions
6. refer to the contractor’s tender submission
7. refer to a scope of work
8. have the payment terms and conditions
9. include a termination clause
10. refer to a contract schedule or milestone dates
11. include a date by which the contract document will be issued to the
contractor

Some Letters of Intent have a set value or are only valid for a specific time
period, so it’s important to ensure these values or dates aren’t exceeded since the
contractor may find that they aren’t paid for work carried out in excess of that
specified.
Payment guarantees
Sometimes the client is required to submit a payment guarantee to the
contractor. The contractor should check that:
1. the guarantee is received before starting work
2. it’s made out in the correct names of the contracting parties
3. the wording is such that the contractor is able to call in the guarantee if
required
4. they don’t exceed the value specified in the guarantee
5. the work doesn’t run beyond the dates specified in the guarantee

These guarantees must be kept in a secure place.

Should the contractor have to call upon the guarantee for payment they
must ensure that they follow the correct procedures.
Check contract documents
Before signing the contract ensure that:
1. the document is the same as the tender document including checking that:
1. no clauses have been altered (unless these alterations have been
agreed)
2. the drawings included, or referenced, are the same as those in the
tender including the same revision number
3. no new drawings have been added
4. the specifications are the same
2. the price is as per the tender and includes all post-tender variations
3. the exclusions in the tender submission are included
4. the schedule is in accordance with the agreed dates

I’ve often received documents that had different conditions to those agreed.
Even minor alterations to clause wording can drastically alter the meaning and
intent. Failure to detect these alterations could result in the contractor
committing to undertake work that they’ve not priced or to conditions they
haven’t allowed for.
In addition the contract document is often signed weeks or even months
after work started so it’s important that the document takes cognisance of all
delays or variations that occurred up to the date of signing.
Documentation
Correct and accurate documentation is vital on any project, particularly
should a dispute arise or when submitting a variation.
Documentation which can become important is:
1. photographs showing progress, variations and completed work
2. minutes of meetings with clients and subcontractors
3. daily diaries
4. correspondence
5. information requests
6. drawing registers
7. drawing issue receipts
8. site instructions
9. notifications
10. the contract schedule
11. progress updates
12. the signed contract document
13. the tender (including the submission, correspondence, schedule, drawings,
specifications and the post-tender meeting minutes)
14. approved day-works sheets

This correspondence should be consistent since I’ve often found, for

instance, project staff enter one thing in the daily diary and then report
something else in the weekly report. Claims or variations may fail because of
lack of supporting documentation or when there are inconsistencies within the
documentation.
Guarantees and warranties
Often contractors incur additional costs when items breakdown within the
contract guarantee period because:
1. the warranty for the part has expired even though it’s still within the
contractor’s guarantee period with the client
2. the part hasn’t been stored, transported, installed or operated in accordance
with the instructions
3. someone other than the approved contractor has carried out repairs

Guarantees and warranties must be checked to ensure that:

1. they are valid
2. apply to the item and provide the required cover
3. the guarantee period is sufficient
4. the installation, servicing and repair conditions specified in the guarantee
aren’t violated

Guarantees and warranties should:

1. be collected as the project progresses and be kept in a secure place
2. have the original handed over to the client with the handover
documentation, and the client should acknowledge its receipt
3. have a copy kept in a file after the project is closed
Disputes
Disputes should be avoided as they:
1. are time consuming
2. can damage the contractor’s reputation
3. damage the relationship between contractor and client
4. they are costly especially when they become legal
5. they may end poorly for the contractor who doesn’t receive the full value of
their claim

Where possible disputes should be avoided by ensuring:

1. there’s a legally enforceable contract in place
2. the contract offers protection to the contractor
3. the contract is well written and doesn’t have conflicting clauses or
contractual loopholes
4. the contractor understands the contract and complies with its provisions
5. the contractor communicates with the client and their subcontractors
6. the contractor submits and resolves variations as soon as practical
7. accurate records are maintained
8. there’s a willingness to talk and negotiate
9. personalities and emotions are kept out of the dispute
10. the contractor admits when they’re wrong
11. the consequences of escalating the dispute are weighed up carefully since
the costs of legal action may be more than the outcome is worth
12. expert advice is sought when necessary
13. the contract is administered in a spirit of honesty and cooperation by all
parties

Unfortunately disputes which cannot be resolved do arise and then it’s

important to follow the dispute resolution process stipulated in the contract. Only
as a last resort should you proceed down the legal route. Having said this,
though, do not hesitate to ask for a legal opinion or for advice.
Sometimes a dispute is unavoidable, but I have generally found that 99% of
variations and claims can be amicably settled without going down the dispute
resolution process.
Managers need to be aware of disputes and problems on a project so they
can take the necessary action and intervene if required to avoid the problem
escalating.
Dispute resolution
There are various options to resolve disputes:
1. The cheapest and easiest is to negotiate with the individuals involved with
the project, which may require some compromise from the parties.
2. If negotiation fails the dispute should be referred to the parties’ senior
managers. Often the problem is a result of a clash of personality or
someone’s incorrect interpretation of the contract, and managers can often
resolve the issue when these obstacles are removed.
3. If the owner of the facility isn’t party to the dispute they can sometimes be
approached to assist in resolving the dispute.

The contract document often dictates the dispute resolution process to be

followed when negotiations fail. This route could include one or more of the
following:
1. Mediation, where an independent mediator is appointed to bring the parties
together to discuss and resolve the problem.
2. Arbitration, where an independent arbitrator is appointed to hear evidence
and then make a ruling on what they believe is the correct solution.
Arbitration is usually not binding.
3. Litigation, which tends to take a more legal approach with the process often
focussed on the legal rights of a party, without necessarily understanding
the project and the impact that the various parties’ actions had on the
construction processes and schedule.

Arbitration and litigation can be drawn out processes, often taking several
years to resolve. They are also costly and may not provide the answer either
party was expecting.
Some projects require a dispute resolution board to be appointed at the start
of the project which is usually made up of three members (one chosen by the
contractor, another by the client, and the third by these two members). Both
parties are usually responsible for the costs of the board. The board usually visits
the project monthly and they can thus become aware of issues and problems as
they arise. Should a dispute arise it’s passed to the board for a ruling.
Terminating a contract
Terminating a contract either with a client, a subcontractor or supplier must
be done with care. Termination should be used as a last resort since it’s usually
costly and disruptive to the project.
Before terminating a contract:
1. ensure that the other party is in default
2. seek legal advice if there is any doubt whether the contract can be
terminated
3. check that there aren’t other alternatives such as providing assistance to the
defaulting party or reducing their contract scope
4. if possible put alternative solutions in place
5. don’t take steps which may put your company into default
6. carefully consider both the advantages and disadvantages of terminating
because the disadvantages often outweigh any benefits of termination
7. follow the correct procedures when notifying the defaulting party,
including:
1. providing adequate notice in terms of the contract which gives the
defaulting party a chance to rectify the problem
2. ensuring the notice is addressed to the correct person, using the correct
address, and that it’s received by the other party
3. implementing the applicable steps required in the contract

Unfortunately in many instances termination is implemented too late to

influence the course of the project.
Joint venture contracts
Before submitting a tender in the name of a joint venture it’s important to
first seek permission from the client. Some clients may not consider a joint
venture if they believe that one of the partners isn’t suitable for their project.
A joint venture agreement needs to be drawn up and signed by the parties.
This agreement should:
1. set out each partner’s share in the project
2. nominate who will lead the project
3. how the project will be managed and administered
4. what each partner will contribute in the construction process and how they
will be recompensed
5. how risk will be shared
6. how the joint venture will be funded
7. who will supply the project insurances and bonds
8. the process for distributing profits or funding losses
9. the process for resolving disputes
10. the make-up of the executive committee who will run the joint venture

A joint venture is like setting up a separate company and it needs to be done

correctly.
Summary

1. It’s important that there is a contract in place because it protects both the
client and the contractor, setting out their rights and obligations.
2. Failure to read and understand the contract could lead to expensive and
lengthy disputes.
3. A contract exists when an offer is made by one party and accepted by
another.
4. Some clients issue letters of intent to contractors while they are preparing
the contract documentation. Contractors need to check these carefully to
ensure that they are adequately protected and they should ensure that they
don’t exceed the provisions in the letter.
5. Payment guarantees must be checked to ensure that they are correct and
allow the contractor to claim against them should the client not pay for
work done.
6. Guarantees and warranties should be checked to ensure that they offer the
required protection and to check that the contractor complies with their
conditions.
7. Disputes can, in most cases, be avoided if there is a well-constructed
contract in place, which the contractor understands and complies with, and
if the contractor communicates with their client and subcontractors,
maintaining accurate records and resolving variations as they occur.
8. When a dispute arises the contractor must follow the dispute resolution
procedures set out in the contract.
9. Terminating a contract should be done as a last resort after other courses of
action have failed. Care must be taken that all the correct procedures are
followed.
10. Joint ventures must be set up carefully and there should be a joint venture
agreement in place between the joint venture partners.

Chapter 10 – People
Every company depends on people. Even a one person company will
outsource some work, with someone preparing their financial accounts and tax,
others to assist with legal issues, and, if the intention is to grow, there will
eventually be other employees. There’s no truer statement than the one which
states ‘you are only as good as the people that work for you’. I might also add
this includes the people that work with you, and, for whom you work.
Construction is a complex and changing process that requires people to
change and evolve to suit different projects, clients, locations, challenges and
complexities. But to make it more difficult it experiences an inconsistent
workforce which varies between regions and cultures. In fact, there are probably
few industries that employ people from such a diverse range of cultures, ages,
economic means and educational backgrounds, expecting them to work together
to successfully deliver a project. To complicate matters further, the workforce is
changing, and many cultures and young people have a different work ethic and
loyalty from what the norm was a few years ago. Although the processes in
construction have remained relatively unchanged for hundreds of years, they are
now changing, with new technology, different client requirements, complex
regulations and innumerable legislation matters, which often place more
emphasis on paperwork and rules than ever before.
In developing and developed countries construction is often viewed as a
less attractive vocation than other careers, resulting in a limited pool of skills
being available to undertake complex projects. To make matters worse many of
the projects are in remote locations and many have unattractive working hours.
The key for any contractor’s success is its ability to employ suitable people
and retain them, managing them to maximise their worth to the company.
Therefore every manager has to understand people, their cultures and
backgrounds, and be able to work with them using their strengths, and assisting
them with their weaknesses.
Employ the right people
The most important step in having good people is to employ the right
people.
1. They require knowledge and experience to perform the tasks expected of
them. (An experienced building Supervisor is possibly not best suited to
supervise the construction of a road.)
2. They need to fit in with the culture of the company and must ascribe to the
company’s values. (It’s pointless for the company to set high standards for
safety and quality, and then employ a Supervisor who is unconcerned with
these values. They may have all the experience and knowledge for the
position, but they will destroy the company’s reputation in no time.)
3. They should be willing to work in the regions and areas in which the
company operates in. (I’ve seen many personnel unhappy because they’ve
had to relocate their family, or had to work in areas far from where they
live. Yet, there are individuals who enjoy working in these regions and
others who are willing to relocate their families to remote areas.)
4. They must have aspirations which the company can satisfy. (Everyone has
different aspirations and not all companies can meet these. Failure to fulfil a
person’s aspirations eventually results in them becoming unsatisfied and
unhappy.)
5. Construction is a people business and everyone should be able to
communicate and work with others.
Remuneration
Have you heard the saying ‘pay peanuts and you get monkeys’? Well
believe me it’s true, so it’s important that the company pays a market related
salary, that will attract the right people, and one which is also fair and
sustainable.
Most employees look around and compare their packages with what they
can get elsewhere, so it’s important to do market research to ascertain what other
companies are paying. In certain circumstances, with exceptional individuals
worth a lot to the company, you may have to even consider paying more than the
market value. However, this can later cause problems resulting in these
individuals receiving lower increases than the rest of the staff.
Companies don’t have an unlimited amount of money to pay inflated
remunerations, and excessive salaries can quickly become unsustainable,
eventually making the company uncompetitive or unprofitable.

Remuneration should be reviewed at least once a year and increases should

depend on:
1. the individual’s performance
2. the average increases in the rest of the industry
3. the availability of skills
4. if the person’s role has changed
5. what the company can afford to pay (although care should be taken with
this statement because as I’ve said a company depends on good people and
their loss may make the company even less profitable)
6. what the company can pay without affecting its competitiveness
7. the person’s pay relative to others in the company doing the same work
8. what the person contributes and their worth to the company
9. whether the individual has had a long enough service period to warrant an
increase (letters of employment should specify the time within which a
review will be undertaken)

I’ve generally avoided giving one large increase, rather splitting it into a
couple of incremental increases.
Pay increases cannot be undone since it’s almost impossible to give a
person a decrease in salary.
It’s also difficult to undo the damage when a person received an increase
that was too small since:
1. people can become demotivated which could affect their performance
 2. they start looking for alternative employment opportunities, and once they
have decided they are leaving it can be difficult to change their mind

Generally, wherever possible, senior management should personally

explain to each employee how their salary has been reviewed, providing the
reasons for a low increase or congratulating them on their effort which resulted
in them receiving a larger increase. It’s often difficult for someone to assess their
salary increase by just looking at their payslip, or bank account, because taxes
and deductions usually have a dramatic impact and negatively distort the size of
the increase.
Sometimes salary packages need to be structured in a way that will
incentivise and reward employees, as well as providing tax benefits. Most
companies allow employees some flexibility as to how they want their packages
structured. A structure that suits a younger person may not be suitable to an
older person who could, for instance, want to contribute more to their retirement
funding.
Bonuses
Bonuses are an important way to remunerate and retain staff because they
can be rewarded in proportion to their efforts and the company’s profits.
There are disadvantages to bonuses, one being that when the company
doesn’t make a profit employees don’t receive a bonus, causing discontent. In
some cases, the person may have worked hard and had a profitable project while
the company as a whole lost money due to other poorly performing projects. In
fact, most people expect their bonuses to be the same, or even more, than the
previous year’s bonus, so a decrease can lead to unhappiness.
Furthermore, when a person calculates their annual remuneration and
compares this to packages offered by other companies they seldom factor in the
bonus they receive, even if these are a regular occurrence. I worked for many
years with a company that paid extraordinarily large bonuses every year. We
were fortunate in that the company’s profits grew every year for twenty years so
bonuses did increase every year. The question to ask is; was the success of the
company due to the bonuses? I believe to a certain extent this was the case. The
size of the bonuses probably never attracted an individual to work for the
company, but it probably helped retain staff, making them feel special and part
of the company, striving to make it more successful.
One word of advice on awarding bonuses; it’s good practice for a senior
manager or the business owner to personally inform each individual of their
bonus and to thank them for their effort. This generates far more good will than
the person just seeing numbers on their payslip. Having said this, it’s just as
important when a bonus is reduced, or remains unchanged, that the same
manager explains the reasons for this which may include substandard
performance.
Share schemes
Share schemes are a good way of enticing employees to stay with the
company. Share options or schemes are when an employee is promised shares in
the company which they can purchase only in three or five years’ time, but at
today’s price. If the company grows and is profitable the share value should
increase during this time, meaning that the employee has a windfall of the
difference in the share price at the end of the period compared with the price at
the time the share was promised to them. In addition, the individual is paid the
dividends the shares earn in this period which can be used to pay for the shares.
Of course this assumes that the company’s share price has increased in value
over the period. If the share price in fact goes down the employee doesn’t have
to complete the transaction, meaning that they aren’t at risk of losing money –
they just don’t make anything.
A major advantage of the share scheme, aside from the monetary aspect, is
that the employee feels part of the company. If they work hard and the company
prospers they can usually see a direct correlation in the value of the shares they
own. (Unfortunately the share price isn’t totally dependent on the hard work of
individuals and the success of the company, but it is affected by events in the
country and the world which influence the prices of all shares.)
Another advantage is that the person is often less likely to leave as the time
draws closer for them to exercise their share options because often the windfall
from owning the shares outweighs any monetary advantages of moving to
another employer.
Disadvantages are that if the company is very successful and the value of
the shares goes up significantly the number of shares that the company can
afford to give away reduces. Furthermore the company has only a limited
number of shares to work with and when these are gone it’s difficult to issue
more.
Unfortunately in many countries the tax authorities have clamped down on
share schemes and the tax advantages are no longer available.
Share schemes can work well in public companies, but not as well in
private companies where there may be restrictions on who can purchase shares
and it may also be difficult to calculate the value of the shares.
Other rewards
In this competitive world it’s impossible to retain people solely by paying
higher salaries than competitors. Firstly, people only interested in money are
mercenaries who will happily move from one company to the next for a few
extra dollars, leaving you to find a replacement. Secondly, paying the highest
salaries isn’t always sustainable and could end up making the business
unprofitable. Furthermore, there will always be another contractor, desperate for
good people, who will willingly pay a premium to entice skilled people for a
particular project. It’s not to say that salaries aren’t important, and you should
always ensure that salaries paid are market related – they just don’t have to be
the highest.
Therefore it’s important that people are attracted to the company for
reasons other than salary. It’s equally important to retain good people. There are
different ways of doing this.
Make individuals feel part of the business by regularly communicating with
them, discussing the company’s future plans and where they’ll fit into these
plans, thanking them when they have done a job well and making them feel
wanted.
Many years ago I remember reading about a tennis tournament whose top
prize was a luxury motor car. The tournament attracted more top players than
tournaments that offered cash prizes of similar value, or even higher. It’s a bit
like that in the working environment. Give a person a five thousand dollar bonus
and the money goes straight into their bank account where it’s used for
groceries. The bonus has literally not impacted the person’s life. But instead,
reward them and their partner with a one week holiday at a luxury resort and
they’ll probably remember it for many years afterwards. More importantly, their
partner suddenly appreciates the company and probably won’t be so upset when
long hours have to be worked. Unfortunately, in most countries the bonuses and
week-long holidays attract tax.

It’s often the little things that attract people and it’s important to understand
what motivates and attracts people since what appeals to a young person freshly
out of university is usually not what appeals to a mother with a young family, or
to an older person. It’s impossible to satisfy everyone, and it’s also difficult to
meet people’s expectations without creating precedents for other employees.
However, some items to consider are:
1. mobile phones and smart phones
2. the use of company vehicles
 3. personal computers
4. flexible work-hours
5. additional annual leave
6. structuring pay packages to suit the person’s needs
7. allocated parking spaces at the office
8. crèche facilities
9. business cards (don’t underestimate how important a business card can be
because I knew a senior Project Manager who left the company he was
working for and one of his reasons was he was never given a business card)
10. the layout of offices and desks
11. job titles (we don’t want to be creating new job titles just to satisfy an
individual’s ego, but job titles should be similar to other companies in the
industry)

Unfortunately construction projects don’t always allow for some things,

particularly with regards to flexible working hours.
Bear in mind that with younger employees it’s not just good enough to
provide them with a computer, mobile phone or company car, but it’s also
important that it’s the one that is currently in fashion and with the latest
technology.
Company functions are an opportunity for employees to get to know each
other outside of the working environment. I remember the first time that the
company invited me to an international rugby match and how grateful I was for
the opportunity. Of course with all functions it’s important not to offend those
who aren’t invited as there are often a limited number of tickets, or spaces
available.
Leave and time-off
I was never happy granting leave but I seldom refused it unless the person
had already used more than their leave entitlement. People who take leave
frequently are usually more refreshed and happy, and it generally makes their
family contented as well.
People should be encouraged to take leave owing to them and they should
be discouraged from accumulating it or being paid out for it.
For certain individuals, additional leave may work as a better incentive than
a bigger salary.
Motivation
All of the incentives above go some way to motivating employees to do
their job, to do it well and to be loyal to the company. However, for a company
to be really successful it needs to have employees who are passionate about their
jobs and the company, always taking pride in their work.
Part of achieving this is about employing the right people in the first place.
Furthermore, the company needs passionate, enthusiastic and knowledgeable
managers who will inspire their employees. It’s also about keeping individuals
motivated and interested in their work which is done by training them, providing
new challenges, using them in ways that keep them happy and where they are
best suited.
Promoting people
People must be promoted for the right reason.
1. Positions shouldn’t be created around people or personalities but should be
based on what is best for the future of the company. I’ve worked for
companies that have created new positions simply to keep an individual
happy and to stop them leaving. These positions weren’t necessarily
required, and in some instances the individuals weren’t even suitable for the
new roles.
2. People shouldn’t be promoted into positions they are unsuited for which
often happens when:
1. there isn’t a suitable person to fill the post
2. managers try to satisfy an employee’s aspirations
3. the company tries to retain an employee who is threatening to resign

This can be harmful to the individual as well as to the company.

3. Promotion shouldn’t be delayed because the company fears offending other
personnel. If it’s right for the individual and the company, then promoting
the person should proceed and those that may be negatively affected by the
promotion may have to be counselled and have the rationale for the
promotion explained.

However, it’s often difficult to explain to employees why they haven’t been
promoted, especially when they see a colleague promoted to become their
manager. Sometimes employees have really performed well, deserving
promotion, but there are only a limited number of positions available. On the
other hand, employees may well be unsuitable, although they probably disagree
and have their own expectations. These discussions need to be done sensitively
to ensure that the individual is retained within the company and maintains their
focus and reliability.
Conversely, there’s always the risk that someone isn’t promoted because
they are just too useful doing what they are currently doing and there’s no one
suitable to take their place. This is obviously unfair to the individual and
probably not good for the company in the long term.
Mentor, train, and develop
Regrettably there’s often a shortage of skilled trained people and the only
way to have these people is to develop them internally. I worked for a company
that had huge success with employing young graduate engineers and growing
and developing them so that many eventually became directors of the company.
This strategy ensured the tenure of most employees was long, which meant that
many of the senior staff had grown up with the company and understood the
company systems and procedures, but more importantly, they understood the
values and policies of the company and were in fact part of the company’s
culture.
Training and developing people is one way of retaining employees because
they realise that the company is interested in them and that there’s a long term
future for them. Most people enjoy learning new skills and it stops them from
becoming bored.
Of course you also spend time and effort training people who then leave.
Don’t be offended or disappointed by this, but rather look at it as one more
skilled person in the market. If every company trained and developed people
there wouldn’t be a skills shortage.
Socialise but don’t fraternise
I’ve worked for companies that had a drinks get together on a Friday after
work. It’s an opportunity for staff to mix with colleagues and personnel from
other departments. It’s also an opportunity for senior management to meet and
talk to staff that they don’t usually come in contact with.
However, I’ve seen managers who take this to the extreme, even becoming
inebriated in front of junior employees and losing the respect of their staff.

Common courtesy is appreciated by all staff. I had one business owner who
arrived in the office and walked past senior managers working at their desks
without bothering to greet them. Apart from just greeting staff it’s sometimes
good practice to stop at their desk and enquire what they’re busy with and if
there are any problems.
Family
I found it useful to have an end-of-year function with my staff and their
partners. Not everyone attended the functions, but those who did generally
enjoyed themselves. In particular, it gave the partners a chance to meet other
spouses and to find out that it wasn’t just their partner that worked long-hours or
away from home. It was also an opportunity for the partner to gain insight into
the company and to hear the latest news.
Furthermore, we tried to organise a function or weekend away once a year
with senior managers and their partners. We endeavoured to make this a special
occasion and something that they wouldn’t necessarily have done on their own.
These always worked well and were substantially more value to the company
than was their direct cost.
Some people may not want to attend these functions so they shouldn’t be
pressured into doing so.
Celebrate success
Winning a tender usually comes after lots of hard work and probably after
losing several other tenders. It’s therefore useful to celebrate the awarding of
large new projects which provides an opportunity to thank the estimating team
and wish the project team success.
When a project is nearing its successful conclusion it’s often worthwhile
having a function on site where project staff, as well as the Head Office support
staff, can be thanked. It’s also an opportunity for the Head Office employees to
visit the project and gain an insight into the work that the company is
undertaking.
Construction isn’t an easy business and there are numerous problems
encountered on a daily basis, so when there’s a substantial success embrace and
celebrate it. It helps make everyone feel part of a successful team – success is
empowering, infectious and stimulating and everyone wants to be part of a
winning team.
Of course celebrations need to be appropriate, possibly limited to some of
the more important wins and even restricted to those most affected by the
success. Some wins may just call for a congratulatory email to all staff, while
others could be suited to a quick drink after work, but a particularly large
success may call for a party.
Employing people
Employing new staff can be a costly. These costs include:
1. the costs of recruiting such as agency fees and advertising
2. time spent on reviewing applications and interviewing applicants
3. the new recruit’s time in induction and training
4. the provision of personal protective equipment, computers and phones
5. the wages or salary the person earns when they are unproductive while they
learn systems and processes and attend inductions
6. medical examinations
7. termination should the person prove to be unsuitable or no longer required

It’s therefore important that recruitment is done properly and the following
should happen:
1. ensure that there is a medium to long term need to fill a role
2. check that there aren’t suitable candidates within the company (including
checking with other divisions), or someone that will soon become available
3. check whether a current employee can be trained to fill the position
4. decide on what the person is required to do and what experience, training
and capabilities are required for the position
5. decide on the appropriate salary bracket
6. advertise the position which could include; asking employees if they know
a suitable candidate, advertising in newspapers or asking an employment
agency to find suitable candidates
7. read through candidates’ curricula vitae to assess if they have the required
knowledge and experience
8. suitable candidates should be interviewed by at least one manager
(preferably the person they’ll report to) and if possible an industrial
relations specialist
9. during the interview:
1. the job position and description should be explained
2. the conditions of employment should be discussed
3. assess the candidate’s knowledge and experience by asking
appropriate questions
4. ascertain the reasons for them applying for the position
5. try and understand their aspirations and gauge whether these fit with
what the company can offer
6. review their communication skills
 7. understand their salary expectations
8. try and ascertain if their personality will be a good match with the
company
9. if necessary ask for additional references
10. ask the candidate what questions they have
11. check the candidate’s availability and any future arrangements or plans
they have which may impact on their work

In some cases it may be necessary to invite potential employees back for a

second interview. It’s important that unsuccessful applicants are advised as soon
as possible so they can pursue other applications.
Sometimes good applicants may have a number of job offers at the same
time. In this case there is always a risk of a bidding war erupting between the
different companies with each offering a larger salary than the other. In these
circumstances it’s always essential to ensure the salary offered is sustainable for
the company and is market related. As discussed earlier it’s also important to
stress to the applicant the other benefits of working for the company. If a
candidate joins another company only on the basis of a higher salary then maybe
they were the wrong person for your company.
Probation period
It’s important that all new employees work a probation period. The
employee’s performance must be reviewed before the end of this period to
ensure that their performance matches the company’s expectations. If it doesn’t
the person should be called to a meeting and informed why their performance is
unsatisfactory and either their employment should be terminated or their
probation period extended, providing them with a chance to improve. This
meeting should be documented. At the end of the revised probation period the
person’s performance should be reviewed, and if it is still unsatisfactory their
employment should be terminated.
Unfortunately in many cases the probation process isn’t handled properly
resulting in poor quality people remaining in the company’s employ, causing
additional expense when their employment is eventually terminated.
If the person was engaged through a recruitment agency and their
employment is terminated during their probation period it’s usually possible to
get the agency to supply another candidate without charge or to refund their
placement fee.
Bursaries and in-service training
Providing bursaries to students at colleges and universities is a useful way
to recruit young qualified people. It’s important that candidates are carefully
selected to ensure that they not only succeed with their studies but will
eventually be suitable and a good fit for the company. There will always be
some successes as well as failures in the process, so be prepared to give more
bursaries than the positions you require filling.
Many college and university courses require their students to spend time
with a company in their chosen field in order for them to obtain practical
experience. I’ve witnessed some students unable to complete their courses
because they couldn’t find a company to give them the required experience. This
isn’t a good reflection on the industry and is unfair on the students.
I’ve often had good results with these students since:
1. they are relatively cheap to employ
2. it gives the company an opportunity to understand the capabilities and
personalities of the students, and if they are suitable to offer them long term
employment once they qualify
3. many were useful on the project
4. it gives the students an opportunity to see whether they would fit in with the
company if they were offered long-term employment
5. many students appreciate the opportunity of employment and go on to
become loyal employees

It’s however important that students aren’t just given boring mundane
work. They need to be given an opportunity to learn things and staff must be
encouraged to support them and to pass on their knowledge.
Sometimes it’s difficult to get students onto projects for a short duration,
particularly projects in remote regions or which have lengthy processes to gain
access.
Contract staff
Sometimes it’s possible to employ staff on contract for short periods to
assist with short term shortages.
Advantages of employing contract staff are:
1. they can be employed for a limited period to deal with specific problems
2. they are normally easy to replace if they are unsuitable
3. they usually don’t require notice when their services are no longer required
4. it’s possible to secure skills which the contractor wouldn’t normally employ

There are disadvantages:

1. they are usually more expensive
2. they are often employed through agencies which add their overheads and
profits to the person’s rate
3. they don’t have an allegiance to the company resulting in limited loyalty
4. many don’t ascribe to the company’s values
5. they are often paid by the hour, so may be happy to drag a task out as long
as possible to maximise their pay
6. sometimes management forgets the person is employed on contract and the
worker ends up being employed for several years at great expense
7. care must be taken to check that the hours worked are the same as those that
are invoiced

Contract staff do have a place, but I wouldn’t recommend a company uses

them on a regular long-term basis. Where possible I would always try and ensure
that permanent employees were placed in the important roles, and in particular in
positions where they are dealing directly with clients.
Employing workers permanently or for a limited duration
Workers can be employed on a permanent basis or for a limited duration for
a particular task or project. In some countries it’s even possible to engage a
labour broker who will supply the workers for as long as they’re required.
Advantages of employing workers on contract for a particular project are:
1. when their specific skill is no longer required their employment can be
terminated
2. when moving to a new area or region it’s often possible to employ people
locally which saves transporting and accommodating workers from other
localities
3. sometimes when permanent workers are transferred to a different region
they expect to be paid additional allowances
4. wages often vary from region to region and local workers may earn less
than their counterparts from other regions
5. the contractor doesn’t have to keep a large pool of resources employed

Disadvantages of employing workers on contract are:

1. they may have little loyalty to the company
2. they usually aren’t familiar with the company’s processes and procedures
3. they will be untested and it could take several weeks to assess their level of
skill
4. they won’t be familiar with the company’s safety and quality standards
5. the company will spend time and effort on training people who are
employed for only a limited duration
6. the company may be unable to find skilled people when they’re required

Probably the best solution is to employ a few skilled tradespeople on a

permanent basis and transfer these between projects so they form a core for the
team on the new project. The balance of workers can then be employed locally
or from other sources.
Industrial relations policies
Industrial relations policies set out the employer’s and employees’
obligations. The company should have a clear industrial relations policy which
would include some or all of the following:
1. inductions
2. work hours
3. safety procedures
4. disciplinary procedures
5. grievance procedures
6. anti-discrimination policy

It’s important that these policies are understood by all employees and that
management and supervisors apply these in an even and fair manner.
Many industrial relations problems occur in companies due to policies not
being applied correctly and in some cases by even being ignored.
In some countries and states it’s mandatory to have these policies in place.
Employment contracts
All employees should have an employment contract. The contract should
include:
1. their expected duties or job description
2. the place of work
3. the date of commencement
4. their remuneration
5. applicable allowances
6. their hours of work
7. notice period for termination for both parties
8. reasons for termination
9. the duration of employment
10. leave entitlements
11. probation period and the notice period for termination in this period
12. general conditions of employment
13. workplace rules
14. use of company equipment and property
15. definitions

Care must be taken to ensure conditions and remunerations for like grades
of workers are similar. In addition, the conditions must comply with the
legislation and existing labour and union agreements.
From time to time personnel may be transferred to projects with different
rules and conditions. In these instances employees should be given a secondment
contract with these revised conditions. However, the secondment contract
shouldn’t have conditions inferior to the individual’s basic conditions of
employment. On completion of the project, employees should either be given
another secondment contract for a new project, or issued a letter stating that their
employment conditions have reverted to those of their original employment
contract.
Employees must sign all employment and secondment contracts and they
should keep a copy, and a copy should be kept by the company
Shop floor and union agreements
Different regions and countries have rules governing basic employment
conditions and the company must ensure that these are applied and abided by. In
addition, workers could belong to a union and it’s then usually necessary for the
company to have an agreement with the union which governs the workers’
conditions of employment. When dealing with a union it’s important to ascertain
that the union is registered and that it represents the employees. Sometimes, to
complicate matters, employees belong to different unions and the company has
to engage with more than one union.
Once a union has sufficient representation (usually 50% of employees) they
will approach the company to negotiate employment conditions. Some of these
can add significant costs to the company and make it uncompetitive, particularly
when tendering in other regions or against contractors who don’t have union
agreements. The contractor must negotiate terms which are fair and equitable to
their workers, maintaining worker harmony, without impacting on the
company’s competitiveness or profitability.
Where possible the company should try and structure these agreements for
a minimum two year term, but preferably for a longer period. These negotiations
usually take a huge amount of management time and nobody wants to go
through the process every year. Furthermore, long term agreements give the
company certainty as to what rates should be used in their tenders.
If employees aren’t represented by a union it’s sometimes possible and
advantageous to sign a shop-floor agreement with the employees. Workers elect
suitable employee representatives to negotiate on their behalf. When the
negotiations are complete it’s advisable to get an industrial relations lawyer to
draft a legally binding agreement which all parties can sign. In many cases this
document has to be registered with the relevant government agency.
In all cases when negotiating with unions or employee representatives it’s
advisable to seek expert assistance and guidance. Badly negotiated or worded
agreements can turn out to be costly for the company.
Different cultures and ethnicities
People working in the construction industry usually come from diverse
cultures, backgrounds and ethnicities with different work ethics and ways of
doing and saying things. Managers need to be aware of these differences and
take them into account when communicating and directing people. Often minor
misunderstandings created by these differences can escalate into major industrial
relations incidents, disharmony and loss in productivity.
By understanding the different cultures it’s sometimes possible to improve
people’s work performance and productivity by adapting the way you
communicate and deal with them to suit their backgrounds. What is important to
someone from one culture may not be as important to someone from another
culture. What is amusing to one person may be offensive to another from a
different nation.
Discrimination
It’s important not to discriminate and to be aware that many people can be
sensitive and easily take offence to something that they perceive is
discriminatory. Sometimes, they may even deliberately take something out of
context and twist it so it appears to be discriminatory and they can create an
incident. Discrimination can lead to expensive legal disputes or work stoppages.
Discrimination can take many forms such as; gender, racial or personal.
The company should have clear anti-discriminatory and sexual harassment
policies and action should be taken when discrimination or sexual harassment is
witnessed or reported.
Indigenous and local people
In many countries and regions the employment of indigenous or local
people is actively encouraged and in some cases it’s even legislated.
Management needs to ensure that the employment of indigenous and local
people is actively encouraged and furthermore that these employees are retained
for as long as possible on a project provided that they are suitable for the
positions occupied. Once recruited indigenous people should be managed by
staff who are sensitive to the need to retain them and who understand how to
manage, train and develop them so that they can become successful employees.
Delegate
I worked for a business owner who kept taking on more and more
responsibility with the result that many of the tasks weren’t completed which
frustrated staff as well as clients.
It’s important to be able to delegate certain tasks and actions to others.
However in doing this ensure:
1. that the person is capable of doing the task
2. the person is appropriate for the task (you don’t want to delegate a junior
engineer to attend an important client meeting on their own)
3. they understand what’s required
4. they have all the information and resources to do the task
5. if they don’t have the experience or knowledge then spend time to teach
them, or ask someone else to show them
6. follow up to ensure that the task is done correctly

People will not grow and develop if they are not shown how to do a job and
if they aren’t delegated more and bigger responsibilities.
Supervise and Manage
Many businesses fail because people aren’t supervised and managed
correctly resulting in:
1. personnel performing poorly
2. people not doing tasks they are meant to, or doing them poorly
3. tasks being left undone because they aren’t allocated to a person
4. staff not working as a team with a common goal
5. personnel becoming disillusioned and unhappy at the lack of guidance and
order

It’s therefore important not only that managers manage the people reporting
to them but that they also ensure these people manage the teams reporting to
them.
Discipline and commitment
Poor worker discipline, performance or lack of commitment shouldn’t be
tolerated since this leads to poor productivity. Discipline must be applied
consistently from the start of every project and uniformly across all projects.
Problems often result when workers are transferred from one project where the
company rules have not been applied correctly to one where the Project Manager
enforces the rules. Employees don’t understand why the rules differ from their
previous project.
It’s important that disciplinary procedures are carried out correctly:
1. the process must be recorded in writing, even when verbal warnings are
issued
2. employees must be given sufficient notification of formal disciplinary
hearings
3. care must be taken to explain the problem or transgression and if necessary
an interpreter may have to be provided
4. the employee may bring counsel to a meeting depending on the worker
agreements and legislation
5. the employee normally has a right to appeal the findings of the hearing
6. records of the process and notifications must be kept in the employee’s
record folder and copies kept at Head Office
7. discipline must be implemented in an unbiased manner

Regrettably, some companies aren’t consistent in their application of

discipline allowing some staff and key personnel to escape censure, making it
difficult to apply discipline properly to other personnel.
Poor worker performance
Often workers perform poorly and it’s important to understand the reasons,
which may be due to:
1. the person lacking experience or knowledge
2. a lack of understanding of the instructions
3. poor supervision
4. personnel not being utilised correctly
5. poor morale
6. personnel not understanding what’s expected from them
7. the employee being unwilling to do their work properly

Once the problem has been identified the employee should be:
1. counselled
2. redeployed if necessary
3. if their performance doesn’t improve the disciplinary process should be
followed and if necessary the person’s employment terminated

Many companies transfer substandard employees from one project to

another without taking appropriate action to improve their performance. This
causes poor productivity and results in frustration amongst the supervisory staff
and other workers who have to work with them. The longer the employee
remains with the company the more difficult it becomes to terminate their
employment.
Lead by example
Some company owners and managers set rules which they themselves don’t
follow. I’ve always been conscious of how observant employees actually are.
They always seem to know when managers take an extended lunch break, arrive
late or come to work intoxicated. If they perceive this to be acceptable behaviour
they see no reason why they shouldn’t do the same, and when disciplined for this
behaviour they are quick to remind the managers that they committed similar
offences which weren’t punished. It then becomes difficult to apply discipline
properly because employees will say they are being discriminated against – with
one set of rules for management and another for workers.
Feedback
Employees should be given feedback on what management consider their
weaknesses are, or areas that require improving, otherwise most won’t know
where they’re going wrong. In fact, many will probably believe they’re doing a
good job.
Positive feedback is just as important as negative feedback.
Negative feedback must be given in a constructive manner; highlighting
steps which the employee needs to implement to improve their performance.
It’s good practice to have formal annual or bi-annual performance reviews
which are documented.
Know and understand the team
I’ve often been successful because I was able to work with staff I’d worked
with for several years so that I understood their strengths and weaknesses. In fact
the few projects that weren’t a success were often because they had new staff
whose abilities I didn’t fully understand.
By understanding their strengths and weaknesses I was able to:
1. use and work with their strengths
2. allocate the staff with the right capabilities, knowledge and experience to a
project
3. support their weaknesses
4. put balanced teams on projects that supported each other
5. mentor and coach them that they eventually overcame their weaknesses
6. promote individuals to new positions knowing that they were capable of
filling the role

To properly understand a person’s ability it’s important that they remain

with the company for an extended period, and, that managers are able to spend
quality time with them, to mentor and coach them.
Hiring and firing
Some companies are continually hiring people and then dismissing them
because:
1. their planning is poor and they’re employing too many people or people
with the wrong skills
2. they’re employing unsuitable people
3. they’re getting rid of people without checking if they’re required elsewhere
in the company
4. they don’t bother to counsel or train workers, rather dismissing them as
soon as it appears that they may be unsuitable
5. they go from a situation of too much work to one of too little work

The problem with the mentality of hiring and firing is:

1. as discussed earlier it’s expensive to employ people
2. there’s no continuity or loyalty in the workforce
3. workers have poor morale and are never sure if they will be the next to be
dismissed
4. the company develops a reputation of not employing people for the longer
term
Labour disputes
It’s best to solve labour problems before they result in a dispute. Even the
smallest problem left unresolved can quickly snowball into a full labour dispute
affecting the entire workforce on a project. This however doesn’t mean that you
should give in to unreasonable demands from the workforce. Rather, care should
be taken to treat the workforce fairly within the structure of the workplace and
project agreements. To give into requests additional to their entitlements often
results in the workforce coming up with further demands.

Unfortunately most companies will face a labour dispute at some stage that
degenerates into strike action. It’s important that management is aware of the
procedures to follow should there be a strike, which may include:
1. notifying company senior management and the human resources
department
2. notifying the client
3. ensuring no employees are in danger
4. checking that property and equipment are safe
5. safely shutting down systems and operations
6. meeting with worker representatives to understand the problems
7. resolving issues if they are simple
8. encouraging workers to return to work while their grievances are attended
to
9. ensuring that procedures are followed (these may depend on whether the
strike is legal or not as well as on the labour agreements and legislation)
10. if there’s a risk to property or life, notifying the police
11. ensuring staff remain calm
12. avoiding inflammatory statements or antagonising the workers
13. if workers are unionised, make contact with union leaders to request
assistance with resolving the issues
14. ensuring only authorised representatives from the company deal with the
press
15. notifying management, the client and police as soon as workers return to
work
16. resolving any outstanding grievances promptly and keeping workers’
representatives informed of the progress
Summary

1. Employing the right people is vital to a company’s success.
2. Good people need to be retained which is done by:
1. paying them a market related salary
2. incentivising them with bonuses and share schemes
3. making them feel part of the company
4. finding other rewards that are important to the individual
5. providing sufficient leave
3. Employees should be motivated and passionate about their work and the
company.
4. Employees must be promoted for the right reasons.
5. Mentoring and training motivates employees and it enables the company to
develop a more skilled workforce.
6. Inviting employees’ partners to company events can be useful.
7. Celebrating success is not just an opportunity to thank those who created
the success but also makes other employees feel part of a winning team.
8. The employment process needs to be done with care ensuring that the
potential new recruit has the right attributes and that they fully understand
the nature of the company and what role they will be filling.
9. Probation periods must be managed correctly ensuring new employees are
suitable; if they aren’t they should be counselled so that they either improve
or are released from the company’s employ.
10. Offering bursaries and providing in-service training to students is a useful
way of attracting new employees and it also contributes to the industry.
11. Usually companies have an option to employ staff and workers permanently
or for a limited duration only. There are advantages and disadvantages to
both options.
12. All companies should have industrial relations policies and procedures in
place which are available and understood by all employees.
13. All employees should have a valid employment contract which may be
amended from time to time when employees are seconded to projects with
better conditions to those in their contract.
14. Companies may have to agree working conditions with unions or employee
representatives.
15. Managers should understand the cultures of the people working for them,
and deal with them in an appropriate way.
16. Discrimination of any sort shouldn’t be tolerated.
17. The employment of indigenous and local people should be encouraged.
18. Managers must be able to delegate.
19. Employees must be supervised and managed properly so that they perform
their duties correctly.
20. Discipline must be enforced fairly, appropriately, consistently and in
accordance with the company’s policies across all facets of the business.
21. Poor worker performance shouldn’t be tolerated and it’s important that
steps are taken to rectify it.
22. Managers must lead by example.
23. Employees must be given regular feedback about their performance.
24. By understanding employees’ strengths and weaknesses it’s often possible
to place them in positions best suited to their capabilities and provide
support to those that require it.
25. Companies should avoid hiring and dismissing people on a regular basis.
26. Labour disputes must be managed appropriately and with care.
Chapter 11 - Managing the Company

Many owners and managers of construction companies have sound

contracting knowledge and experience but have little experience in running a
company. Managing a company requires knowledge of financial, legal and tax
systems, an understanding of environmental, safety and labour legislation,
compliance with building codes, registrations and planning permissions as well
as people skills, being able to employ suitable staff, managing and directing
them, as well as being able to deal with clients, designers, bankers, suppliers,
subcontractors and members of the public.
Generally there are a myriad of rules and regulations companies must
comply with. I’m not going to dwell on the legal and tax requirements for
running a company as these vary from state to state, between countries, and
regularly change, so it’s best to consult experts.
Requirements to manage
Managing a construction company or division isn’t easy. Individuals need
to:
1. have initiative
2. be able to deal with different types of people, with different education
levels and from different cultures and ethnicities
3. be able to make tough decisions
4. be passionate about what they do and about the company
5. be collaborative and able to share ideas
6. be able to communicate
7. have the respect of their employees
8. listen to employees and their suggestions
9. have a good level of detail
10. absorb stress
11. be adaptive
12. be able to delegate
13. work within a team
14. be able to deal with many problems and tasks almost simultaneously
15. have a situational awareness capable of seeing potential problems
16. have a sound technical knowledge of the industry
17. have an understanding of the market place in which they are operating
18. understand the company systems, procedures and policies ensuring that
they are followed
19. have a vision for the future of the company

To manage a construction business means you have to expect the

unexpected and be able to rapidly institute a contingency plan.
Open door policy
Managers should have an open door policy so that employees are free to
discuss problems with them. Clearly this has to be done within reason and
employees must realise they cannot interrupt meetings and phone calls and that
sometimes managers need some quiet time to attend to problems and to answer
correspondence. It also doesn’t mean that employees should bypass their direct
managers and take their problems to a more senior manager.
Part of the open door policy does extend to ensuring that the office is
suitable for one-on-one meetings, or even meetings with two or three
individuals.
Case study:
I knew a business owner who had a small office with a desk and two chairs.
Any meeting in his office ended in an awkward situation with him and me sitting
facing each other with our knees touching. Needless to say if there were three of
us it became even more crowded with three pairs of knees touching. This really
wasn’t conducive to having a meeting, which I think was probably the idea in the
first place.
Furthermore it’s preferable if senior managers have an office with a door so
that confidential discussions with clients or employees aren’t overheard. I know
many people are in favour of open plan offices and would disagree with me.
Reports
I’ve seen many managers demand extensive and lengthy reports. One
company I worked for had a monthly report in excess of a hundred pages long.
Was this efficient? Definitely not! It took a number of people several days to put
together, time that could have been better spent earning money on the project.
When the report becomes so lengthy, and takes so much time and effort to put
together, the quality of the information in the report is often questionable since
in the rush Project Managers insert any information, and even just make it up, so
they can complete the report. Of course the question is, who actually reads the
contents, and more importantly who deals with items which should be actioned?
In most cases a substantial portion isn’t read and the time and effort spent on
compiling the report is wasted.
I was fortunate to work for a company that produced a simple three page
monthly financial report which was just as effective.
Meetings
Meetings can be a big time waster. Some companies have weekly or
fortnightly meetings. Many of these can be several hours long. Some meetings
are worthless when important participants aren’t present.
1. Meetings should be set for a fixed date and time as far in advance as
possible.
2. They shouldn’t be rescheduled unless there’s absolutely no alternative. I’ve
frequently had managers reschedule meetings at the last minute,
inconveniencing other participants who then have to reschedule their
calendars at short notice. Often some attendees are unavailable for the new
time. I found that once a regular meeting is rescheduled it’s easy for it to
become a habit to keep rescheduling it, and eventually the meeting loses its
importance.
3. Meetings should run to an agenda.
4. Meetings should be minuted and the minutes should be circulated within a
few days of the meeting.
5. The minutes should allocate responsibilities for actioning items and a time
for them to happen.
6. The chairperson needs to exercise control to keep discussions to the point,
focussed and relevant to the topic.
7. Meetings should be scheduled for a time that’s suitable for most
participants taking into account the location of the participants and their
current projects.
8. Participants should arrive on time. I cannot count how many hours I’ve
wasted waiting for meetings to start because they’ve been delayed by tardy
participants.
9. If someone is unable to attend they should excuse themselves beforehand so
the meeting isn’t held up waiting for them.
10. Attendees should be restricted to those who can contribute to the meeting or
who will benefit from attending.
11. It may be necessary to review attendees, the agenda and the schedule from
time to time to maximise the benefit of the meeting.

I’ve found that many items discussed in meetings could have been
discussed on a one-on-one basis with the particular individual, thus avoiding
wasting time in the meeting.
Attending to tasks
Managers and business owners usually have a busy schedule and it’s
sometimes difficult to get to everything requiring their attention. Unfortunately
some tasks have to be done, and failure to do them could result in payments
being missed, tenders not submitted on time, or clients being upset by non-
attendance to their problems. Where possible, to ease these pressures, functions
and duties may have to be delegated to suitable staff. In addition, managers may
have to schedule their activities around the important tasks that have to be done
on a regular basis.
Learn to say no
Managing a company successfully means you have to learn to say no.
Obviously this should be done politely and if possible with a reason. As
discussed, certain clients can be quite insistent that you should undertake their
projects, some of which might not be viable, too risky for the company, or, the
company may not have suitable resources available. Clients will be unhappy
when the contractor declines their project, but they’ll be more upset if the project
is executed poorly.
Employees can also be demanding and it’s often easier to say yes when
someone wants to take time off or asks for a favour or special treatment. Giving
in to these demands usually isn’t a problem in a smaller company, but as the
company grows these demands can create a multiplying effect with other
employees, who will all want similar treatment.
The art of persuasion, negotiation & communication
Managers have to communicate, persuade and negotiate on a daily basis.
The way they do this will often depend on who they are dealing with and what
the situation is. Management will normally deal with workers, staff,
subcontractors, suppliers, the client, the client’s team (including designers,
project managers and architects), local authorities and members of the public.
Communication should:
1. be civil
2. be clear and concise
3. be persuasive and forceful enough to ensure that instructions are followed
4. achieve the best outcomes for the company
5. be effective
6. take into account relationships
7. take into account the level of understanding the other person has
8. not be condescending

Good communication is vital to the success of the company. There are

courses which can improve the level of written and oral communication, and
consideration should be given to senior personnel attending these courses.
Communication is not just about giving and receiving instructions, it’s also
about keeping the various stake holders such as staff, workers, subcontractors,
suppliers, client representatives, the client and neighbours informed. The amount
and level of communication will vary according to circumstances and to the
level of the individuals. Communication is often best given verbally, which
could be at meetings, directly one-on-one, or via telephone. Sometimes the
communication is in the form of letters or memos that may be addressed to
specific individuals, or may be in the form of generalised memos handed to all
relevant parties, or displayed on project notice boards.
When issuing letters, emails, memos and verbal communications, thought
must go into the type of communication. Inappropriate communications can
cause irreparable harm to the company, individuals, and to personal reputations,
and often things are said or written in haste, which are regretted long after the
event.
All staff must be aware of the communication protocol, and correspondence
must be carried out in a professional manner. All correspondence of a
contractual nature, or correspondence that involves a financial matter, should be
reviewed by the relevant managers.
Stand up for your team
Many managers don’t stand up for their staff, often allowing the client to
bully them, sometimes even allowing clients to remove staff from a project,
when in many instances the client is wrong and the person was simply protecting
the contractor’s rights.
I’ve generally tried to stand up for my staff when they were in the right, and
have on occasion persuaded the client to retain the person on the project. Of
course, always investigate the issue to ensure that your employee is right, since I
have on occasion been lied to by employees, and, if I had supported them I
would have been wrong.
Decision making
Managers have to make decisions on a daily basis that affect the running of
the company as well as individual projects and tenders. Many of these decisions
can have a significant impact on the finances of the company, in some cases the
livelihood of people, and even the lives of people.
It’s important that major decisions:
1. are thought through
2. consider all the available information
3. are made for the correct reason
4. are made timeously

A decision made late or not at all can often be more harmful than a bad
decision. In construction there’s no place for procrastination since this can be
costly. Clients and staff expect managers to make timely but sound decisions.
Organising and analysing information
Managers often have a mountain of information to analyse from the many
different projects they’re responsible for as well as their other duties. It can be
difficult to sort out which are the most important issues, then analyse their
accuracy, interpret them and act appropriately. The fact that a project is in
serious trouble is often seen far too late by many managers.
Reporting systems need to be simple and easily read, with salient points
readily visible. Of course nothing beats having regular one-on-one meetings with
staff or visiting projects, ensuring that pertinent questions are asked.
By appropriately delegating certain responsibilities it’s possible to reduce
the volume of information that needs to be reviewed and assessed.
It’s also important that subordinates understand what information needs to
be passed on to their manager and for them to know that when in doubt their
manager will always be willing to assist and advise them and answer any
questions or concerns they may have.
Organisational structure and reporting lines
All construction companies, other than micro companies with only a couple
of employees, should have a formal structure so that staff-members understand
their responsibilities, their limits of authority, who reports to them and who they
report to.
This structure will change and must be adapted as the company grows.
The structure doesn’t have to be distributed to everyone within the
company, although in a large company it’s useful for everyone to be aware of
the different departments and divisions in the company, knowing who they
should contact for information or when they have a problem.
Company overheads
I’ve discussed making projects more profitable by putting in controls and
managing resources, but it’s equally important that the corporate office is also
run efficiently. Many construction companies struggle financially because of the
high operating costs of their Head Office. Often when companies grow they
move into a newer, more lavish office block, in a prestigious location.
Unfortunately the rents for these types of accommodation are usually high.
Don’t get me wrong, it is important to work from offices which give a good
impression to clients and are comfortable for personnel to work in – but they
don’t have to be opulent or extravagant in terms of their facilities or location.
When choosing offices consideration should be given to future growth. This
doesn’t mean you should rent or buy large office space for a handful of
employees, but it’s useful to have a few spare offices which can be used when
the company hires new employees. Companies with insufficient space end up
having to relocate every few years or have to operate from several different
locations which can be disruptive and costly.

Too many staff in the Head Office creates large additional costs. Small and
medium sized companies may have to employ people who are willing to multi-
task, since it’s not possible to employ individuals for each task.

It’s also important to have sufficient controls in place to limit unnecessary

or wasteful expenses. These controls may include power usage, printing and
stationery, refreshments, telephone usage, company credit cards and travel
expenses. Of course it’s important that the controls don’t become overly
restrictive, impacting productivity.
As with the projects, all expenses should be scrutinised and approved by
senior managers. The Head Office must have similar controls to the projects to
ensure staff are productive, they’re managed properly to their full potential, are
adequately trained for their tasks, they submit appropriate leave forms when
required and that their time sheets are correctly completed.
Departments
When a company starts off the owner is often the manager, the financial
officer, the clerk, bookkeeper, Project Manager, Supervisor and Estimator. As
the company grows and expands, the owner can no longer do everything and
employs others to do these tasks. As the company grows further, there isn’t just
one bookkeeper, clerk or Estimator but a number of people employed to do these
functions. The owner can no longer manage all the different functions within the
company and has to employ managers to do this. These managers report to the
owner, chief executive officer or managing director.
Eventually the company becomes organised into different departments with
different responsibilities and managers. As the company grows further it may
become necessary to reorganise some of these departments and some of their
duties may be moved to other or newly created departments.
All of these departments need to function together as one unit to make the
company successful. Each department has to support the other departments and
the projects.
Departments should never be created just to satisfy someone’s ego or to
replicate structures in other companies, but should be put in place only when
needed and when it will create better service within the organisation.
Companies need to guard against those who want to build large
departments to emphasise their importance. Each department should prepare an
annual expenditure budget which they must justify, and then adhere to during the
financial year.
Divisions
Also as companies grow they may form different divisions. These divisions
are usually organised around a particular function or trade. Many construction
companies have building, roads and civil divisions. Sometimes divisions are
focussed on a particular region or country.
The purpose of creating divisions is so that:
1. when the company grows, and one manager can’t look after all the projects,
the company is split into different divisions and the workload is shares
between a number of managers
2. when staff have knowledge or expertise in a specific field of construction
it’s appropriate that they are employed by a division that can effectively use
these attributes (for instance a building Supervisor is best suited to doing
building projects)
3. clients know that they are dealing with a company or division that can
deliver the type of work that their project demands
4. where employment conditions and rates of pay differ between areas and
types of construction operations it is possible to separate employees into
various divisions where they can have different employment contracts from
others in the company
5. where types of construction have different rules to others, the project is
allocated to the division that has experience of these particular working
conditions (for instance constructing a building in an oil and gas plant is
very different to constructing one in the city, and those unfamiliar with the
rules in an oil and gas facility could end up pricing the tender incorrectly
and will probably make numerous mistakes during construction)

Case study:
Our company’s civil division constructed many projects for the mining and
resources industry. However, once when the division was awarded the
construction of a new coal process facility they didn’t have the resources to
undertake the project, so the company’s building division elected to take on the
project. Unfortunately they soon experienced problems. They weren’t used to the
rigorous safety requirements or stringent quality documentation demanded on
this type of project. They were also surprised by the length of time taken to get
resources through the induction processes and on to site.
In addition their personnel weren’t happy to live away from home, which
most civil projects demand.
 Staff rapidly became disillusioned and morale was poor which adversely
affected productivity.
Management made excuses for the project saying it was a particularly
difficult client. In truth, they were no more difficult than most clients in that
industry, just that the building division staff weren’t used to working under these
conditions.
However, by the same token, if the civil division was asked to build an
apartment block in the city they probably wouldn’t have been able to perform as
well as the building division could as they weren’t experienced in that kind of
work.
Sharing between divisions
I was fortunate to work for a successful contractor that had more than a
dozen divisions. Some of the success was a result of the divisions working
together. In many companies the various divisions operate in their own ‘silos’
and are so compartmentalised that they seldom even talk to each other. In fact, I
found it so bad in some companies that the divisions subcontracted portions of
work out to other companies rather than asking another division within the
company to undertake the work. Often these same companies had one division
hiring personnel while another division was terminating staff.
Wherever possible divisions need to share resources and manage projects so
that as much of the work as possible is done within the company.
It shouldn’t be about personal egos or how much money individual projects
or divisions make, but rather about the success of the company as a whole.
We often formed internal joint ventures between different divisions which
enabled each division to maintain independence, but at the same time to share in
the profits and reputation created by the project. We also seconded resources to
other divisions when we didn’t have work for them.
Managing safety
It’s important that senior management are safety conscious, enforcing the
safety rules, setting a good example and mindful not to allow unsafe acts to
happen in their presence. The company should have a clear well-defined safety
policy and a set of procedures which should be adhered to and enforced on all
projects even when they are more stringent than the client’s requirements.
Safety should be the first item for discussion at every management meeting
and the safety statistics for all projects and those for the whole company should
be discussed.
Good safety should be rewarded while poor safety should be corrected
immediately. Safety is about changing the mindset of all employees so that they
think and act safety through all of their actions at work, while travelling to and
from work, as well as at home.
A culture of reporting and investigating accidents and incidents must be
encouraged so that lessons can be learned to prevent further similar incidents.
It’s important that senior management are made aware of serious incidents and
accidents as soon as they occur. There’s nothing worse than a client phoning the
contractor’s senior management to complain about a serious incident or accident
on their project of which management were unaware of because the Project
Manager hadn’t reported it.
Tender systems
I’ve discussed tendering at length in a previous chapter, however, I would
add that when doing tenders, other than basic ones, consideration should be
given to using a propriety tender system. Although these systems can be
expensive to purchase, or hire, they not only save time and improve the accuracy
of the tender process but they also provide other useful information, some of
which can be included in the tender submission and some that can assist the
Project Manager in running the project.
Documentation
Electronic documentation is a wonderful asset because it can usually be
rapidly retrieved and be accessed from remote locations. However, it’s important
that electronic documentation is stored in a central location and is backed up to a
second secure remote location. I’ve had occasion when managers have had their
computers stolen, or their computers have malfunctioned, and they’ve lost
valuable information which has disrupted their work and taken many hours to
recreate.
Electronic document control systems should:
1. be simple to use
2. compatible with existing software
3. have sufficient storage capacity
4. be password protected to protect sensitive information
5. be retrievable
6. be distributable
Insurances
All companies should have adequate insurance cover which should include:
1. worker’s compensation
2. third party liability
3. cover for vehicles, plant and equipment (check that external hired
equipment is also covered where necessary)
4. insurance of the works
5. if there’s design involved, professional indemnity insurance
6. transit insurance for when expensive items and equipment are transported

Failure to have adequate insurance in place can be costly. Furthermore,

ensure that the premiums are paid on time since failure to do so will invalidate
the insurance.

Most insurance policies are renewed annually and it’s prudent to negotiate
revised premiums, but in doing so carefully comparing quotes from different
insurers to ensure that they provide adequate cover and that their ‘small print’
will not invalidate any of the claims. Depending on the risks it may be possible
to negotiate lower premiums by accepting a larger excess or deductable amount.
It’s important to regularly review the company’s risks and exposures and to
check that they are adequately covered by the insurances that are in place. The
company must be neither under insured nor over insured. (Being underinsured
may mean that items aren’t covered, or are only partly covered, should there be a
loss event, while being over insured will mean the company pays unnecessary
insurance premiums.) Therefore, update insurance policies regularly to take into
account changed circumstances, growth in the company and additions to the
equipment fleet.

When starting a new project consult your insurance broker to confirm that
you are adequately covered under the existing policies. Additional insurance
may have to be bought to cover particular risks which are excluded from existing
policies, such as fire or flood.
Check what the client’s policies cover, since you don’t want to buy
additional cover for an event which is already covered by the client. There may
also be additional insurances required by the client, or they may require
insurance cover for a higher value than the company’s existing policies. In
addition there may be statutory insurances required which might vary between
projects and regions.
Permits, licenses and registrations
In order to operate in most regions, states and countries, companies may
require a number of licenses, permits, and registrations. Where necessary obtain
legal advice when entering a new region to ensure that the company has
everything in place.
Maintain a log of all registrations to track and ensure that they are all valid.
Note that many of the permits and registrations have to be renewed annually.
In order to maintain some of these permit conditions, it may be required
that certain employees have a particular license or qualification. It is thus
important that these qualifications are kept current and that when staff resign
there are still sufficient qualified people to comply with the registration
requirements.
Have copies of the registrations readily available. In foreign countries on
remote sites it may be necessary to hold copies of the registrations on the project
site in the event that the local authorities carry out an inspection.
Failure to have these in place may result in the contractor being fined and
the project stopped, which could result in serious contractual consequences and
costs.
Guarantees
In general clients require a bond or surety to be in place for the duration of
the project, including the maintenance period which is usually at least one year
after the work has been completed. Most companies have limited facilities to
obtain bonds and guarantees because these depend on the amount of security the
company can provide. In many cases banks and insurance companies require the
security to be a cash deposit, which ties up money, and impacts the company’s
cash flow. When the company’s guarantee facilities are exhausted they won’t be
able to obtain further guarantees, resulting in the company being unable to
undertake further projects.
In addition, guarantees cost money. The amount depends on the value of the
guarantee as well as the length of time for which it’s required. When guarantees
aren’t returned on time additional fees are charged.
It’s vital that companies track all guarantees, ensuring that they are returned
by clients as soon as practical so they can be given back to the bank, freeing up
the facility for new guarantees. To facilitate the return of guarantees companies
need to close out projects as soon as possible. Sometimes minor items aren’t
completed, or the final documentation isn’t submitted, which prevents the client
from issuing the completion certificate, thus delaying the release of the
guarantee.
At the end of the maintenance period it’s equally important to request the
client to prepare a final inspection defects list which the Project Manager needs
to attend to as quickly as possible. This period often drags on needlessly because
Project Managers forget to follow up with the client, or they take longer than
necessary to complete the defects. In some cases Project Managers even forget
to request the return of the guarantee.
Policies and procedures
All companies should have policies and procedures in place to cover
amongst other issues:
1. industrial relations
2. safety management
3. quality management
4. environmental management
5. the use of company equipment
6. financial controls
7. sexual harassment

These will require updating as the company grows and as legal

requirements change.
Of course it’s pointless if these policies aren’t available to all staff on all
projects, because it’s important that employees understand and comply with
them.
Operations manual
It’s useful in bigger companies to have an operations manual which
includes the company’s policies and procedures. This manual can be used by all
projects as a checklist to ensure that systems are applied uniformly and correctly.
These manuals are particularly useful for new employees so that they can
familiarise themselves with the company’s method of doing business.
These manuals need to be updated regularly to ensure they remain current.
Standardised stationery
The company should have a standardised set of stationery and letterheads
that are used on all projects. The company logo should be replicated from a
master template with the correct size, proportions and colours. I’ve often seen
companies use logos of varying styles creating confusion amongst clients and
even looking unprofessional.
Where possible prepare standard templates for:
1. daily diaries
2. subcontract orders
3. supplier orders
4. invoices
5. requests for information
6. drawing registers
7. drawing issue receipts
8. day-works records
9. site instructions or variation requests
Archiving documents
The following records should be kept and archived:
1. personnel records, including:
1. records of pay and hours worked
2. disciplinary proceedings and warnings
3. employment contracts
4. medical reports
2. safety records including:
1. accident reports and investigations
2. attendance records of inductions
3. the receipts of personal protective equipment
3. tender submissions
4. financial records including:
1. tax returns
2. payments made and their receipts
3. payments received and invoices
5. plant and equipment service and repair records
6. project records including:
1. correspondence to and from the client, the client’s management team,
subcontractors and suppliers
2. the final account and all measurements
3. variations
4. subcontractor documentation
5. quality records
6. drawings

Records must be stored where they won’t be damaged by heat, rain, fire,
insects or rodents. They should be easily retrievable and filed in date order.
The statutory period for which records must be retained is generally five
years, but will vary between states and countries.
Self-perform or subcontract
Companies need to decide what work they will undertake themselves and
what work will be given to subcontractors. This will dictate the number of
employees and the skills that will be required.
The decision on whether to subcontract the work or not, will depend on the
following:
1. Can the contractor do the work more efficiently and cheaper than
subcontractors?
2. Are subcontractors available to carry out the work?
3. Can the contractor recruit and retain the necessary skills for the work?
4. Will the contractor have continuity of work for these new employees?
5. Is the contractor able to purchase or hire the specialist equipment required
for the work?
6. If equipment is purchased can it be used on other projects?
7. Some clients prefer using contractors who aren’t dependent on
subcontractors.
8. Subcontractors may be unwilling to work in certain regions.
9. Using subcontractors moves the risk away from the contractor but the
contractor has less control over the work.

There are often specialist tasks that companies will subcontract because
there will not be sufficient continuity of work for the company to be able to
maintain the resources.
As the company grows and moves in different directions and into different
fields they may choose to alter the model of operation and either subcontract
more work or undertake more themselves.
Whether work is subcontracted or undertaken by the company may also
depend on the individual project and its contract requirement. Sometimes, it may
also be advantageous to use local contractors.
Reporting of problems & problem solving
In many companies there’s a culture of hiding problems. This is often a
result of managers blaming subordinates and implementing harsh measures
against staff who may be responsible for the problem. It’s important to foster a
spirit of openness and ensure people understand it’s not about blame, but rather
about solving the problem, and being aware of a problem as soon as possible in
order that mitigating measures can be implemented.
Of course where an individual has performed poorly, disregarded company
policies and procedures or participated in fraudulent activities it will be
necessary to institute the appropriate disciplinary procedures.
Regrettably many problems only come to light when it’s too late to solve or
mitigate them – possibly jeopardising the survival of the company.
When things go wrong
Unfortunately no matter how well projects are planned, or how well the
company is run, problems will arise. It’s essential that decisive action is taken to
resolve the problem and prevent it from becoming more serious.
Contractors can be slow to solve a problem, fearful of incurring further
costs. I’m not saying spend money at any cost, but often it’s the only way to
move forward. Normally the first thing contractors do when there’s a financial
problem on a project is cut costs, which inevitably means reducing personnel
and equipment, in many cases making the problem worse.
When a problem occurs it’s important to find the root causes of the
problem. Often problems are only investigated superficially and a cause is
uncovered which might not be the true reason, but only a symptom of the
problem, or, it may be only one of the causes. For instance, if a project is losing
money and investigation finds that the labour is unproductive, it usually doesn’t
help to simply reduce the number of workers, rather, it’s important to uncover
the reason for this poor productivity which could be due to a number of causes,
including poor management.
Clients should be informed when there’s a problem that affects them, and
kept up to date with the steps being taken to resolve the situation. Clients
appreciate the communication and some may even be able to help. Clients that
find out about problems when it’s too late can be quite unforgiving. Contractors
shouldn’t be too proud to ask for help from the client or even to approach other
contractors, although this should be done only as a last resort.

Occasionally problems occur when key staff become ill, leave the company
or have to deal with their own issues. Suitable replacements have to be found
quickly without disrupting other projects or other departments. I’ve seen
companies rob one project of personnel to solve another’s problem, only to end
up with two problem contracts. Of course it’s sometimes possible to move
people between projects and I’ve also seen individuals grow when faced with
new challenges. The moral of the story is to ensure that careful consideration is
made of the circumstances and people to ensure that appropriate measures are
taken to solve the problem.
Ask for advice
There are too many components in the construction world for one person to
know everything. If you are unsure of anything, ask for advice. Advice is often
freely given, and you don’t have to take heed of it if you don’t like it.
Sometimes, there are people within the organisation who are more familiar
with the subject matter than you. You may be surprised at the knowledge that
some of your employees have, and anyway, they would probably appreciate
being asked their opinion, even if the information isn’t utilised.
Other sources of information could be sales representatives, subcontractors,
suppliers, trade associations and even the client and their representatives.
Of course, always consider where the advice comes from, since some
people may have alternative agendas, or might not be as knowledgeable as they
purport to be.
Use experts
It’s sometimes necessary to obtain expert advice for more complex
problems. This may be as simple as obtaining accounting solutions, getting legal
or contractual advice, or it may be for specialist solutions to complex
construction problems. Usually the costs for these experts are far outweighed by
the benefits of their help. For instance, although I have twenty years’ experience
with concrete, I have, on a number of occasions, paid for experts to advise me,
and their advice has often saved me thousands of dollars.
Mistakes must become lessons
Over the years, I’ve seen errors repeated time and again, often by the same
Project Manager, but certainly within the company on other projects. It’s
important to learn from mistakes so that they don’t occur again, enabling the
company to improve its performance. Just as important is to learn from
successes and to replicate them.
At the end of every project the project team should analyse the successes
and failures and see how things could be done better in the future. This exercise
shouldn’t be about pointing blame or looking for excuses. When the team has
come up with the list of successes and failures, the reason for them and how
things could be improved, it may be worth distributing the findings to other
Project Managers, Head Office departments and managers. This may take the
form of a simple memo or it could be a meeting where the issues can be
discussed.
It’s also useful to ask the client for feedback at the end of the project. This
could take the form of a standard questionnaire. Obviously any feedback is
useless unless it’s actually analysed and the useful information is used.
Subcontractor and supplier performance data base
Good suppliers and subcontractors are often hard to find. Poor suppliers can
delay projects by delivering material late or providing inferior materials.
Substandard subcontractors delay projects, do work of poor quality, adversely
affect the safety on a project and generally harm the contractor’s reputation. It’s
therefore essential to look after good suppliers and subcontractors and ensure
they are paid correctly and on time.
Contractors should keep a record and data base of all subcontractors and
suppliers used. At the end of every project the Project Managers should rate
them. Their performance should be assessed according to their:
1. quality of work
2. performance measured against the contract schedule
3. safety
4. responsiveness
5. price
6. likelihood of submitting claims

Further comments could include recommendations on:

1. the type and size of project best suited to them
2. the subcontractor’s best team for future projects

These performance sheets must be collated into the data base which can be
used by Estimators and Project Managers on future projects.
Be adaptive – adapt to changes in the environment
Construction is a changing environment and what’s suitable today may not
be suitable in the future. In fact what’s suitable on one project might not be
suitable on the next. Managers need to be able to adapt and change their
approach between projects and with time. In fact, as the company grows so is it
necessary for managers to change the way they do business.
Using technology
The implementation of new technology can often benefit the company,
enabling it to be more efficient and productive. However:
1. the technology must be appropriate to the company and their projects and
care should be taken implementing systems and technology that hasn’t
specifically been developed or modified for the construction industry
2. the technology must have suitable local back-up and support for both
maintenance and training
3. it should be simple to use
4. personnel must be trained in the efficient use of the systems
5. staff must be convinced of the suitability and safety of the systems
6. it must be reliable
7. the new technology must improve the company’s operations, making it
worthwhile to implement
8. where necessary it must be able to integrate with existing systems and be
compatible with the current popular software packages
9. the technology must be adaptable and flexible
10. the suppliers should be continuously evolving the system to keep up with
technological improvements
11. if necessary it should be able to be expanded
12. the technology must be robust and able to work in remote and hostile
environments

There are many different systems available and their prices vary
enormously. Therefore, before deciding on a system it’s important to adequately
research the various options, decide what you require from the system, look at
where the company will be in a few years’ time (size, location and type of
projects), and consider the pros and cons of each system and how they’ll best
suit the needs of the company in the future.
Implementing new systems
As the company grows it will be necessary to implement new systems.
Many of the systems implemented by companies end in failure because:
1. a system is selected which may be either unsuitable or too complicated and
time consuming to operate
2. managers haven’t convinced staff of the reasons and advantages of the new
system
3. personnel haven’t been trained to use it
4. personnel are not given a chance to use the system immediately after the
training meaning that they forget what they were shown
5. personnel aren’t encouraged and supported to use the new system which
means that they fall back on the old system
6. managers accept the continued use of the old system
Information Technology
Computers and systems must be adequately sized for the company. They
must:
1. not be slow
2. have sufficient capacity to handle all of the company’s tasks
3. must allow for expansion
4. be supported by local technicians
5. support the software the company uses
6. be compatible with the available technology

Most projects use computers extensively and it’s important to ensure that
staff have computers with sufficient capacity to meet the requirements of their
duties. They may require specialised software, such as planning packages, which
can be expensive, and should be managed to ensure that only products required
for the particular project are loaded on their computers. Certain software
packages can be helpful, and often their cost is far less than the benefits gained
from using them.
It’s important to regularly review software licenses. Often companies are
paying for licenses which individuals no longer require. Many software suppliers
also take a dim view when their products are used without the correct licensing
and permissions. Often, as companies grow and more people use the software,
the company forgets to buy additional licenses which could lead to them paying
large penalties.
As the company grows it’s beneficial to link all staff to a computer
network, which may even be linked to the various projects enabling faster
communication and the sharing of documents. These networks can be expensive
to establish but there can be cost savings as well as improved efficiencies.
Computers, and the computer networks, must be protected from viral
attacks, and data must be regularly backed up to a remote storage facility.

There should be policies and procedures in place governing the use of

company computers which all staff must be aware of.
Unauthorised usage of computers:
1. wastes time
2. overloads and slows down the network
3. leads to computer viruses
4. may lead to inappropriate and sometimes even offensive use
Grand ideas
Sometimes managers and business owners have grand ideas about how to
improve the company and increase profits. Sometimes these may be good but
it’s important to ask the following:
1. Is it necessary?
2. Will it make money?
3. Does the company have suitable people to implement the idea?
4. Will the results be worth the effort?
5. Will it divert resources away from other areas in the company?
6. Is this really about the good of the company or is it about benefitting
someone’s ego?
7. Is the time right?
8. Can it actually work or will it end up as a failure?
9. Can we improve on what we are doing, with similar results but less effort,
by implementing something else?

Of course if the answer to most of these questions justifies implementing

the idea then it’s important to explain to staff the reasons and steps required to
implement the plan so that there’s buy in.
Always look at new systems and organisational structures with a critical
eye and ensure that the company has considered all the pros and the cons, taking
into account all the costs, the impact of implementing the changes, and more
importantly look at existing systems and structures and understand why they
haven’t worked or how they could be improved to maximise their benefits.
I’ve seen companies decide that a system, plan or division isn’t working, in
some cases even losing money. In an attempt to rectify matters they implement
wholesale change, often implementing completely new systems and processes.
In many cases due consideration hasn't been given as to why the system failed
and how to rectify the problem. Instead, everything is changed, which often
includes things which were good, or had the potential to be good.
I’ve also seen companies spend money on hiring consultants, having
seminars, strategy sessions and trying to reinvent themselves with new logos,
vision statements and catch phrases. Many of these have ended up as a waste of
money as plans implemented were often superficial and didn’t focus on the real
problems of the company. In many cases staff wasn’t committed to the changes,
the managers eventually ran out of steam and enthusiasm, and all the work was
for nothing.
I’m not saying companies shouldn’t change. Of course they should. All
companies can improve on the way they do business. The change must however
be well considered, focussing on matters that will really make a difference.
Often only small changes can be easily implemented with dramatic positive
results.
Problems often occur because companies fail to do the basics right.
Therefore, always make certain that the first principles are carried out properly,
such as:
1. projects are delivered on time, meeting the correct specifications and
quality requirements and that they are done safely
2. money due to the company is invoiced, and paid on time
3. projects operate efficiently and avoid wastage of materials, people and
equipment
4. assets are looked after
5. tenders are done correctly
6. good clients are looked after

Change can be good, but it needs to be implemented for the right reasons
and properly, and it’s usually unnecessary to change something that isn’t broken.
However, most systems and businesses can be improved, which might just
require minor changes and adjustments.
Don’t get sentimental
Managers can’t afford to be sentimental. This can be difficult, particularly
for business owners that have built up their business from scratch. They’re often
attached to the first pieces of equipment that they bought, their first clients, the
bank that first loaned them money or personnel that helped build the company.
As the company grows and evolves it will be necessary to make some hard
choices and move on, which may mean selling old equipment or letting go of
people who may have become friends. Obviously with people and clients this
should be done with care and compassion explaining to them why the changes
are necessary and that it isn’t personal but about growing the company and
moving it forward for the benefit of other employees.
Case study:
One company had a Supervisor who had lost interest in work. He upset
clients, subcontractors and the workers. On most days he did almost no work.
Despite a number of us complaining to the owner the Supervisor remained
employed. The owner firstly defended the Supervisor. When he couldn’t defend
him any longer he made excuses for not dismissing him, saying that he had to do
it personally since he had known the Supervisor for so long. Yet, the owner was
never available to talk to the Supervisor and when he was he forgot. This went
on for months. The Supervisor earned a salary while the rest of the staff became
exasperated. It also affected discipline and staff began to joke that you couldn’t
be dismissed from the company no matter what you did.
It would have been far better to have got rid of the Supervisor when it was
apparent he was a problem. If the owner was so attached to him the money paid
on the Supervisor’s salary could have been better spent on giving him a big
departure bonus, and everyone would have been far better off.
Plant and equipment
Companies often own assets such as earthmoving equipment, small power
tools, vehicles, portable offices and computers. Many companies supply this
equipment to projects at no charge. This can be a problem because:
1. the true cost of constructing the project isn’t reflected and the contractor has
a false sense of what the work actually cost
2. projects often don’t use the equipment efficiently when they’re not paying
for it
3. projects have no incentive to release the equipment to other sites
4. Estimators tender for projects assuming that the item is available at no cost
from within the company, then, when it isn’t it has to be hired externally at
a cost not budgeted for
5. there’s no way of working out the cost benefit of owning the equipment

Sometimes projects purchase the items which can also be problematic:

1. items are purchased which are only useful for that particular project and
cannot be used elsewhere in the company when the project is finished
2. at the end of the project equipment is mislaid, sometimes ending up in
someone’s garage, on the rubbish tip or sold for less than it’s worth
3. equipment is bought which isn’t compatible with other items owned by the
company
4. the item is used inefficiently and stands unused on the project for much of
the time
5. guarantees and warranties are lost
6. the equipment may not be in the company colours with the correct logos
7. the company ends up with a surplus of some items of equipment
8. the equipment isn’t maintained correctly

To ensure the efficient use and correct charge out for equipment I would
recommend that equipment (other than small hand tools and portable electric
tools) and buildings are bought by the company, then hired to the projects as
required.
The hire rates should be calculated so that they:
1. take into account the purchase cost spread over the life of the item
2. allow for the estimated resale value of the item when it’s disposed of
3. allow for the cost of repairs and maintenance (excluding costs which are the
 responsibility of the project)
4. are market related
5. include for the insurance of the item
6. allow for the finance costs

When purchasing equipment consider the following:

1. will the internal hire cost be market related (we sometimes found for some
items we couldn’t compete with the price external hire companies charged
so it was better to hire externally)
2. are spare parts and servicing readily available
3. the duration of the manufacture’s guarantee and warranty periods and what
they cover
4. is there a guaranteed buy-back from the supplier
5. is there a long term need for the item in the company
6. are the items readily available from external hire companies
7. is there an advantage to owning the item
8. does the company have the resources and skills to maintain the item
9. can the company afford the item
10. could the money or finance be better utilised for other equipment
11. is the item compatible with equipment the company already owns
12. compare the total lifecycle costs of the various available makes and models
(often cheaper models may be more expensive to maintain, use more fuel,
be less efficient or require servicing more often)

Sometimes it’s necessary to purchase equipment when:

1. it’s cheaper to own the item than to hire it externally
2. it cannot be hired externally
3. it will give the company a competitive advantage
4. a useful item owned by the company becomes old and unreliable and needs
to be replaced
5. a project is in a remote region and it’s better to have new equipment which
usually requires less maintenance

There are other options to outright purchasing equipment such as leasing, or

purchasing with a guaranteed buy-back. All options should be investigated and
advice should be sought to see which is best suited to the company at that
particular time taking into account any tax advantages and the financial
capabilities of the company.
Reassess equipment
Companies that own their own equipment should assess it regularly. Old
equipment not only portrays a poor image of the company but often breaks
down, causing frustration on projects, disrupting the schedule and negatively
impacting the productivity and becoming expensive to maintain.
New equipment:
1. requires less maintenance
2. is often under guarantee which covers some repair costs
3. is usually more fuel efficient
4. is more reliable and doesn’t break down disrupting work
5. is often more ergonomically comfortable for operators, reducing fatigue and
improving productivity
6. can be more efficient
7. is often more powerful and can carry bigger loads
8. is usually safer
9. is often more environmentally friendly with less noise, exhaust discharge
and oil leaks
10. gives personnel a feeling of pride in their machines and the company
11. is often more likely to be better looked after than older machines

In addition to assessing the age and reliability of the equipment look at its
suitability. As the company grows the types of projects change which may result
in some equipment becoming unsuitable or unnecessary and the items stand idle
or are used for inappropriate tasks.
Although the costs of purchasing new equipment are large, the benefits
often outweigh the costs. Alternatively, consider selling unsuitable equipment
and externally hiring the correct equipment.
It can be beneficial to sell an item of equipment before it reaches the end of
its useful life. As equipment gets older its maintenance costs increase and the
price someone will pay for it decreases. There’s usually an optimum time to
dispose of equipment. One company I worked for kept accurate records of the
purchase and maintenance costs for its equipment and consequently they were
able to work out the best time to dispose of it. This varied between different
types, makes and models of equipment. Obviously this is a guide and will vary,
as sometimes even new items give problems from the beginning while others
seem to work forever without problem. Some of this depends on the operator,
the conditions the machine is working in, what it’s used for and how well it’s
been maintained. It’s therefore important to continually monitor breakdowns,
repair costs and the hours worked of all major items of equipment so that
appropriate timely decisions can be made to dispose of them.
Standardisation
As companies grow they will purchase equipment. Small companies with
limited money and access to finance usually purchase the cheapest equipment,
sometimes even second-hand equipment or end of range specials. Some owners
put little thought into whether they need the item but buy it simply because it
appears to be a bargain. This can result in the company owning a variety of
equipment, including some brands that might now be unavailable, while others
may no longer have spare parts readily available.
Different types of scaffolding and formwork equipment may be
incompatible with each other. Often these differences are not always obvious
(like the difference between imperial and metric systems) which may mean that
the problem of incompatibility is only noticed after the equipment has been
delivered to site which results in disruption and additional costs.
It’s therefore important that early in the life of the company, systems and
brands are chosen which are reputable, with parts readily available into the
foreseeable future. This isn’t to say that you won’t find better brands later and
switch to these.
We also found that certain suppliers were better at manufacturing certain
types of equipment and often, say, bought excavators from one supplier and
graders from another.
Reviewing the release of resources
Poor utilisation of resources can seriously affect the profitability of a
project and the company. Not only is there the cost of wages, but the person or
item could have been earning income elsewhere. It’s vital to constantly review
and update the resources that will be released from projects, and to allocate these
to other projects.
To do this correctly projects must provide the accurate release dates as far
in advance as possible, updating these requirements on a regular basis. Project
Managers must be aware of where their released resources will be going, and the
date they’re required. Failure to release resources on the committed dates may
negatively impact the next project.
Many Project Managers think only of the profitability of their own projects
and not of the success of the business as a whole. Sometimes a Project Manager
has to realise that releasing a resource earlier than they would have liked, or
waiting a bit longer for equipment or an individual to become available, may
impact their project, but it could benefit the company more when another project
can better use the person or item of equipment. It may also mean that additional
people don’t have to be employed by the company, or new equipment bought or
hired externally.
Management needs to ensure that the company’s resources are used
effectively and continuously so that their productivity is maximised.
Visiting projects
Managers should visit projects regularly because:
1. project staff appreciate seeing senior management
2. the client appreciates it when the contractor’s senior management is
interested in their project
3. it provides an opportunity to see first-hand how the project is going
4. they may see problems which others have missed
5. they can pass on some of their knowledge and experience to project
personnel

Visits shouldn’t be rushed, allowing quality time to be spent with Project

Managers. Often managers spend only a few hours on site, criticise the Project
Manager, and leave. What has been achieved? Very little! The Project Manager
hasn’t been told how to correct the problems and no assistance has been
suggested or implemented to help improve the situation. In fact, the Project
Manager probably takes the criticism personally, becoming defensive instead of
asking for solutions.
When planning the visit, managers should take cognisance of the Project
Manager’s commitments and plans for the day. I’ve seen senior managers visit
on a day when the Project Manager isn’t present (they’re on leave, attending a
course or visiting the client’s office), they’re tied up in meetings or busy
completing month-end reports.
Obviously when Project Managers are absent for a period of time it’s
necessary for a manager to visit the project to ensure the works are proceeding
without problems in the Project Manager’s absence.
While I realise many senior managers have busy schedules they do have to
consider why they’re visiting the project and what they hope to achieve. In many
instances it may be pointless visiting the project if the Project Manager is
unavailable.
It’s easy to visit a project, spend a few hours on the project and return home
without achieving much. I found as a manager I needed to set goals and
outcomes for my site visits to ensure I left with a better understanding of the
project and that I made a meaningful contribution to the running of the project. I
used to set a target to find a certain number of safety and quality issues as well
as ways to improve the running of the project. Of course it shouldn’t appear that
you are only on a fault-finding mission.
Managers visiting the project should meet as many staff as possible. It’s
easy to not recognise staff or to forget their names. Sometimes there are new
people you’ve never met. Consequently I always requested my Project Managers
to introduce me to staff by name (even if I’d met them before) as we moved
about the project. This way there was less chance of me embarrassing myself by
not remembering a person’s name or job title. I worked for one company where
the CEO regularly called staff by the wrong name. This isn’t really a poor
reflection on the CEO as there were a few thousand staff, many of whom the
CEO met only once or twice. However, damage is done when a manager walks
past staff without greeting them or uses the incorrect name. A personal greeting
from a senior manager, especially if there’s an enquiry about a family member or
a comment about previous successes, is sometimes as good for a person’s morale
as if they were given a pay increase. It’s even better if the manager compliments
them on a job well done.
Managers need to leave the project with a good understanding of the
project’s:
1. problems
2. progress measured against the schedule
3. profitability
4. safety
5. quality
6. resources
7. outstanding payments
8. unresolved claims and variations
9. concerns which the client may have

Where necessary they should have provided advice on what corrective

action needs to be implemented to support and assist the project.
Security
Theft can be a major cause of loss in a company. It can take the form of
petty theft such as stationery, even larger items such as computers, and ranging
to the theft of vehicles and equipment. Not only is there the physical cost to
replace items but there’s the additional costs of reporting and investigating the
incidents, and more importantly, there’s the disruption of day-to-day business
caused by the missing materials or equipment.

It’s also important to ensure that sensitive documentation is kept secured.

This documentation would include:
1. personnel records
2. employees’ rates of pay and bonuses
3. records of disciplinary procedures
4. personal evaluations and appraisals
5. tender documentation
6. project cost reports
7. company financial records
8. details of bank accounts and passwords

Sensitive documentation falling into the wrong hands could:

1. jeopardise tenders
2. damage client relations
3. impact the outcome of negotiations over claims
4. influence relationships with suppliers and subcontractors
5. affect the company’s ability to negotiate with clients, subcontractors and
suppliers
6. jeopardise industrial relations causing unhappiness and affecting morale
and productivity
7. result in poor press and bad publicity
8. impact any legal proceedings and claims that the company may be involved
with

Furthermore when documentation goes missing and there isn’t a copy, time
is wasted trying to recreate it.

To minimise the risk of theft ensure that:

1. offices are locked after hours
 2. confidential documents are password protected on computer networks
3. documentation is regularly backed up to a secure location
4. sensitive documents are locked away when not in use
5. only authorised personnel have access to confidential information
6. personnel using this documentation are aware that it shouldn’t be
disseminated or left where unauthorised personnel may have access to it
7. unauthorised people aren’t permitted access to offices and work areas
8. people working with confidential documentation may need to work in a
secure office
9. suitable security measures are implemented such as:
1. providing sufficient lighting
2. limiting entry and egress points at offices and project sites
3. fitting and arming alarm systems
4. fitting suitable locks, security doors and gates as required
5. installing fencing
6. hiring security guards as required
10. ensuring vehicles are locked when not in use and the keys are stored in a
secure place
11. ensuring that personal computers aren’t left in parked cars or open offices
where they can be stolen

Many security measures cost money to implement, but their cost must be
weighed against the risk and consequences of a theft occurring. However, many
actions outlined above can readily be implemented at no cost and are simply a
matter of people being aware of the likelihood and impact of a theft occurring,
and ensuring that simple procedures are followed, such as locking office doors
and windows before leaving.
Company store and yard
Many companies have a store, or even a yard. Some of these can be quite
large. Unfortunately many of them aren’t controlled properly.
Some important points regarding the store or yard are:
1. they shouldn’t become a dumping ground for the junk left over at the end of
each project and only material that can be used on another project should be
sent to the yard
2. they should be kept neat and tidy and have proper stacking and storing
areas
3. they must be secure and controlled to prevent theft
4. items that can be damaged by water or dust must be secured under cover
5. the area must have adequate drainage
6. they must be planned to allow access for deliveries and collections
7. there should be separate, ventilated areas, with bunds, for hazardous and
flammable liquids
8. the correct permits must be in place
9. sufficient firefighting and first-aid equipment must be available which
should be inspected regularly
10. they should be controlled and materials removed and received must be
logged
11. Project Managers must be aware of what’s available in the yard
Manage risk
Contractors must manage risk. All projects have risks of varying degree so
it’s important to understand the type, level and amount of risk and ensure that:
1. they are understood by everyone so that they can be managed and
mitigating steps put in place
2. if the risk eventuates the quantum isn’t so enormous that it destroys the
company
3. there are suitable rewards for taking on the risks (add additional profit to
high risk projects)
4. where possible insurance is taken against the risk occurring (either
externally or internally)
5. if possible the risk is passed back to clients
6. if it seems that the risk will eventuate, staff take immediate action to limit
the impact to the project and company
Managing through boom periods
Sometimes contractors are lucky and there’s so much construction work
that they can take on as much work as they want at higher profits than normal.
However, managing in a boom is often more challenging than operating in
normal times, or even in a downturn.
Often there are so many opportunities that it’s difficult to turn them away,
resulting in the company taking on more and more work. Resources, both on the
projects as well as in the office, become over extended. The company has to
employ new people, often from a shrinking pool of available resources. At times
the quality of people employed during these times is questionable. Management
becomes stretched due to the additional projects, meaning that they have less
time to spend with the new employees who don’t understand the company’s
culture or the required quality and safety standards.
Furthermore, during a boom period profit margins on projects increase
resulting in staff becoming complacent as it appears easy to make money. I’ve
been involved with many projects where the tendered profit margin was 5% and
we ended up making a profit of over 12%. On the other hand I’ve had projects
with a tender mark-up of 20 or 25% which have seldom made the tendered
profit, in many cases falling well short.
After undertaking projects in a boom it’s difficult to get staff used to
working in an environment of low profit margins where it’s necessary to fight
for every dollar to make any money. They’ve become used to making large
profits even though they were wasteful on site.
When there’s surplus of work available contractors also take on larger
projects, some of which may be too big for the company, stretching its cash flow
and resources, often resulting in the company going out of business or ruining its
reputation. In fact, I know of many companies that have ruined a good reputation
during times of abundant work.
Another problem is that suppliers and subcontractors also become busy,
resulting in them raising their prices, which cuts into the contractor’s profits. In
addition, they have so much work it often results in poor service and longer lead
times which again impacts on the profitability of the contractor.
Because there’s so much work to be priced the tender departments become
over extended resulting in them rushing tenders and making errors. Since the
margin is higher the company becomes careless about analysing the risks. In
fact, sometimes the company is so fixated about the seemingly wonderful profit
that they will abandon all caution and good tender practices just to secure the
project.
 The important aspects of contracting in a boom period are not to become
greedy, lazy or complacent, and be selective with what projects are tendered for.
Try and assist your long term clients where possible as you’ll need them when
the market turns down, however, do take the opportunity to tender for larger
projects, possibly in the next level above where you would normally tender, so
that you can add these bigger projects into the company’s portfolio.
It’s important that during a boom period the company considers the
downturn which will inevitably eventuate. This means ensuring that they build
up sufficient capital reserves, don’t take on more debt than they have to, or
purchase equipment that’ll be difficult to use during a downturn. When things
are going well it’s difficult to remember the bad times and imagine that they
could return.
It’s also wise to remember that additional people employed in the good
times are going to need projects to keep them busy in the downturn, or they’re
going to have to be retrenched which could be a costly exercise.
Managing through a downturn
Starting a company during a downturn in the construction industry is often
not as bad as it might sound. It gives the company a chance to grow slowly,
developing robust systems that should stand it in good stead. The company
usually also has the opportunity to find good skilled people from a large pool of
available resources.
However, if the contractor has just been through a boom then a downturn
can be stressful since management has to try and keep all their people, plant and
equipment employed, or alternatively, they have to retrench employees and sell
plant and equipment. It’s important though, that the company doesn’t take on
projects that will lose money in an attempt to keep people employed.
A downturn should be used to trim dead wood in the company by
retrenching those who are poor performers. However, where possible skilled
people must be retained as they will be needed when the next boom comes. In
fact, skilled people are even more important in a downturn because the company
cannot afford errors on their projects and every dollar becomes critical.
Since suppliers and subcontractors will probably also be short of work it’s
imperative to negotiate better rates and payment deals. Of course they shouldn’t
be squeezed to such an extent that they’re going to lose money on the deal and
go out of business, or that they start taking short cuts or don’t deliver the
required service.
Everyone in the organisation needs to understand how important it is to find
work. Project Managers should try and eke out as much extra work as possible
on their existing projects, no matter how small. Not only will this help to keep
resources employed on the project longer, but, often these projects have been
tendered with a higher margin than current tenders so it could be more profitable
to do bits and pieces on the existing projects. Where possible, encourage and
help the client by highlighting opportunities for additional work.
A major problem is when the downturn is felt across the whole economy
and it results in clients experiencing financial difficulties and being unable to
pay the contractor for completed work. This impacts the contractor’s cash flow
and can easily send them out of business.
It’s easy to panic in a downturn, making rash business decisions or
submitting risky tenders, which often only makes the company’s position worse.
In all of this, communicate with staff since many of them will start to feel
insecure, resulting in them becoming demotivated and even leaving the
company. Unfortunately, it’s usually the better employees that leave first.
If the company is in trouble it’s often good practice to be honest with
clients and ask them to assist by paying a few days earlier or even awarding the
company some additional work. It’s not in the clients’ interests to lose a good
contractor, and especially one that’s in the middle of one of their contracts. Of
course staff shouldn’t know if the company is experiencing financial problems
as this could result in employees leaving in panic.
Corporate social investment
Most companies will be regularly approached by charities, local
organisations, schools, and so on for donations. Nearly all companies make some
form of contribution which may just be a few dollars, several thousand dollars,
or in some cases isn’t a cash donation but is a contribution of time and machines.
Most companies don’t track these donations and would be quite surprised at the
total amount, especially when the contributions are added in from the different
projects.
In general I would recommend that all the donations and contributions of
money, time and equipment are recorded since the value of the contributions,
particularly those to local communities, can be a useful marketing tool. As
discussed in Chapter 2, if possible try and rather contribute a few larger amounts
than many smaller amounts, and if possible contribute towards particular items,
like bursaries, new computers or new classrooms, rather than just a general cash
donation to the organisation. The handing over of these donations or awarding of
the bursaries can be used as an opportunity to advertise the company by inviting
the press and clients. Obviously the contribution must be meaningful and
worthwhile, otherwise it can seem ridiculous.
While a company is successful they should be contributing to good causes,
particularly if the success has been due to working in a particular area or
community. However, if the company is going through a poor financial period it
may be necessary to cut back on donations to ensure the company is able to
survive through the difficult times.
Summary

1. To successfully manage a construction company managers require many
attributes and knowledge of the local laws and legislation. They should
also:
1. have an open door policy
2. avoid implementing systems that waste time
3. limit the number and length of meetings and ensure that only those
relevant to the meeting attend
4. ensure that important tasks are done on time
5. learn to say no
6. be able to communicate, persuade and negotiate
7. stand up for their team when they’re right
8. make timely decisions taking into account the relevant available
information
2. Companies must have appropriate structures and reporting lines.
3. Unnecessary company overheads must be avoided and Head Office running
costs must be limited.
4. Appropriate departments may be set up to control some of the company’s
functions.
5. As companies grow it may be necessary to create different divisions
responsible for different types of work or different areas, however, these
divisions shouldn’t operate completely independently of each other and
must be willing to cooperate and share resources.
6. Managers must take an active role in promoting and monitoring safety.
7. Tender systems should be implemented which simplify the tender process,
make it more reliable, providing useful information which can be included
in the submission and complement the running of the project.
8. Insurances must be reviewed regularly.
9. The company must have valid licenses, permits and registrations to operate
in each area and field of operation.
10. Guarantees must be retrieved from clients as soon as practical.
11. To enable the company to operate efficiently:
1. suitable document control systems must be implemented
2. policies and procedures must be in place and be available and
understood by staff
3. an operations manual should be maintained
4. standardised stationery should be prepared and available
 5. documents must be correctly archived in a safe location
12. The company must decide what work they will do in-house or self-perform
and what they will subcontract.
13. It’s important that problems are reported, mitigated and solved as soon as
possible.
14. When unsure of something managers should seek advice and even engage
experts to provide the solution.
15. Mistakes must become lessons.
16. It’s useful to maintain a data base of subcontractors and suppliers which
records their performance.
17. Managers need to adapt to changes in the environment.
18. Technology can be useful but new technology must be implemented
properly and needs to be suitable for the needs of the company.
19. New systems are sometimes necessary but care needs to be taken to ensure
that they are appropriate and are implemented correctly.
20. Sometimes change is required, but managers must resist implementing
grand ideas which are unnecessary, inappropriate and costly. Minor
adjustments focussing on the basics could be far more effective, incur fewer
costs and result in fewer disruptions.
21. Managers shouldn’t be sentimental and must make decisions based on
sound business principles.
22. Plant and equipment owned by the company should be:
1. managed properly so that it’s productive
2. hired to the projects
3. assessed regularly to ensure that it’s appropriate for the work being
undertaken by the company
4. replaced when necessary
5. standardised where possible
23. Resources must be regularly reviewed to ensure that they are productive,
are not idle and are released timeously for other projects.
24. Visiting projects is an important aspect of a manager’s duties and these
visits must be coordinated so that sufficient time is spent with Project
Managers enabling value to be added to the project and so that managers
leave with a full understanding of the problems, risks and profitability of
the project.
25. It’s vital that steps are implemented to ensure the security of property and
information.
26. Company stores and yards must be properly managed and maintained.
27. Risks must be managed and where possible avoided, or measures taken to
 mitigate them.
28. Appropriate steps must be taken to successfully manage the company both
in a boom period and during a downturn.
29. Corporate social investment is important, but it must be appropriate,
relevant to the company’s operations and tracked so that the total value is
known.
Chapter 12 – Growing the Company
Many contractors start off successfully. They develop a good reputation and
are profitable. The company grows. Then the cracks appear. Quality deteriorates.
Projects are no longer profitable. The company starts losing money.
Why does this happen? Well there are a number of reasons.
1. Normally a company starts off small and the owner is hands-on, full-time
supervising projects. When the company grows the owner can no longer be
hands-on and passes control to managers and staff who aren’t necessarily as
focused on ensuring that the projects are successful, and don’t take the
same pride in looking after clients and achieving quality work as the owner
did.
2. Sometimes the new managers are inexperienced. Small businesses often
employ mediocre staff because they’re unable to pay large salaries or attract
good people.
3. Often owners don’t delegate work correctly. They try and remain in control,
but have too much other work and are unable to attend to everything,
leaving projects waiting for materials, resources, decisions and guidance.
4. Clients become frustrated when the company isn’t responsive because the
owner is busy attending to other business.
5. In addition, the company undertakes more and bigger projects, resulting in
them having insufficient cash flow. Lack of cash disrupts the procurement
of materials and payment of subcontractors, causing delays and, in the
worst case, the company goes insolvent.
6. Sometimes the company experiences a rapid expansion in a boom period
and employs more staff, moves into bigger offices and purchases
equipment. Unfortunately these boom periods are short lived and end just as
suddenly as they started. The contractor is left with excess staff and
equipment in offices that are too large with a high rental.

However, it’s important that businesses grow because it enables staff to

develop and creates opportunities for advancement. It’s also the only way that
business owners can move out of managing projects to managing a company.
However the company must grow in a sustainable manner and growth needs to
be managed without harming the company’s reputation.
Controlled growth
It’s imperative that the company grows in a controlled manner. The owner
must gradually hand over control of various areas of the business to trusted,
experienced individuals. The company must progressively increase the number
and size of the projects they undertake, ensuring that they always have sufficient
cash to finance their operations (including maintaining a buffer for when the
unexpected happens) and sufficient resources to carry out the work.

Is there a long term future?
Many contractors launch themselves into new ventures in different fields
and in new areas, often purchasing equipment and employing personnel without
considering the long term future and viability of the venture.
Case study:
One company decided to start a core drilling and concrete cutting division,
so they purchased a vehicle with specialised equipment. However, they hadn’t
researched the viability of the idea, nor prepared a financial feasibility study.
There was insufficient work in the region to keep a team fully occupied, and
certainly not enough work to justify the capital expenditure on the equipment.
Furthermore, no one was allocated the task of looking after the new business
and marketing it. Consequently the vehicle and equipment stood idle and slowly
items were removed to use elsewhere. Eventually it was no longer a useful or
productive unit.
Many projects and business ventures seem to be a good idea at first glance,
yet it’s important to first perform a feasibility study to check their viability and
potential profitability. It’s equally important to check the long term sustainability
of the venture since many products or services can be in high demand, but their
demand is short lived.
Not haphazard
Many companies grow in a haphazard fashion without planning for the
future needs of the organisation. People are employed to fill vacancies with little
thought as to whether the position will be required in the future, or whether the
candidate will be suitable for that position in a bigger company.
Departments are formed and grown haphazardly which results in them
having to be restructured, or even done away with, as the company grows.
Reporting structures or managers may have to be changed to suit the larger
company.
I’m not saying that the company must now set up all the departments and
structures that’ll be required in five years’ time, nonetheless they should at least
have an idea of what the structure will look like in a few years. The plan will
evolve and change with time, but the important part is that the current structures
should also be able to evolve and change.
Some companies also target a varied type of work, employing skills and
purchasing equipment for one project which maybe can’t be used on the next,
with little idea of the direction and type of work they want to target in the future.
Not growth at any cost
Some business owners and managers are driven to grow the business no
matter what the conditions are. Large companies have shareholders who expect
the company revenue to increase every year, particularly after the company has
experienced a few years of stellar growth. Unfortunately construction has
periods of growth and times when work is in short supply. It’s inadvisable to try
and expand the company in times when work is limited.
Of course some managers are incentivised by pay increases and big bonuses
to drive the growth. As a result they often do this at any cost, with little thought
for the future of the company, purely focussed on the short term results to satisfy
their personal bank balances and egos.
Systems
It’s difficult for a company to grow if it doesn’t have appropriate systems in
place. These systems include financial (to handle debtors and creditors), cost
control, payroll and tendering. They need to be simple to operate but allow for
future expansion.
Manual systems can be useful for small businesses but rapidly become
inadequate when the business grows.
I often see large companies running with systems which are more suited to
small businesses. These systems cannot handle the volume of information,
resulting in disruptions, causing the company to eventually migrate to another
system. This causes further inconvenience since personnel have to be trained to
operate the new system and existing data has to be transferred (which takes time
and may result in data being lost).
People
Growth can’t be achieved without the right people. Unfortunately many
smaller companies employ people used to working in a small company, who
don’t have experience and knowledge of how large companies operate. This
could be because when the business started the owner employed friends,
acquaintances or relatives. Also there are usually limitations on salaries a small
company can afford to pay, and in any event, people who’ve previously worked
for a large contractor aren’t easily attracted to a small company.
Eventually companies can outgrow the people originally employed. Don’t
get me wrong, many people do grow and develop as the company grows, but
unfortunately, some don’t and ultimately become a burden. It eventually
becomes necessary to ask them to leave or move to a position better suited to
them. However, transferring a long term employee to another position, or
bringing in someone from outside or from under them to become their manager,
can result in an unhappy and unproductive employee so it needs to be done with
care.
Cash flow and guarantees
Cash flow is a major stumbling block to the growth of a company. A
company can be generating good profits but if this profit isn’t turned into cash in
the bank they won’t be able to finance the growth of the company.
Bigger and more projects strain cash flow further since more money is tied
up in retention and more is required to pay wages and suppliers.
Compounding the cash flow problems is that obtaining additional surety
facilities for extra projects usually requires the contractor to deposit additional
cash with the institution as a guarantee for them issuing the sureties and bonds.
Supporting departments
As the company grows it becomes necessary to employ more Head Office
personnel to support the projects, often resulting in the creation of new
departments. These may include; financial, tendering, quality, safety, planning,
legal and contractual.
Of course these aren’t all required straight away and will develop in stages
as the company grows, but they add to the company’s overhead costs.
Registrations for quality, environmental & safety international standards
As a company grows it will need to obtain the appropriate registration and
certification that confirms that they comply with quality, safety and
environmental standards. Certification is often a prerequisite to be able to tender
for many projects. Even if it’s not, it can form an important part in securing the
award of a project.
The various certifications require the contractor to have systems in place to
ensure that the company’s operations are compliant with specific recognised
standards. In addition compliance needs to be monitored since audits are
performed regularly by outside agents to ensure standards are maintained.
Setting up the systems and ensuring continued compliance costs time and effort.
Much of the work can be done by external agencies or contractors, but ultimately
those working within the company will need to operate the systems.
More projects or bigger projects
A company can grow by undertaking more projects, or larger ones. As
discussed in Chapter 1 it’s often simpler to have a few larger projects than
several smaller ones. However, clients won’t award a large contract to a
contractor they consider doesn’t have the experience or means to tackle it. Large
projects also come with their own sets of risks as discussed earlier and
contractors need to ensure they have the resources and financial capacity to
undertake them.
Few contractors will be able to grow without undertaking larger projects, so
the optimum is to grow by taking on more projects and a few larger ones as well.

Where to next – location, field, client.
Often growth potential is limited in the area, or in the field in which the
company normally operates. To expand, the company may have to consider
working in other regions, possibly forming relations with new clients and even
developing new skills to work in other trades or fields.
The important part is not to let this new business distract the company from
doing what they are doing well. Often I see new endeavours take an
extraordinary amount of management time and company resources, resulting in
the company neglecting their existing projects and clients, culminating in
additional costs and even lost business.
Having said this though, it’s important that a new area of business isn’t
tackled in a half-hearted manner causing failure. It’s a fine balance to continue to
manage the existing business while successfully expanding into new markets and
regions.
It’s usually best to stick to a field related to the one that the contractor is
familiar with, which requires people with similar abilities and uses related
equipment. I’ve seen many contractors branch out into completely different
fields, with no similarities to the one they’re currently working in, often ending
in expensive failure because the company doesn’t have the necessary expertise
or experience. As the saying goes, ‘stick to your knitting’. But, I would add, do
try knitting different items.
Expanding to other states or countries
Many companies expand by working on projects in other states or
countries. Several of these ventures are very successful, but, for every success
story there’s a horror story of companies losing millions or even going out of
business.
Before operating in another country consider:
1. Do you understand the legislation and rules in the country?
2. What permits and registrations are required?
3. Will the legal system protect the company if things go wrong?
4. Will the company be paid?
5. Do you have personnel willing to work in these countries?
6. What are the logistics to transport goods and people to the project site?
7. Are there diseases, particularly in tropical areas (like malaria), which could
pose a risk to employees?
8. What are the taxes and how are they implemented:
1. GST or VAT
2. import duties for materials and equipment
3. what is the tax rate on companies
4. is there a tax treaty between the countries so that tax isn’t paid both in
the country where the project is located and the company’s home
country
9. Will you be able to get your equipment out of the country when the project
is completed?
10. Are there security risks?
11. Have you considered the climate? For instance, tropical regions can be very
wet at certain times of the year causing disruption and delays.
12. Is the country politically stable?
13. Are materials and equipment available and what are their costs?
14. Is there a risk of major currency fluctuations?
15. Will the company be able to take their money out of the country?
16. Are the required skills available in the country?
17. Will there be suitable medical treatment available to treat personnel who
are injured or become ill on the project, or should emergency evacuation
procedures and insurance be put in place?
18. What are the costs and requirements for taking staff and workers into the
country?
19. Is the country generally free from corruption (working in countries where
bribery is rife not only makes it expensive to do business but it’s also
 dangerous, so they should be avoided whenever possible)?

Many of the above will also have to be considered when working in a

different region within the same country. If the costs and risks have not been
adequately considered during tender stage the project can turn into a disaster,
ending up costing the company money.
Purchasing another company
One method of growing is to purchase another company. This, though,
usually requires substantial funds and is fraught with risks. I worked for a
company that purchased a number of companies over a period of time. Some of
these purchases were very successful and contributed to the growth of the
company. Unfortunately about half of the purchases were unsuccessful with a
few turning out to be more costly than expected.
Many companies purchase a poorly performing company with the intention
that they will be able to turn the company around. Regrettably this isn’t always
as easy as it seems. The new company often demands lots of management time
which is diverted away from doing what they were successfully doing – which
was running a good company. I’ve often seen the diversion of management
adversely affecting the performance and reputation of the original company.
It’s important to carefully analyse the reasons for purchasing the company.
Only purchase a company if it’s going to offer new opportunities. These may be
because the new company:
1. Is working in a different region and it will help your company expand into
this region. Nevertheless, it’s important to first:
1. analyse the risks and opportunities of the region
2. understand whether the new company is operating successfully in the
region
3. check that they are making money
4. understand the reasons for their success
5. ensure that there will be further work in the region
6. understand whether the company will provide the appropriate spring-
board to expand into the region
2. Has established relationships with different clients to the ones you normally
work with. However, you must first understand:
1. the reasons for these relationships since they are often built around
personal relationships which can be worthless should individuals leave
the client’s or contractor’s employ
2. whether the clients will continue to provide work opportunities
3. Has expertise in a different field. Nevertheless, first check the following:
1. is this expertise because of particular individuals employed by the
company, and will they remain with the company after the take-over
2. could these individuals, or others with similar expertise, be engaged by
your company at a fraction of the cost of purchasing the whole
company just to get their knowledge
 3. is the whole company expert in this field, or are you purchasing other
sections and people which are less useful and may even have to be
terminated later at additional costs
4. is the company really an expert and is their reputation with clients as
good as you perceive it to be
5. will having expertise in this field enhance the company’s capabilities
and profits
4. Has a large pool of personnel. But first ascertain:
1. whether the personnel will remain with the company (I’ve generally
found up to half the employees resign and leave the company within a
couple of years of the buy-out – unfortunately it’s often the better ones
that leave first)
2. if it would have been cheaper to attract the skilled people from
elsewhere, rather than purchasing the company to get the people
3. how many of the people aren’t good and are dead-wood who will need
to be made redundant
4. the overlap of resources between the companies since it is invariably
necessary to terminate staff when there is already a person fulfilling
that function (this termination process is expensive and causes fear and
resentment amongst the new company’s employees – leading to
resignations and poor performance)
5. Has lots of equipment. However, it’s necessary to check:
1. if the equipment can be utilised (remember there’s no choice and
you’re paying for all of the equipment whether you can use it or not)
2. are the items compatible with the equipment already owned
3. if the equipment is of a similar model and make as equipment already
owned, since having assorted models and makes means additional
spares have to be kept and maintenance is more difficult
4. the condition of the machines and have they been regularly maintained
with service histories and records
5. are the warranties in place and still valid (because some may have
been invalidated if the equipment hasn’t been serviced correctly or the
original manufacturer’s parts haven’t been used)
6. the condition of wearing parts and tyres as there could be a large cost
to replace them
7. are there facilities and people in place that will continue to maintain
the equipment
8. are spare parts readily available for all the items
9. who owns the equipment
 6. Alternatively by purchasing the company you may be removing a
competitor. But is this:
1. going to be a benefit worth the cost
2. not going to result in another company taking their place

It’s imperative that a proper due diligence is carried out on the new
company. This should include reviewing:
1. many of the items above
2. the financial statements and verifying their accuracy
3. all projects and understanding their safety, quality, outstanding payments,
what costs and revenues have been declared and whether these are correct,
potential problems, progress measured against the project schedule, forecast
cost to completion, resources, suppliers and subcontractors, the status of
claims and variations, if the client is happy (review project progress
meetings) and the quality of staff
4. outstanding debtors and creditors
5. business systems
6. employment contracts
7. accident and insurance claims
8. unresolved problems on past projects
9. tenders which have been submitted and may be awarded
10. operating procedures
11. their tax affairs
12. outstanding guarantees and warranties
13. labour relations and agreements
14. the numbers of staff, their skills and years of tenure
15. lease and rental agreements
16. money owing on equipment and other assets

Buying another company and integrating it with your company can take a
number of routes which will depend on the region in which the company
operates and its size and field of expertise. The company can:
1. be left to operate as a separate division within the company
2. be left to keep its name and continue to operate as a separate company
3. operate as either of the two forms above but with key people from your
company inserted into the new company’s management structures
4. be fully integrated and merged with an existing division, or the company as
 a whole, losing its identity completely
5. part of the company may be integrated and part may operate separately, or
parts may even be broken out and sold

When purchasing a new company it’s important to have a plan in place to

ensure that the integration happens speedily and efficiently. There will always be
lots of uncertainty amongst the new company’s staff as well as their clients and
suppliers. This uncertainty may result in clients taking their business elsewhere,
suppliers cutting off deliveries and staff resigning or operating at reduced
productivity.
As part of the merge of the companies the following should happen:
1. Before buying the new company have a clear vision of how the merge will
take place and ensure that the senior management of the other company
understands this vision.
2. Once the purchase has happened, communicate the vision, processes and
advantages of the purchase to staff of both companies. Senior management
from both companies may have to talk to all staff (it should be noted that
this is usually more of an overview rather than a detailed step-by-step
view).
3. Meet with key clients to inform them that it should be business as usual but
outline the advantages to them of doing business with the bigger company.
4. Meet with key suppliers, or send them a letter, to reassure them that
accounts will be paid. If necessary provide them with new details of where
their accounts should be addressed as well as highlighting any different
processes.
5. Ensure key staff have bought into the idea and are committed to make it
work so that they communicate and convince other staff of the advantages
and benefits.
6. Take steps to protect and secure equipment because often staff-members
take the opportunity to remove company property in the confusion created
by the merger.
Cost of growth
Growth can be costly. As the company takes on more and bigger projects so
to must the administrative and support systems and staff grow. The increase in
these systems results in the company’s overheads increasing. Unfortunately the
growth in administration and support is often not directly proportional to the
increase in turnover. For instance, the company may employ one person in the
payroll department but when the number of employees becomes too much for
one person to handle a second assistant must be employed. The turnover of the
company hasn’t doubled, yet the salaries in the payroll department have.
Eventually the company may even have to move into bigger offices which
results in more costs. However there will also be times when the growth in
turnover doesn’t result in a growth in overheads since better efficiencies are
achieved with the same resources.
Sometimes growth costs money because:
1. new equipment must be purchased
2. new regional offices must be set up and staff employed for these areas
3. there are often unforseen learning costs of operating in new areas or in a
different field
4. new people are employed with specialist knowledge and they may not earn
revenue for the company for several months until they secure a project
5. additional funds are required as security for more and bigger sureties and
bonds

Contractors must consider all the additional costs, carefully weighing up

whether the growth is sustainable and that the costs can be recouped and
rewarded several times over.
Summary
Many successful contractors fail when they grow.
It’s important that growth is:
1. done in a controlled manner with owners gradually handing various areas of
the business to trusted and knowledgeable individuals
2. pursued in areas where there’s a future for further work
3. not haphazard and that the company has a vision for the future
4. not pursued at any cost

To grow the company:

1. requires suitable people
2. there must be appropriate systems in place to support the growth
3. there must be sufficient funds to finance the growth
4. requires support departments and Head Office staff
5. often requires the company register with and comply with recognised
standardisation bodies

Growth can be achieved by:

1. doing more or larger projects
2. expanding to new locations
3. developing new clients
4. branching into new fields
5. going into other countries and regions
6. purchasing another construction company

Growing a company can be costly so it must be well considered. It’s

however essential for most companies to grow.
Chapter 13 – Reputation
Contractors are only as good as their last mistake. Unfortunately most
people remember the faults and very few seem to remember the good work and
successful projects. When asked which restaurants gave you good service or
scrumptious food you’ll probably have to think, but if you are asked which
restaurant gave you bad service or poor food, you’ll probably recall the name
instantaneously, even remembering the date and who you were with at the time.
Construction is much the same and clients will remember errors long after
they’ve been remedied. They can be unforgiving. Even if your price is the
cheapest but you have a poor reputation (which may even be undeserved) you
will not be awarded the project.
One mistake can undo thousands of hours of hard work. That error may be
caused by you or one of your employees. Even incidents that you consider trivial
can be problematic for the client (sometimes it shouldn’t be a problem but
clients view things differently and have different priorities and agendas).
Incidents that can affect a company’s reputation include poor quality, ill-
disciplined staff, aggressive behaviour when settling claims and variations,
safety incidents, environmental accidents and not delivering a project on time.
Furthermore, clients talk to each other and word quickly spreads that a
particular contractor is problematic.
It’s important that all personnel understand the importance of delivering a
quality project on time without safety, environmental or disciplinary breaches.
Reputation is a team effort and everyone needs to understand how important it is
for them to portray the company in a good light, maintaining the company’s fine
reputation in everything they do.
Proactive
Clients like to work with contractors who are proactive and anticipate
potential problems so that they can be solved before they occur. It’s important to
work with the client as a team, communicating with them regularly, so that they
are made aware of possible complications and variations as soon as they become
apparent.
Assist the client with solutions to their problems. Remember that you often
have more experience than most clients. In offering solutions, though, be
cautious that you’re not taking on the responsibility for the solution. It’s
important that the client’s designers verify the proposed solution is suitable.
Continually advise the client of increases in costs, particularly if the client’s
budget could be exceeded. This will enable the client to either arrange the
additional funding or cut costs elsewhere.
Responsive
Contractors need to be responsive to clients’ demands. I don’t mean do
work without charge, but rather try and accommodate the client’s changes and
additions where possible. The nature of most projects is that the client will
change the schedule, their milestones, as well altering structures, buildings and
finishes. These changes can often be frustrating and take up the contractor’s
management time. It’s frequently easier to say no to the client since the
additional variations may barely cover the cost of doing the work. But, by
always saying no the contractor will quickly get a reputation of being
uncooperative.
Being responsive also means returning the client’s phone messages, making
yourself available for meetings, responding to queries promptly and submitting
prices and revised schedules on time.
In addition, when there’s a problem, either during construction or after the
project is completed, it’s essential that the contractor responds and rectifies the
problem as soon as possible if it has been caused by them.
Being responsive however doesn’t mean that you must accept being bullied
by a client who doesn’t respect the contractor’s rights.
Fair-minded
Clients must perceive the contractor as being fair. This doesn’t mean that
the contractor shouldn’t charge for additional work or variations, but rather that
the contractor shouldn’t take undue advantage of the client and charge
excessively for these additions, or charge for work they haven’t undertaken.
All of this is about perception, so it’s important that the contractor
highlights to the client items which they have carried out for a reduced rate or no
charge, and to explain why the rate for some work seems to be excessively high.
When something has been taken out of the scope of the works the
contractor should pass on the saving to the client.
Case study:
Many years ago a client awarded us a project worth ten million dollars. We
had been on site for a few weeks busy with the excavations and site
establishment when the client cancelled the contract because they had changed
their plans. We filled in the excavations and demobilised from site, charging the
client only for the work we had completed.
In terms of the contract we didn’t have rights to claim for anything more
than this, however the client believed that we could have charged them for the
loss of profit on the cancelled work and they were relieved we had been so
reasonable with our claim. Because of this they felt that they had some
obligation to repay us, so over the next few years they awarded us several large
projects which in aggregate were nearly three times bigger than the cancelled
project.

How much profit is too much?
This sounds a stupid question and I’m sure I’ll be ridiculed. Surely there
can’t be such a thing as too much profit? I’ve been fortunate to have completed a
few projects where we’ve made substantial profits. However, the amount of
profit does depend on the circumstances and the clients. It’s important, though,
that the client believes that they are getting a fair deal. If they don’t they will
simply take their business elsewhere.
To a lesser extent the amount of profit also depends on how much the client
is prepared to pay, which may indicate I’m advocating richer clients should be
charged more than other clients, which I’m not. It’s just simply that when
projects become too expensive they are no longer viable and the client won’t
proceed with them. Furthermore, a client who runs over budget on one project is
often reluctant to start the next project.
 Working with clients can sometimes be likened to having a cow. You can
keep milking it every day, making some money from it for many years, or you
can slaughter it and make lots of money once.
Some contractors get a reputation for overcharging clients, or being too
expensive and clients simply stop using them.
Safety
It’s essential that construction companies take safety seriously. I’ve known
contractors being barred from working for certain clients because of their poor
safety record.
Some clients pay their managers bonuses which depend on their safety
record. Therefore these managers won’t tolerate unacceptable safety practices
from their contractors because it will adversely affect their bonus.
In addition, accidents create work. Incidents have to be investigated, reports
written and explanations provided to management. Nobody likes additional work
— especially the client’s team! Serious accidents may even result in people
losing their jobs. Consequently most clients will go out of their way to ensure
that the contractor they pick has a good safety record.
Also, don’t underestimate the poor publicity a company gets when there’s a
serious accident on one of their projects.
Quality
As mentioned quality workmanship and materials are essential, not only to
prevent the company from incurring additional costs, but also so that the
company has a reputation for delivering quality projects.
Most clients are prepared to pay a premium to obtain a quality product and
efficient service since this:
1. often reduces their supervision costs during the construction process
because they know they can rely on the contractor to produce the required
standards with minimal supervision
2. causes fewer problems with their follow-on trades because items are more
likely to fit, reducing the chance of delays or additional costs to the project
3. usually means the product will last longer and require less maintenance
4. looks good and adds value to many facilities (particularly houses and
apartments which they are going to sell)

Managers should be proud of the quality of work that the company

produces and encourage all employees to take pride in their work.
Professionalism
Always be professional and courteous in your dealings with the client. It’s
easy to say things in the heat of the moment which could upset clients. Some
clients can be unforgiving and bear a grudge for years, jeopardising the chances
of winning work from them.
Yes, I’ve personally had heated arguments with clients over issues where
we’ve disagreed, but I’ve never held a grudge or said anything personal to them.
In fact, some of them still delight in reminding me of some of our arguments.
Professionalism also extends to how you dress, that you’re polite and
respectful, appear organised, and arrive at meetings on time and prepared. It
includes the way you are seen to treat your employees, suppliers, and
subcontractors, and generally carry out business.
Well organised contractors who know what they are doing, have the right
tools, people and equipment, and are properly organised on site with appropriate
neat offices and facilities, all give the aura of professionalism.
Clients want to feel they are dealing with professionals.
Honesty and integrity
The company and its personnel must be seen to be honest. This is more than
just not overcharging the client. It’s about conducting yourself and the business
beyond reproach.
Employees shouldn’t be stealing from the client, fellow workers,
subcontractors or neighbours. The contractor shouldn’t be paying bribes and
should be seen to treat their suppliers and subcontractors fairly. Not only don’t
clients want any added trouble, the disruption of police investigations or the ire
of neighbours, but they will certainly wonder if the contractor condones this type
of behaviour, what other illegal behaviour is occurring and whether they are
being swindled by the contractor.
Be seen, be involved
The contractor’s managers need to be seen by the client to be involved in
projects.
When I’ve been in senior management I’ve always tried to visit my projects
regularly, where possible taking time to attend the project progress meetings.
These provided an opportunity to meet the client’s team and to understand
concerns they may have had. It was also a chance to afford support for my
Project Managers.
I’ve often been complimented by clients for this visibility and was
frequently told that they never saw some of our competitor’s management.
Of course, when there are serious problems on the project it’s even more
important to visit the project regularly. It not only provides support for your
team but it does seem to calm the clients, giving them assurance that their
problem is being taken seriously by the contractor. In fact visiting the project
often pre-empted irate telephone calls and letters. Clients are usually far more
civil when you’re standing in front of them discussing a problem.
Meeting the client’s expectations
It’s important that the contractor is able to meet the client’s expectations.
This means that they need to understand what these are, and furthermore ensure
that they are reasonable and that the contractor can deliver on them. However, it
may be necessary to discuss these expectations with the client, ensuring you both
have the same understanding of what the finished product will look like and
what it will cost.
Sometimes contractors have to explain why the items and finishes the client
has chosen won’t provide the final product they’re expecting. Failure to manage
their expectations, or to deliver on them, will certainly end with an unhappy
client which could adversely affect the contractor’s reputation and even lead to a
dispute.
Delivering projects on time
Clients will often pay a premium to employ contractors they know will
deliver a project on time. For many clients time is money. The sooner a project
is completed and they can start operating the facility the sooner they can earn
money, or the sooner they can move into a new house or office so they can stop
renting their current property.
It’s important to work with clients and develop a schedule which is
achievable, but at the same time one which meets their needs and requirements.
Failure to meet the schedule is not only costly but damages the contractor’s
reputation. Large public projects which aren’t delivered on time will even attract
bad publicity for the contractor in the news media.
Do not over-promise and under-deliver
I’ve had managers and Project Managers who continually over-promised
and have committed to dates and requirements which were impossible to meet.
When these dates weren’t met, or requirements weren’t delivered, the client
became unhappy, disillusioned with the contractor and eventually didn’t believe
anything the Project Manager said.
It’s usually far better to under-promise and over-deliver. The client is then
pleasantly surprised when the task is delivered ahead of time. Of course the
client’s not going to accept dates which are clearly extended further than they
should be.
Wherever possible contractors must ensure that they achieve their
commitments, providing the client with confidence in their ability and enhancing
the company’s reputation for being reliable.
Mistakes happen
Unfortunately mistakes happen on projects. As much as you’ve planned and
staffed a project properly, and done everything correctly, problems will and do
occur. When a problem arises the contractor is often judged on how the problem
is resolved, rather than there being a problem in the first place.
Case study:
When we were renovating our house the builder installed the vanity
cupboards in the bathroom on a Friday morning. We weren’t happy with them
and immediately emailed our concerns to the Project Manager. He responded
saying he would be on site on Monday morning with the Supervisor. I expected
there would be an argument and they would try and convince me the cupboards
were acceptable. However, when they arrived they listened to why I felt the unit
wasn’t correct and agreed with me. On Friday the replacement cupboards
arrived.
Whenever I recommend this builder to others I use this story – although the
builder made a mistake, they responded quickly, accepted it was their fault and
immediately rectified the problem, giving us a finished product we were happy
with.
Of course, not all problems are necessarily due to the contractor.
Sometimes, there are defects with the client’s design or the materials they’ve
specified, or at times, the client has unreasonable expectations or has
misinterpreted a drawing or specification.
Therefore it’s always essential to assess the cause of the fault. If it’s due to
the client it’s important to explain to them what caused the problem, why it’s not
the contractor’s fault and to suggest ways to rectify it. On occasion the
contractor may need to engage expert opinion to support their argument. In all of
this remember that time is usually of the essence, so the investigation and repairs
need to be completed as soon as possible.
Commitment from employees
All employees are an advert for the company. I’ve had clients unhappy with
the company and the type of people we employed because our workers were
overheard making inappropriate comments in the pub after work hours. These
comments were either derogatory to the contractor or the client, or were
construed as indecent comments or behaviour towards members of the public.
Although what an employee does outside working-hours should be their own
business, it’s unfortunately seen as a reflection of their company, more so if
they’re wearing work clothes bearing the company logo, or driving a company
vehicle.
Furthermore, members of the public who are offended by an employee
often telephone the client to complain. In some cases they may even have been a
potential future client who will now take their business elsewhere.
It’s easy for employees to give a company a bad reputation. I’ve had clients
telephone me to complain that the driver of a company vehicle wasn’t obeying
the road rules, was behaving badly or littering. Sometimes the person wasn’t
even employed on my project but came from another site.
Clients and their representatives often have dealings with the contractor’s
workers on site. Although they shouldn’t be instructing workers directly they
sometimes do, especially when there’s a safety concern. All personnel should
take the client’s safety concerns seriously and respond appropriately, but always
politely referring instructions to their Supervisors and managers. Unfortunately
I’ve had employees unhappy with a stranger telling them what they can and
can’t do, leading to them swearing at the individual who ultimately turns out to
be the client. Needless to say they become very irate clients.
Clients appreciate good staff, some even developing an understanding and
forming connections with certain of the contractor’s staff. They even request
these people for their next project, in some cases even specifying that they are
allocated to the project as a prerequisite for the contractor to be awarded the
contract.
Good staff not only enhances the company’s reputation by their actions of
delivering a successful, quality project with no incidents, but many of them
positively advertise the company to clients, prospective clients, the public and to
potential employees as well.
Industrial relations
Clients don’t want to do business with a contractor that has industrial
relations problems with their workforce or has a reputation of having militant
workers because:
1. industrial action may disrupt and delay the project
2. industrial action and strikes may disrupt the client’s operations or their
subcontractors’ work
3. the client’s workers may be unduly influenced by the contractor’s workers
4. industrial action can attract negative press and publicity

Labour harmony is usually one of the client’s priorities on a project. It’s

therefore important that any industrial relations problems are quickly resolved so
that they don’t escalate and impact on the project or the client’s activities.
Reliable equipment
Vehicles and equipment in good repair and newly painted can be a good
advert for the company, especially when the company’s logo is clearly
displayed.
Clients notice the quality of the contractor’s equipment and I’ve often been
complimented on our new equipment, even when it wasn’t ours but externally
hired. Equipment that’s poorly maintained, breaks down often, leaks oil, is noisy
or smoky creates a poor impression, even when it’s externally hired.
Clients prefer equipment in good condition as there is a smaller likelihood
of breakdowns which might disrupt and delay the project. There is also less
chance of a mechanical failure which could result in an accident or
environmental incident.

A word of caution – when selling equipment, ensure that the company’s

logo and name is removed. I’ve seen vehicles with the original company name
and logo still on them several years after being sold. By now the item is in a poor
state of repair and badly rusted. Obviously when the public sees the item they
automatically assume it still belongs to the original company. Not only does this
portray a poor image of the company, but should the current driver behave or
drive badly people will automatically assume they are employed by the company
whose name is on the vehicle.
Subcontractors
Subcontractors are seen by the client as being part of the contractor and not
separate entities. Good subcontractors assist the contractor in delivering a quality
project, safely and on time and are an important part of many projects. The
subcontractors that work with a contractor and the manner in which they’re
managed can influence the contractor’s reputation.
Front desk – reception
Many readers may think this doesn’t affect them. You may have a small
company that cannot afford a front desk, let alone a full time person to answer
the telephone. Even more reason to read this section.
The first dealings most people have with a company are through the person
that answers the telephone. This person should portray a professional company
and needs to be responsive. I’ve phoned businesses on occasions requiring a
quote only for the phone to go unanswered. In many cases I’ve simply moved on
to the next company on the list. In other cases I was able to leave a message,
only for no one to call me back. Again I probably took my business elsewhere.
I was fortunate to work for a company that always had pleasant ladies
manning the front desk. They greeted people and gave the name of the company
when answering the telephone. Calls were transferred efficiently and messages
taken and passed on if the person wasn’t available.
I’m sure many of you have called a company and asked to talk to an
individual. The call is transferred and the person isn’t available so you’re left
holding the telephone with no response from the person that transferred you, or
worse still you’re left listening to an advert for the company telling you how fast
and efficient they are.
Naturally, in many cases all staff act as receptionists for the company, or
certainly as a voice for the company. Clients may call Project Managers,
Engineers or Supervisors directly. All staff should answer their work telephone
in a professional manner. If they are unavailable the caller should be transferred
to a message which sounds professional (employees shouldn’t use inappropriate
voicemail greetings on their company telephones which might sound amusing to
their friends but not to others). It’s equally important that all staff respond and
reply to messages from clients and prospective clients.
Branding
A company’s brand is important and major companies go to great expense
to sell their brand and protect it. The brand defines how the public and clients
perceive the company. If that perception is not accurate you may have to
consider working on the brand and changing it.
Case study:
I worked for many years for a company whose name sounded as if we built
houses and it was difficult to change the public’s perception. When we became
known by our acronym rather than the full company name this was no longer a
problem.
Another problem was that although the company started off as a civil
contractor they became well known as being good commercial builders. Their
sign boards were seen on large building projects in the city and much of the
company’s publicity and advertising was focussed on their building projects. It
was difficult for us to sell ourselves to many clients as a serious civil contractor.
Another example of branding is that some car manufacturers have a good
name for producing affordable family cars which are popular, yet when they
produce a luxury model car, as good as most other luxury cars, it doesn’t sell.
Why? It’s simply about people’s perception of the brand.
It’s therefore essential to be aware of what your brand is, ensuring it’s
portrayed correctly. When starting new divisions and new areas of expertise
make sure you are able to sell these operations and incorporate them into the
brand, but also that they don’t detract from and confuse the existing established
brand.
Branding often starts with the company’s name, and for a company starting
out it’s often useful to include what the company does. For example ‘Smith and
Sons’ says nothing about what the company does, but ‘Smith’s Construction’, or
‘Smith’s Electrical Contractors’ gives potential clients an indication of what the
company does. However be careful of making the name too specific, for
example ‘Smith’s Home Renovations’ might not be appropriate in a few years’
time when the company is taking on major building projects.
The company name shouldn’t be confused with other companies. Also, the
name mustn’t be too long since it needs to fit onto sign boards and business
cards and still remain readable.
Of course there are many experts on branding that can provide useful
information, though the information they provide should be appropriate to the
industry the company is in and to their client base. After all, it may be pointless
branding a construction company and marketing it in bright colours and graphics
to an audience at a family weekend event.
Publicity
Unfortunately news reporters are quick to focus on negative incidents and
rumours. Accidents, industrial relations incidents, environmental problems and
rumours of impropriety quickly turn into news headlines. Sometimes it’s not
even the contractor’s fault but is related to the client or a member of the public.
Occasionally the contractor has nothing to do with the problem but the news
reporter makes an assumption they are involved. It’s very difficult to counter this
bad publicity and it’s best to:
1. endeavour to ensure the company avoids such incidents
2. ensure Project Managers report any serious accidents and incidents to
senior management so that they are aware of the problem should a reporter
call
3. have someone from the company available to answer reporters’ questions,
because if they aren’t, reporters will find someone else to talk to who may
not be so well informed
4. ensure that whoever talks to reporters will be well informed and generally
have the same story
5. avoid conjecture as to the cause of the problem until an investigation is
completed
6. make sure that only authorised personnel talk to the reporters
7. take rapid action to resolve the problem and to clean up without making the
problem bigger
8. be seen to investigate problems caused by the contractor
9. keep the company’s personnel informed of what actually happened,
particularly Project Managers who may have to field questions from their
clients
10. distance the company from actions caused by others

Bad publicity is very difficult to undo and could be a reason for the
contractor not being awarded a new project.

Sometimes there are opportunities for good press, so make use of these
opportunities by inviting reporters and making sure they have a story to report.
This may be for the opening of a newly constructed facility or it could be for a
charity event or donation the company has made. Ensure in these instances that
the company’s logos are clearly displayed and that there’s nothing which can
detract from the event.
Public relations and neighbours
Most projects impact the neighbouring properties as a result of noise, dust,
additional traffic, vehicles parked in the road, diversion of roads and footpaths,
and even interruption of services. Many people are fairly accommodating if they
are informed beforehand of the construction work.
Some neighbours may be potential future clients and if they become
frustrated or inconvenienced by the construction work they won’t use the
contractor. Furthermore they could tell their friends about problems caused by
the contractor, write letters to the newspaper, or complain to the client or town
council. Clients have to live with their neighbours long after the contractor has
moved on so they certainly don’t want a contractor upsetting their neighbours.
Warning the neighbours of the construction work can be done by personally
meeting them or by delivering flyers. These could also be used as an opportunity
to advertise the services of the company.
Reputation as a good employer
As discussed in Chapter 10 it can be difficult to recruit and retain good
staff. This can be made easier if the company has a reputation for being a good
employer. To do this it’s important the company understands what is important
to potential employees, which varies. Some of the things they may look for are a
company that:
1. treats employees fairly
2. rewards people for hard work
3. embraces innovation
4. offers varied opportunities
5. offers personal growth opportunities
6. has exciting, large or prestigious projects
7. owns new equipment
8. employs knowledgeable, experienced people
9. provides training and mentoring
10. provides travel opportunities
11. cares for people and the environment
12. is concerned about their staff’s welfare
13. provides a friendly working environment

One of the best ways of selling the company to potential recruits is by

having happy and motivated employees.
Service after the project has been completed
Unfortunately a project doesn’t always end when the contractor hands over
the keys to the client and moves off site. Most contracts have a warranty period
during which the contractor is responsible to repair defects due to their defective
workmanship. In fact, in many countries when new structures are build the
contractor may even be responsible for defects for several years (five, ten, or
longer).
When something goes wrong with a structure the contractor has built the
client will inevitably phone the contractor and say that it’s the contractor’s fault
and they must repair it. The contractor needs to respond quickly. Sometimes the
response time is dictated by the event – obviously if it’s an urgent problem, like
a burst water pipe or something which means the client can’t use the facility, the
response has to be immediate.
Whatever happens in this process, it’s important to keep the client informed
of the steps being taken to repair the problem since the client usually expects
immediate action, even when the problem is minor.
It’s usually worth the contractor’s time to investigate the problem and
ascertain its cause. Many problems highlighted by clients aren’t in fact the
contractor’s fault. Some are design faults, others are general wear-and-tear and
some are even caused by the client’s poor maintenance regime or operating the
facility incorrectly.
Case study:
One of my projects involved the construction of a large concrete bin in
which rock was tipped before it was fed into a crusher. A year after the project
was commissioned I happened to be talking to another contractor who was still
working on the facility. They informed me that the rock kept getting jammed in
the bin, so from time to time the operators used explosives to free the rock.
A few weeks later I received a call from the client’s designer to report that
the concrete in the bin was failing and we needed to repair it.
I sent them a polite letter suggesting that the concrete wasn’t designed to
resist the blast from explosives and that they should talk to the client and their
operations staff.
We never heard anything further regarding the problem.
Unfortunately the problem is often due to the contractor, in which case it
needs to be repaired quickly, in a manner which is acceptable to the client and
their designers, and with as little disruption to the client’s activities as possible.
It’s usually essential that the repairs are carried out by responsible personnel
who will obey the client’s rules and carry out the work correctly with little fuss.
Summary
It’s imperative that a company has a good reputation and that they are
always on their guard to protect it. A poor reputation may result in the company
not being awarded projects even when they are the cheapest tenderer.
To create a good reputation means the contractor should:
1. avoid making mistakes
2. be proactive and assist clients
3. be responsive to their clients’ demands
4. be fair in their dealings with the client
5. not charge exorbitant profits
6. ensure the work is carried out safely
7. produce work of good quality
8. be professional
9. ensure employees act with honesty and integrity
10. make sure that managers visit projects and meets the client regularly
11. meet the client’s expectations and ensure that these aren’t unrealistic
12. complete projects on time
13. not over-promise and under-deliver
14. have committed employees who portray a good image of the company
15. have sound industrial relations
16. own reliable equipment that’s well maintained
17. utilise dependable subcontractors that are well managed
18. respond to telephone calls in a professional, friendly and helpful manner
19. make sure the company’s branding is an accurate portrayal of the company
20. ensure that negative publicity is dealt with effectively
21. make sure that the public and neighbours are kept informed of construction
activities affecting them and ensure that these activities create as little
disturbance, inconvenience and nuisance as possible

In addition it’s useful if companies establish a reputation as a good

employer so that they can attract the best personnel.
Conclusion
Managing or running a construction business isn’t easy. It’s not only about
ensuring that projects are successfully completed on time, with no safety
incidents, to the correct quality and with a satisfied client, but also about
ensuring the company grows in a sustainable way, developing new, viable
markets and finding new clients. It’s about finding and securing new projects,
which means they must be tendered correctly, taking into account all the risks
and opportunities of each project. A major error in a tender can destroy a
company.
As a company grows it needs to evolve and develop, changing itself, who it
deals with, what projects are undertaken, and even how these projects are
constructed.
Good staff must be employed, trained, and importantly, retained. They
should also share a common passion to deliver quality projects safely and
profitably since managers and owners have to rely and trust in them.
The company needs to ensure that revenue is maximised without upsetting
clients, and that costs are minimised wherever possible without compromising
safety or quality, or at the expense of people or the environment. In all of this,
cash flow is extremely important because negative cash flow can destroy a
company quicker than an unprofitable project will.
I hope this book has provided some guidance on how to manage a
successful and profitable construction company. More important is that this
success is sustained and not destroyed by one bad client or one unprofitable
project.
Regrettably, I’ve seen a number of companies fail, putting people out of
work, costing suppliers and subcontractors thousands of dollars (sometimes
impacting these companies to such an extent that they go insolvent and cause
more people to lose their jobs), leaving clients with half-finished projects and
banks owed millions. Sometimes the owners of these companies lose everything
they own including their house. Many of these failures could have been
prevented if the owners and managers had followed some of the suggestions in
this book.
As mentioned there are many rules and regulations which govern running a
business. These vary between regions and countries and change from time to
time, so it’s essential that business owners are aware of the latest requirements,
and that where necessary they obtain specialist advice.


Also by Paul Netscher
Successful Construction Project
Management: The Practical Guide

Are you looking for an easy to read practical guide to project
manage a construction project?
Are you tired of project management books that focus on the
theoretical and seem to have little relevance to your project?
Do your Project Managers need a little extra help and
guidance?
Successful Construction Project Management is a valuable companion to
Building a Successful Construction Company. Written by the same author the
book is aimed at both aspiring Project Managers as well as those who are more
experienced. This easy to read book avoids being overly ‘text book’ in style and
is filled with practical everyday examples incorporating 28 years of construction
experience gained on over 120 projects in 6 countries. It’s written by a
construction professional for construction professionals.
Those who have read the book comment:
‘I highly recommend this book be read by all newly qualified construction
project managers as well as those more experienced.’ (Customer 1 on Amazon
uk)
‘Easy Reading’ ‘I have been looking for a book like this. A great study guide
for the novice project manager and the more experienced project managers.’
(Customer 2 Amazon uk)
‘It is a very easy to use book with guidelines that are referenced intelligently
with case studies.’ (Customer 3 Amazon)
‘Well worth a read’ (Customer 4 Amazon)
‘Having read a few project management texts over the years it is great to find
one that doesn't just want to run you through the stock standard theory of the
process.’ (Dellas Lynch)
The book includes chapters on planning the project, starting it, project schedule,
managing the project, closing it out, quality, safety, people, materials,
equipment, financial and contractual matters. Each chapter is divided into
multiple subsections allowing the reader to easily pick issues relevant to their
current project. Many topics aren’t included in other construction management
books despite their importance.

Glossary
Terminologies vary between different construction industries, countries and
even companies. The descriptions below relate more to their meaning within the
book and aren’t necessarily their official descriptions.

Acceleration – to shorten the schedule, or programme, so

the project is completed earlier, or alternatively, to complete
more work in the same time period.
Activity – an individual task or event on the schedule.
Allowable – the estimated cost for a particular activity, or
task, allowed for in the tender or project budget.
As-built drawings – drawings that are prepared by the
contractor to show the position and final dimensions of the
structure as constructed.
Back-charges – money charged to the subcontractor for
costs the contractor incurred to carry out or rectify the
subcontractor’s work.
Bond – a form of guarantee issued by a bank or insurance
company to insure the client, up to a specified value, should
the contractor fail to fulfil their obligations as detailed in the
contract.
Change order (variation order) – the written agreement
between parties setting out the costs and scope of additional
work, or change to the contract.
Claim – a demand from one of the contracting parties for
adjustment to the contract.
Civil – construction of concrete structures, roads or railways.
Client – the party who employed and contracted the
contractor. The client may be the owner of the facility, the
managing contractor, or another contractor. Normally the
client is the party that pays the contractor.
Commissioning – the process of testing the equipment and
systems installed as part of the construction process.
Construction – the physical work of building or
constructing a facility (building, structure, road, dam or
factory).
Contour – a line on a map or plan indicating the height of
the ground.
Contract – the agreement between the client and contractor.
Contract Administrators – a person who looks after the
contractor’s project finances, through preparing valuations,
claims, cost reports and paying subcontractors.
Contract amendment – specific paperwork used during the
construction process should anything change from the
original Contract. These changes could be additional work,
the omission of work, changes to specifications or the
project duration.
Contract document – documents which form the basis of
the contract between the parties. They include drawings,
terms and conditions and specifications, and set out the
requirements for constructing the project.
Contract schedule (contract program/programme) – the
schedule which the client has agreed is the official one for
the contract, it’s used to measure progress, adjudicate any
extension of time claims, and if necessary, to quantify the
amount of the liquidated damages.
Contractor – a company that constructs or builds a facility
or a portion of the facility for a client.
Cost-plus (cost-plus a fee) – when the contractor is
reimbursed their actual costs incurred in carrying out the
contract, or variation, as well as a mark-up on these costs
which is proportional to the costs and is normally expressed
as a percentage.
Critical path – a sequence of activities linked together and
whose delay will affect the overall project completion.
Day-works – similar to cost-plus. Normally the contractor
would specify rates for items of equipment and different
tradespeople in the tender document, and these day-works
rates are then used to calculate the cost of any additional
work which the client may request the contractor to do,
which cannot be costed out using the standard tendered unit
rates. Often these rates would include a percentage to cover
supervision, overheads and profit.
Deliverables – documentation required from the contractor
(often required before the project can start)
Demobilisation – the process of moving off site when the
project is complete.
Designer – architect or engineer that designs the structures
and facilities.
Design and construct contracts – when the contractor is
responsible for both the design and the construction of the
facility.
Design indemnity insurance – insurance which the
designer should have in place in the event that their design is
flawed, the structure requires repair or has to be replaced. In
many instances the value of this insurance should cover the
replacement of the structure.
Drawings (plans) – graphic representation of the structures
and facilities.
Due diligence – an audit, or investigation, of the wellbeing
of a company.
Employment contract – the contract between the employer
and the employee which defines the conditions of
employment.
Escalation – the amount that costs increase with time. These
increases are often driven by inflation, wage increases,
changes in commodity prices and changes in the value of the
local currency.
Estimator – the contractor’s person who prepares the tender
or estimate.
Exclusions – items which the contractor may have excluded
from their tender price.
External hire – equipment that is hired, or rented from
another company, or external supplier.
Feasibility study – before deciding to go ahead with a
project many clients do an estimate of the project costs to
ascertain if the project is viable.
Final account – the final value of the completed work,
which includes the original contract value plus all contract
amendments and back-charges. The contractor would have a
final account with their client, and the contractor should
have a final account with each of their subcontractors.
Formwork (shutters) – the forms or structures used to shape
and contain the wet concrete used in structures until it has
gained sufficient strength to support itself.
Guarantees – a promise or assurance that an obligation will
be met.
Insurances – cover for potential losses.
Joint ventures – when two or more contractors enter into an
agreement to jointly tender for and contract to a client to
construct a facility and in doing so to share resources and
risks.
Laydown area – the designated area on a construction site
where the contractor can establish their facilities, and store
their equipment and materials.
Lead time – the amount of time taken for an item to be
delivered to the project. This time includes the time to
design, manufacture and transport it to site.
Letter of Intent – a letter issued by the client to the
contractor informing them that it is their intention to award
them the contract. It’s normally treated as an instruction to
start the works and the contract document will follow.
Liquidated damages – a specified amount of money which
the contractor will pay the client should the contractor fail to
meet the agreed contract completion dates.
Litigation – the process of using the court system to resolve
a dispute.
Lump sum – many projects are priced as a lump sum
contract which usually means the contractor has specified an
amount of money to complete the whole project. This
amount would include all of the contractor’s costs,
overheads and profit and is fixed unless the project scope is
varied.
Managing contractor – the contractor appointed by the
client to manage the project. This could also include a
specialist project management company appointed to look
after the client’s or owner’s interests and to manage the
design team and the contractor.
Mark-up – the profit margin, although in some cases it may
include the profit plus the contractor’s overheads.
Materials – all items permanently incorporated by the
contractor into the works. This may include concrete,
reinforcing, road materials, building products, and including
specialist items of equipment.
Mechanical – the construction trades which includes
supplying and installing structural steel, mechanical
equipment and piping.
Milestone – an important event, such as granting access or a
completion date.
Mock-up – a model or small sample built to evaluate details
and quality of the final item.
Monthly valuation – an assessment of the work that the
contractor has completed during the month which reflects
how much the client should pay.
Negotiate – to try and reach an equitable agreement through
discussion.
Nominated subcontractor – a subcontractor the client
specifies the contractor must use for a particular portion of
the work.
Operators – personnel that drive or operate a piece of
equipment, a vehicle or machine, but excluding the use of
small hand tools.
Over-claim – to claim more money than you’re entitled to.
Overhead costs (indirect costs) – overhead project costs are
costs the contractor incurs to run the project which cannot be
directly related to specific tasks. This includes the provision
of management, supervision, site facilities, insurances and
bonds. Company overheads are the costs a company incurs
which are not directly attributable to a specific project, but
are related to running the company and include costs such as
Head Office rental, management and various support
departments, such as finance and tendering.
Penalties (damages) – many contracts have a provision for
the contractor to pay the client an amount of money, or
penalty, to cover the client’s losses incurred when the
contractor fails to finish the project, or sections of the
project, by the contracted agreed dates.
Personal protective equipment – equipment issued to
personnel for protection at work, this would include safety
boots, helmets, gloves, safety glasses and overalls.
Planner (Programmer, or Scheduler) – the person whose
specific task is to prepare and update schedules.
Plant – a construction machine (such as an excavator, crane,
dozer, loader, and including trucks and vehicles) used on a
construction site to perform the work.
Plant and equipment – any item of equipment required to
carry out the construction work, but not incorporated into the
facility. It includes construction machines, hand tools and
formwork.
Post-tender – the period after the contractor has submitted
their price (tender or quote) and before the contract or
project is awarded to the contractor, and is often the time
when the client discusses the contractor’s tender and
negotiates the final terms, conditions and price of the
contract.
Project – any construction work.
Profit (margin or mark-up) – the amount of money the
contractor makes after deducting all of their costs from the
income or revenue earned.
Project Director – a person who is responsible to manage a
number of construction projects and who may have several
Project Managers reporting to them.
Project labour agreement – a specific labour agreement
established for a project site, which governs the employment
conditions (such as hourly rates, working hours, allowances,
and project rules), which apply to all workers employed on
the project.
Project Manager (site manager, construction manager or
site agent) – the person responsible to manage the
contractor’s work on the construction project.
Punch lists – a list of outstanding items or repairs that must
be completed so that the facility complies with the client’s
requirements.
Quality – the properties of the product supplied to the client,
defined by the requirements in the contract document, which
may include the visual appearance, as well as, the strength
and durability.
Quality control – measures and procedures to ensure the
product provided to the client meets the required quality.
Quality plan – the plan drawn up for the contractor to
follow to ensure the work meets the required standards and
specifications, and to monitor, track and report the
procedures implemented by the contractor to ensure the
work meets the required quality.
Register – any list or log maintained on the construction site
to keep track of items, documents or inspections.
Re-measurable contract – a contract where at the end of
the project all of the work completed by the contractor is
measured, and providing it meets the specifications, is paid
for by the client.
Retention – a portion of money that is owed to the
contractor but is withheld by the client, as insurance, until
the contractor has fulfilled all their contractual obligations.
Rise-and-fall – a method whereby the contractor is
recompensed for the increase in price of a particular item or
commodity, calculated from the time when the tender is
submitted to when the item’s used on the project. As the
name implies should the price fall in this period the
contractor would pay the difference back to the client.
Scaffolding – temporary structures and platforms to enable
workers to reach an elevated work area.
Schedule (often referred to as a programme, program, bar
chart or Gantt chart) – a graphic representation of the
timetable needed to complete the project, showing the
sequencing and duration of the various project tasks and
activities.
Scope of works – the work which the contractor is
contracted to do. The scope normally takes the form of a
written description of the work contained within the contract
document.
Self-perform – when the contractor does the work using
their own employees rather than using subcontractors.
Shop drawings – drawings produced (normally by the
contractor, their suppliers or subcontractors) to show the
details of an item they have to fabricate.
Site (project site) – the area where the final construction of
the facility takes place.
Site facilities – the contractor’s temporary buildings which
include offices, toilets, workshops, eating areas, store
buildings, and so on.
Slip-form – a construction method where the concrete forms
are lifted on a continuous basis while the concrete is poured
into them.
Specifications – definitions of the materials, processes and
the quality products and systems to be used in the works.
Staff – the contractor’s management, supervisory and
support personnel who are generally paid a salary and are
usually personnel who aren’t considered to be workers.
Standards – regulatory codes.
Subcontractor – a contractor employed by a contractor to
do a portion of their works. The subcontractor would employ
the personnel to do the work.
Superseded drawings – drawings which shouldn’t be used
for construction since they’ve been replaced by more
updated or revised ones.
Supervisor (foreman) – the person who supervisors the
contractor’s workers or a section of works.
Surety – a form of insurance supplied by a bank or
insurance company to ensure that the contractor complies
with their contractual obligations.
Survey – to set out the position of structures to be built, or to
accurately work out the height and location of existing
structures.
Tender (bid, estimate or quote) – a price or quotation to
carry out work submitted by the contractor to the client.
Tender covering letter – a letter submitted by the
contractor with the tender, this may detail items that the
contractor has excluded from their price or assumptions they
have made in order to calculate their tender price.
Tender documents (bid documents or quotation) – the
documents the client sends to the contractor so they can
price the construction of the project. These documents would
typically include details of the project, scope of works,
specifications and drawings, and sufficient information for
 the contractor to price the work.
Tender submission (bid submission) – the contractor’s
response to the tender document, it would include their
price, as well as all supporting documentation and any other
information, which the client required as part of the tender
Unfixed materials – are materials which have been received
by the project but haven’t yet been built in, or included in
the works.
Union – (trade union) – is a body that represents the
worker’s rights.
Variation – a change from the original agreed contract.
Warranty – a guarantee that the product will function as it
should.
Worker – manual and industrial or trades people who are
generally employed on hourly or daily wages, and who
physically do the work.

References
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Kirshner Publishing Company, INC.
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Construction Contractor, Builder and Subcontractor needs to Know,
Butterworth-Heinemann an imprint of Elsevier
Gerstel, David. Running a Successful Construction Company. The Taunton Press
Halpin, Daniel W & Senior, Bolivar A. Construction Management: 4 Edition,
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Imprint of Wiley
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Edition, Thomson Delmar Learning

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Management Fundamentals, McGraw-Hill
Netscher, Paul. Successful Construction Project Management: The Practical
Guide. Panet Publications
Stevens, Matt. The Construction MBA, Practical approaches to construction
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Publishing
 Table of Contents
Introduction
Chapter 1 – The Right Project
Chapter 2 – Finding the Right Projects
Chapter 3 – Tendering (Preparing the Quotation)
Chapter 4 – Securing the Project
Chapter 5 – Delivering the Project
Chapter 6 – Reducing costs
Chapter 7 – Maximising Revenue
Chapter 8 – Financial Management
Chapter 9 – Contractual
Chapter 10 – People
Chapter 11 - Managing the Company
Chapter 12 – Growing the Company
Chapter 13 – Reputation
Conclusion
Glossary