No Change Orders-Guaranteed!tm

Can You Tell Which Contract Cost the Client an Additional $1.2 million?

Can you tell which of the contracts above cost the client $1.2 million in additional change orders and which one didn’t? Here’s a hint: both agreements were touched by the same attorney. Thus, it’s not the legal Terms & Conditions.

Give up?

As a tenant or occupier of real property, your core business is something other than the hiring of professionals for the architectural design, engineering and/or construction of your new facilities or tenant improvements. It’s completely understandable that you can’t tell the difference. But how about your project management firm?  Surely, their size and global reach would include ways of protecting you…yes?

With millions of dollars at stake, and change orders growing as a percentage of design and construction costs, shouldn’t your Fortune 1000 project management firm be able to tell the difference? Shouldn’t they have a solution? What about a guarantee?

If not, and saving money matters to you and your business, expect more. Get away from the global real estate behemoths and the project management posers. Get Apex Project Consulting, Inc. – the Change Order Champions

 

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering and construction management consulting firm for commercial, industrial, healthcare and specialized-environment projects; both locally and across the United  States. Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, and a California Real Estate Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™

Facebooktwittergoogle_pluspinterestlinkedinmail
Sales.

Without This, You’ve Got Nothing

“Do you know what the secret of life is?” Curly holds up one finger. Mitch replies, “Your finger?” “One thing. Just one thing,” says Curly. “But, what is the “one thing?” Curly smiles. “That’s what you have to find out.” City Slickers, 1991.

Social media, business journals, white papers and blogs are saturated with guidance for businesses. A quick glance at the LinkedIn newsfeed pulverizes the reader with platitudes, business management practices and time saving ideas. Clever quotes and clichés come in waves. The endless repetition of recruiting tips is enough to induce a seizure. However there’s really only one thing, and one thing only, that a business needs. I was reminded of this after reading an article on my flight back from a client meeting in Northern California.

It was a tiny excerpt of an interview with Jim Koch, founder and brewer of Samuel Adams. The interviewer posed this question, “What’s one piece of advice that’s stuck with you?”

Mr. Koch’s answer was instructive for both start-ups and businesses seeking staying power.

“Not long after I started the company, I was talking with my uncle Bob about buying a computer, and he asked me why I needed one. I said something to the effect of `to keep track of business and bills.’ Then he asked me if I had made any sales. At this point, all the distributors in Boston had turned me down. I told him I hadn’t sold anything. He said, `I’ve seen a lot of businesses go broke, and they all had plenty of computers. Sounds like you’d better put some cold beer in your briefcase and go out and make some sales.’ And that’s what I did. The next six months, not only did we not have a computer, we didn’t have an office or phone, either. We focused on the essentials: marketing great beer and working our tails off to sell it. 30 years later, our strategy is the same.”[1]

The one thing that Samuel Adams needed was sales. That’s the lesson imparted to Mr. Koch by his uncle. It’s the lesson that we should all take away. Without sales, nothing else matters. With sales, or even the promise of a sale, all things are possible. Or at least fixable.

This is not to diminish the inspirational value of the latest Richard Branson quote. Or the crushing conciseness of a Steven Jobs’ jab. Nor the wisdom gleaned from Jack Welch, Harvey Mackay or Peter Druker, et al.

No, instead it’s to make a much simpler point. Until and unless there are sufficient and sustainable sales – things like employee empowerment, logistics, hiring, customer satisfaction, training, expenses and taxes etc., are all long-term luxuries and/or opportunities for improvement for the business that already has the most important thing; sales.

For example, if you have sales you don’t need money. Seriously. An investor friend said this about raising capital for a new venture, “great businesses don’t have to worry about finding money, money will find great businesses.” In other words, sales trumps even having an actual product to sell. Just consider almost any of the high-profile internet start-ups.

You may never have produced a widget, but if you have a signed contract you have sales. If you have sales you can borrow money. If you have money, for however short a time, you have a shot at making the business go. The converse is not true. If you don’t have sales, not even an idea, nothing else matters.

So, press-on mastering the finer points of growing your workforce. Or managing your accounts receivable and mapping out your strategic vision for the enterprise. Just don’t forget Jim Koch’s uncle’s advice. Go out and make some sales.

 

[1] Spirit, August 2014

Facebooktwittergoogle_pluspinterestlinkedinmail
Higher Total Costs from Low Bid

Think Low-Bid Delivers the Lowest Cost? Think Again.

Think Low Bids Deliver the Lowest Cost? You’d be Wrong.

It never ceases to surprise me when a procurement executive insists on selecting professional engineers or contractors exclusively on the lowest bid. This often repeated process never saves money in the long run. In fact, it’s only correlated with a higher risk of defects, delays and overall total costs.

Based on case studies and my years of experience on literally hundreds of projects all over the U.S., there is no direct causal relationship between low cost and high performance. Let’s look at it more closely.

First, let me define what I mean by the low bid only procurement process. For purposes of this article I’m talking about the purchase of services involved in the real estate improvement supply chain—that means architects, engineers, general contractor or specialty subcontractors—regardless of the industry.

A low-bid-only procurement process is one in which the sole controlling determinant of which vendor is awarded the work is the one with the lowest price. Sometimes this is also called lowest responsible bid. The net of it is, if price is the sole reason for the selection, it doesn’t matter what you call it.

Low bid criteria sets up a whole series of circumstances, none of them good. For example:

Low Profit Margins. If profits aren’t high enough, contractors, subcontractors and designers risk going out of business. As a result, they don’t assign their principals, vice presidents or other senior level team members to your project. Those personnel are just too expensive. Margins in the construction and architectural industries/professions are normally under 2%. Slice those margins even further, and you get junior personnel assigned to your team. That means low-bid, low profit vendors are a serious risk.

Smaller Margins for Error. Every project has errors in it. You can plan meticulously, but inevitably a problem will crop up. The issue is how does one ensure that the errors are minimized or transferred? If there’s little profit for the vendors hired for the project, there’s less elbow room for fixes—and guess who those costs then come back to? That’s right, they come to you.

Unless you hit the expert-professional-lottery and get an exceptionally competent, experienced pro who just also happens to provide the lowest bid, then you’re setting your project up (and yourself) for more change orders. Additionally, motivation to perform will be low and/or (in extreme cases) your vendor may just make a business decision that continuing with the project is more costly than abandoning it. Or worse.  Consider just the problems connected to bankruptcy from this excerpt from Greg Daily and Amelia Valz, of XL Group, as reported in Engineering New-Record, February 2014.

“What can happen when contractors’ subs file for bankruptcy? For one, contractors can be left in a holding pattern as various bankruptcy rules may govern how a contractor can terminate and replace a subcontractor. There are also risks of additional project liens by previously paid second-tier suppliers and subcontractors.

When a subcontractor files for bankruptcy, all lower-tier payments made by the subcontractor within 90 days of the bankruptcy filing can be deemed a preference. Any payment that is considered a preference will have to be paid back to the bankruptcy court as an asset of the subcontractor. Preferences can lead to a second-tier supplier or subcontractor reimbursing the court for payments it has received from the subcontractor. In turn, the reimbursements will likely lead to second-tier supplier or subcontractor looking to the contractor for payment.”

Lower Performance Results. The statistics speak for themselves. One recent industry study looked at the impact of low bids upon outcomes and found that  only 56% of projects awarded on a low bid basis were completed on time. Only 41% were on budget, and there were claims and/or litigation on 13% of the projects. I would love to ask those execs who made the decision to go with low bid if they thought it was worth the delays, expense and headaches.

When you remove the reasonable expectation of a fair profit from a project, you also remove the incentive to do a better or even outstanding job.

“In the price based environment, price is the only recognizable and dominant factor…It is a confusing environment that depends on a relationship between the client expecting the highest performance and the contractor offering the lowest possible performance because of the price based award and pressure on profit.”[1]

An Eroding Workforce. Additional statistics show that more people are leaving the construction workforce than are entering it. Check these stats:

“By 2012, the number of workers ages 35 to 44 will decrease, causing a market-wide shortage of middle managers. The market for craft laborers will tighten due to the decline of individuals entering the workforce between the ages of 16 and 24. Finally, the availability of workers age 45 to 52 will shrink, creating a shortage of seasoned senior managers. About 2.5 million workers are needed between 2002 and 2012 to build tomorrow’s America, given one million new jobs added for workers in the construction industry coupled with those leaving due to retirement or to enter other careers (Jackson 2005).”

Contractors are having a hard time finding high level staff to keep pace with the increasing work volume. As a result, especially in low bid projects, less experienced staff are replacing the higher priced experts. A 2005 study showed that three out of four contractors are experiencing a labor shortage, and that on many crews, apprentices make up the majority of the team.

And that’s just part of the story. Check out our other post for even more details.

Then consider whether going with the lowest bidder will save you…or hurt you.

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering and construction management consulting firm for commercial, industrial, healthcare and specialized-environment projects; both locally and across the United  States. Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, and a California RE Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors at the college level. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™


[1] Northern Arizona University, Flagstaff, AZ: 2007. CD 6:10. Kashiwagi D, Kashawagi J, Savicky J.  Industry Structure: Misunderstood by Industry and Researchers. NED University Journal of Research, Vol. VI No. 2 2009.

Facebooktwittergoogle_pluspinterestlinkedinmail