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.
(Read next week's article on the possible causes of poor productivity.)
Boeing workers say they won’t fly on Dreamliners they're building. What do workers say about your construction project?
Recently Al Jazeera news network did a story where they interviewed Boeing workers constructing the Dreamliner passenger jet. These workers purportedly admitted to drug use and some said they wouldn't fly on the aircraft they had built. Some complained that Boeing was putting schedule ahead of quality.
Read the full story.
Now to get an airplane certified requires the completion of untold checklists and numerous quality documents so this story may be hard to believe.
However, this story got me wondering what workers are saying on construction projects. Would they avoid crossing the bridge they'd constructed, would they buy an apartment in the apartment block they’d just completed, would they work in the office tower they built or would they purchase the house they have just worked on?
Some might argue that poor quality in an airplane is going to be more catastrophic than poor quality construction work on a building. However, there have been catastrophic failures of buildings, structures and bridges because of poor construction quality control. (See these pictures of a bridge constructed in Brazil for the 2014 world cup soccer tournament that collapsed killing one)
Quality is more than just paperwork and checklists. It requires skilled workers who take pride in their work, knowledgeable supervisors who understand the required specifications and quality procedures, and project managers that don’t accept poor quality, and that ensure their personnel are trained and have access to the right materials and equipment.
I've always found one of the best ways to assess quality is to ask the question; ‘Would I accept that quality in my house – would I be willing to pay money for that product?’ I guess that’s the same as asking the question; ‘Would I fly in the aircraft I’m constructing?’ If the answer is ‘no’ then obviously the quality of work in unacceptable.
Talk to the workforce and ask them what they think of the quality of your project.
Construction projects should have regular meetings between the client and the contractor which are minuted.
The contractor's Project Manager 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
Companies require a skilled and motivated workforce to be successful. One of the biggest challenges to any business is to recruit and to retain skilled and experienced employees.
Read this article on employee engagement which has some interesting comments. Often we have employees with strengths which aren't utilised. Managers need to help them find and develop these strengths. An employee developing their strengths and having new opportunities is usually happier, more motivated, more productive and more likely to remain with the company.
Wages often form a large portion of the costs of a construction project so even an improvement of 10% in productivity can have a dramatic affect on the contractor's profit margin.
We have all heard of projects that have had massive cost over-runs, been completed late and some became 'white-elephants' when they were completed.
Read here about 10 projects that have gone wrong.
These projects all had massive budget over-runs, some running into billions of dollars.
Some projects were poorly conceived - the wrong project, in the wrong place, at the wrong time. The became 'white-elephants'. Some were built to satisfy personal egos. Some were political decisions.
Many projects were not bid properly, were affected by corruption or were not managed properly.
Despite these and numerous other examples there is a continuing legacy of disastrous projects.
We have probably all experienced survey and setting out errors on our projects. These often result in structures and buildings being constructed in the wrong place, to the wrong dimensions or the incorrect level. These mistakes can be costly as either the structure has to be demolished and rebuilt correctly, or the structure or adjacent structures have to be modified to meet the client’s requirements. In addition there are delays to the schedule and the mistakes damage the construction company’s reputation.
However in this story the building company constructed a house on the wrong property.
Read the full storey
The builder now blames the water utility (Water Corporation) who they contracted to connect water to the property. Apparently water was connected to the wrong property. The builder looked for the property that had the water connection and then assumed this was the correct property and proceeded to build the house. Only when the house was almost complete was the problem discovered. Now the building company is suing the water utility for dereliction of duty because they connected the water to the wrong property.
An aspect of concern is that the builder obviously didn’t have any permits or permissions to build on that particular property. Without the proper permits they may have encountered and damaged underground services or possibly damaged environmentally sensitive areas.
One has to question where the client was during the construction process. The client should have either themselves, or through a nominated representative, have inspected the work to ensure the house was constructed in the correct position to the correct standards and specifications.
Unfortunately this is not the first case of houses being built on the wrong property, and no doubt it won’t be the last case. There are also many cases of structures being constructed in the wrong position, across property boundaries or the wrong way around. I’ve also heard of contractors carrying out repairs on the wrong property or installing items in the wrong building. All very costly and embarrassing mistakes!
There are a number of lessons from this:
1. Don’t assume the contractor who worked on the project before you performed the work correctly.
2. Double check all surveying and setting out before starting work. Obviously make sure you are at the correct property.
3. Because the building company has now decided to sue the water utility, with what seems to be a very spurious claim, the case has become very public. This mistake is very damaging for their reputation. Sometimes one should just accept your mistake, fix it, and move-on.
4. Clients shouldn’t always assume that construction companies know what they are doing.
Many contractors submit bids for literally every project that crosses their desk. This often means the estimating team works long hours, and bids are poorly put together with errors, poor presentation and little thought into ways to make the bid more attractive to the client. In addition contractors may end up winning the wrong project.
Contractors should focus on bidding for the right project, and then put all thought and effort into submitting a winning bid.
So what is the right project?
There are many factors to consider which include:
The client – some clients don’t pay well or are difficult to work for. Contractors should put their good clients first.
The size of the project – some projects may be too big while others may be too small for the company (the contractor may not be able to obtain the bonds for a large project, they may not have the resources or they might not have cash reserves to service the cash flow).
The project location – the further away or more remote the project, the more effort and time it takes to manage.
The proximity to other projects – if the contractor is working on other projects near-by there may be possibilities of sharing resources.
The resources required for the project – the contractor may have staff available, but not qualified or experienced for the particular project.
Payment conditions – can the contractor sustain the cash flow for the project (some projects hold large retention amounts or have lengthy payment terms).
The project schedule – can the contractor complete the work in the time specified.
The bid or tender procedures – The contractor should target projects where the client negotiates with the contractor or where they request a select number of contractors to tender. Open tenders, where any contractor can bid may result in dozens of contractors submitting a price which makes the tender process very competitive and difficult to win.
The current market conditions – if there is a general shortage of work the contractor may not have a choice on what to bid for.
The project’s risks – Does the contractor understand the risks and can they take mitigating action to prevent the risk happening, or sustain the risk event should it eventuate.
The complexity of the project – complex projects have higher risks, and usually take more management time.
Can the contractor make money on the project?
Many companies have been destroyed because they won the wrong project at the wrong price.
Sometimes the contractor should decline pricing a project.
Read ‘Building a Successful Construction Company’ for more on this topic.
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.
Copyright 2016 - The attached articles cannot be reproduced for commercial purposes without the consent of the author.
The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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