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The 10 Biggest Risks Clients and Owners Face On Construction Projects

30/9/2018

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Frequently we hear horror stories of projects that have gone wrong, finished late, gone far over budget (sometimes in excess of double the original estimates), poor quality, accidents, lengthy legal battles and projects that don’t do what they were supposed to do.

Construction projects face numerous risks. Understanding these risks could help clients avoid, or mitigate the level of risk on their projects. Clients have different risks to the contractor, and each stakeholder in the project faces a different set of risks. Sometimes these risks are the same for a number of stakeholders – so for instance, if the project is slipping against the construction schedule this could negatively impact both the client, subcontractors and the contractor. One would consider that if the contractor loses money on the project this shouldn’t be a risk for the client, yet, if the contractor loses so much money that they become bankrupt before the project is finished then this could have a major impact for the client, who would almost certainly have to engage another contractor, at additional costs, to complete the project, which would also certainly result in a delay to the project. In addition when contractors lose money their subcontractors, employees and suppliers are also at risk.

Unfortunately, many clients fail to recognise, understand, and mitigate construction project risks, which then frequently leads to an unsuccessful project.

The 10 risks clients need to be aware of and take action to minimise.

The final project cost exceeding the project budget. Not only could this make the project nonviable in the long term, but it could even lead to the client becoming bankrupt. Reasons for projects exceeding the budget include:
1. The budget was incorrect.
2. The project had numerous changes and variations.
3. The project increased in scope.
4. The contractor was delayed by the client’s team.
5. The contract documents didn’t clearly allocate responsibilities, or the scope of works wasn’t adequately defined.
6. Unexpected site conditions are encountered which adds to costs. Changed founding conditions can add greatly to costs.
The project is completed late. The client not only gets their project late which means that they can’t earn revenue from the project, or they incur additional costs to use other facilities in the interim. Delayed projects also inevitably incur additional supervision and management costs. Late projects could also result in damage to reputation. Reasons for late completion include:
1. The scope of the project changes during execution, creating delays and variation claims.
2. The contractor receives access and information late.
3. The contractor doesn’t perform.
4. The project schedule was unreasonable and unachievable.
5. Bad weather causes delays.
6. Encountering unexpected ground conditions which requires additional work.
Adverse weather which can delay the project and damage existing and completed work.
Shortage of resources. This could include equipment, materials, people and contractors. A shortage of resources can cause:
1. Prices to increase.
2. Delays to the project.
3. Poor quality work.
Contractors that don’t perform. This can result in:
1. Poor quality work.
2. Projects that are finished late.
3. Poor safety on the project.
A project that doesn’t perform as required. This could be because of:
1. An unclear scope of work.
2. A poor design team.
3. Quality problems with construction.
4. The client having unreasonable expectations.
5. The client cut costs unreasonably, removing essential items required for the project to operate successfully.
Poor public perception of the project. This can lead to bad publicity and even protests, legal action and boycotts. Governments have even been brought down by poorly conceived and managed projects. Neighbours can feud for years because of one project. Projects can be delayed and even stopped by irate members of the public.
Poor safety which can result in:
1. The project being stopped.
2. Damage to existing infrastructure.
3. Bad publicity.
4. Delays to the project.
Incurring excessive or unnecessary costs for the project, even theft. Not achieving value for money.
A major contractor or supplier becoming bankrupt on the project. This could lead to project delays and additional costs while another contractor is sourced. In addition warranties for workmanship and equipment could be worthless.

Avoiding and minimising risks

Projects that exceed budget can be minimised by:
1. Ensuring that the budget is accurate. Budgets should continually be assessed and updated through the life of the project to take account of all the known information and changes. Check that the budget includes all of the costs and that these costs are an accurate assessment. Where necessary include suitable contingencies and allowances for unknown costs.
2. Having the correct scope of work for contractors to price.
3. Minimising changes and variations during both the design phase and during construction.
4. Carrying out proper research of the project site conditions, including doing ground investigations before construction begins.
Projects are often finished late because:
1. The construction schedule isn’t realistic. Ensure that the schedule is realistic by employing experienced project managers.
2. The project schedule doesn’t take account of the client’s operations, project restrictions and the normal expected weather events.
3. There are changes and variations during the project. Reduce and eliminate changes by ensuring that the project scope is properly prepared and complete and that the contractor has all the information when they price the project.
4. Progress isn’t monitored during the course of the project. Slippage isn’t addressed and rectified.
5. Contractors are selected on the basis of their price alone and not on their experience and their available resources for the project.
6. The project is managed poorly resulting in delays with granting access and issuing information to the contractor.
7. Poor planning.
Adverse weather can’t be avoided, but steps can be put in place to limit or mitigate the impacts. This could include:
1. Designing the project so that work that could be impacted by poor weather is assembled and built under cover, or off site. Even redesigning the project to eliminate activities which could be impacted by the weather, for example using different foundation methods could eliminate the requirement to excavate in the rainy season.
2. Planning the start of the project so it doesn’t begin in the worst weather.
3. Allowing adequate time in the construction schedule for the normal expected weather.
When there is lots of construction happening in the country, state or region, then there can be a shortage of resources.
1. Projects can be rescheduled to start when the level of construction falls, which could even make the resources, and consequently the project cheaper.
2. The project could be designed to make use of modules which could even be constructed in areas where resources are more available. Alternative materials could be used which are more readily available, or which aren’t so labour intensive to install.
3. The duration of the construction work could be extended to account for the shortage of resources.
Clients often focus on choosing a contractor based purely on their price. However, the cheapest contractor might not end up providing the cheapest project. It is important to select a contractor that has the required experience and skills to deliver the project safely, to the required quality and on time. Clients should check the contractor’s previous projects and clients. They need to review the contractor’s planning for the project and check that their project resources will be adequate.
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To read more about the author visit the page 'Paul Netscher'
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Why many government construction projects aren't successful

25/9/2018

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Why are government organisations (national, state, city, town and state run enterprises) often so bad at project delivery?

A project isn’t just construction, it’s the complete life-cycle, from project conception, through design, planning, construction, completion, including maintenance and operation of the finished facility. At all stages of the process we see examples of spectacular failure, costing money, time and even lives.

How do we define project success?
For most projects success is defined by delivering a project within time and budget. Regrettably many projects fail this test. But, even a project that’s delivered on time and within budget could be a failure. Unfortunately, some projects which are seen as successful by one stakeholder are regarded a failure by another. For instance, a contractor has a successful project, they finished on time and made money, while for the owner the project was over budget and didn’t deliver value for money. A person whose house is overshadowed by a neighbouring ugly apartment building wouldn’t regard the project a success, even if the developer made a fortune building and selling the apartments.
So what defines a successful project?

The project is finished on time.
It’s completed within budget.
The project delivers value for money.
The project is easily maintained and operated, which won’t be excessively expensive.
The construction works is completed safely.
The facility is safe to operate and use.
The environment isn’t unduly harmed – during construction and when the facility is operating.
None of the stakeholders were unjustifiably disadvantaged.
Those involved with the project earned a fair wage, or profit.
The project is the best use of available funds. There are usually limited funds available and it’s impossible to develop and construct every project on the Wishlist. Money needs to be allocated wisely to projects that are the most necessary and which provide the biggest benefits.
The project should provide long term benefits.
The project must be of good quality. This includes aesthetically pleasing.
The facility is functional. It effectively delivers what it’s supposed to deliver.
The project hasn’t resulted in other problems.

When judging projects by these criteria we find many failures. So, that Olympic or Soccer World Cup stadium may have been delivered on time and within budget, and provided good service for a few weeks of the event, but, if it isn’t going to be used afterwards, or there aren’t funds to maintain it, then the stadium isn’t a success. Also, if people lost there lives during the construction process then the project definitely failed those people.

Reasons why many projects conceived and delivered by government organisations are a failure.
There are many reasons for project failure (they don’t meet the above criteria) and these include:

Many politicians (elected officers) are driven by personal gain. This gain could be:
1. Delivering the greatest number of votes. Unfortunately this often means that areas with a small voting population are ignored. It also means that areas that have a stable voting population – regularly voting for a particular party or individual are ignored, while areas which could swing between parties and individuals have more money thrown in their direction – and I mean literally thrown, without too much thought on how the money will be spent.
2. Being involved with a prestigious project. Spending money on repairing and maintaining infrastructure is essential – but if you’re a politician it certainly doesn’t get you the same publicity as cutting ribbons when opening a new bridge or legislature office, or unveiling a new statue. Who wants to be filmed opening a new wastewater treatment facility – it’s a necessity, but a stinking business!
3. Monetary. Regrettably, often politicians accept bribes (donations!) from corrupt contractors, suppliers, land owners and developers. This often results in the wrong project being built in the wrong place, incompetent contractors being selected, or inappropriate equipment and materials being used.
4. Helping friends and family. With little regard to the people or country.
Often politicians are there for the short term, but projects and facilities will typically outlast their careers and even their lives. In many cases the next generation has to live with their actions, or lack of action. Upgrading roads and infrastructure to farming and mining communities has few immediate visible benefits, but is often essential to the development of the country in the long term.
Some politicians don’t see the bigger picture. Indeed they’re often only focussed on their own needs, position, or the next election. A project typically consists of multiple parts. Building a new hospital could be great, but it’s a failure if there isn’t money left to equip the hospital, or indeed money for the doctors and nurses to operate the hospital. Building new apartments in a particular area may be a great idea, but if the infrastructure (roads, utilities such as water, sewer and electricity) isn’t sufficient to handle the additional people then it’s possibly a bad idea. It’s definitely a poor idea if people don’t want to live in apartments, or there’s an oversupply of apartments. Politicians have a knack for drawing lines on a map, acting on whims, or tossing new ideas into the arena, without adequately thinking through all the consequences of their actions.
Politicians often have a short tenure. Some might see this as a good thing – being able to regularly change politicians. It does mean that we (the voting public) can dump politicians we don’t like, but it often means there’s seldom consistent policy. So, one politician who likes building roads is replaced by others that want railways, while some want conventional energy sources and others focus on renewables. This leaves projects in limbo, possibly after millions of dollars have already been spent.
Sometimes politicians are unduly influenced by those on the fringe, or the noisiest objectors. No politician wants to be visibly and publicly ridiculed or embarrassed, so they’ll often take the action that results in the noisiest celebrations and the quietest protests – even if the noisy celebrations are of their own making and the quiet protests are because people have been cowered into submission.
Many politicians are bad at explaining the benefits and necessity of some projects. Indeed, often necessary and beneficial projects end on the waste tip of abandoned good ideas because the voting public wasn’t properly informed. Is this because politicians are arrogant and they assume the average person doesn’t need to know, or is it because they expect people to automatically follow their lead and then they’re surprised when there are objections?
Usually politicians don’t like people that don’t agree with them. They’re often advised by departments. Sometimes there are good people in the departments. Regrettably politicians like to make changes – getting rid of those who worked for the previous leadership, who often have years of experience. Anyway, who wants to have people working for them who don’t agree with your new ideas and policies – even if that disagreement is founded on a better understanding of the current workings, people, systems and requirements? Unfortunately, some heads of department have learned to play the game, to adapt to new leaders, to blow with the wind and to give politicians what they want – never providing advice that they know won’t be welcome, even if it’s right.
Sometimes politicians make their pet projects fit the available budget and a need. Often projects will clearly exceed their budget, but they are made to fit – costs are ignored or deliberately understated. When the project costs exceed the budget there’s every chance the politician has moved on to another posting. There’s no accountability and they can always blame their successor, or even a predecessor! Then there are projects that are sold as one thing, yet clearly won’t satisfy that need.
Politicians use other people’s money and their projects impact the lives of others. Need I say more!
Many politicians are driven by ideology, political agendas and personal beliefs, and their projects are often an extension of this thinking, rather than being based on sound research and delivering the best long term benefits to the people, region and country.
Most politicians aren’t project managers or engineers so have little experience in delivering projects on time and within budget, from concept to completion. Consequently they have limited understanding of the processes, risks, costs and requirements of a successful project. They don’t understand the project life-cycle.
Many politicians like easy wins and hate hard decisions and tough choices.

Fortunately there are many successful government projects, and some elected officials who work for the good of the community, take on board the advice of experts and understand the concerns of stakeholders. There are a few that are prepared to serve the people, who put the public ahead of personal ambition.

Conclusion
The World has many projects that are white elephants, projects that have been ill conceived, poorly planned and badly managed. Millions of dollars are wasted on inappropriate ideas, poor projects and ineptly executed projects. Unfortunately the next generation has to live with the consequences of these projects. Indeed we have to live with them! Whole communities, states and countries are hamstrung by these bad projects and the resulting debts. Politicians must be accountable. It’s time that elected officials looked beyond short term gain, greed and petty politics, rather focusing on the long term requirements of the community and country. Politicians need to take advice from honest project managers and not people and organisations that have vested interests in a particular project or outcome. They need to carefully evaluate all projects to ensure that they are the best use of public money, delivering the greatest long term benefits. They need to consider all implications of their decisions and choices, ensuring they aren’t swayed by their egos, personal agenda, or a vocal minority. They need to understand the fears and objections of all stakeholders, then not just override or ignore them, but adequately explain why these objections aren’t relevant, or adapt the project to lessen its impacts on the stakeholder.

It's time for our politicians, elected officials and those in government (city, county, state or national) to stand up and take pride in their accomplishments, to be accountable for their decisions (or lack of decisions), to build a place, a community and a country that future generations will be proud of. Projects aren’t just random ideas or lines on paper, they aren’t political slogans or one-liners, they impact people and cost money. Projects require rational thought, proper planning, careful design, sound construction and expert delivery – but even more important, the project process doesn’t stop there, the completed facility has to be managed, operated and maintained, ensuring that it continues to deliver benefits safely for many years to come.

Why are there so many bad government projects? Why do elected officials frequently embark on ill-conceived projects or make poor decisions?
Do we have to accept bad projects? Will you hold your politicians and elected officials accountable?
A question to politicians and those in administrative power – will your projects be remembered by the next generation for the right reasons? Will your projects be successful?

This article is adapted from information in the author’s popular books: 'Successful Construction Project Management: The Practical Guide' and 'Building a Successful Construction Company: The Practical Guide' and 'Construction Project Management: Tips and Insights'
'Construction Claims: A Short Guide for Contractors' is another of Paul's useful books.
Paul has recently published 'Construction Management: From Project Concept to completion'.
Paul's new book: 'Build and Renovate Your Home With Your Eyes Wide Open' is for those with little construction experience who want to build or renovate a house. It's filled with tips and suggestions to help you on your way, ensuring you avoid the pitfalls of home construction projects.
These books are available on Amazon and other online book stores.
Paul publishes articles regularly on LinkedIn and his website.

Paul writes regular articles for other websites, gives lectures, mentors, and is available for podcasts and interviews.

© 2018 This article is not to be reproduced for commercial purposes without written permission from the author.

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An introduction to construction variation claims for project managers video 7. What is access?

23/9/2018

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An introduction to construction variation claims for construction project managers
video 7. What is access?
What access has the client provided to the contractor? Will this access help or hinder the contractor's work?
What should contractor's check when granted access?

Information in this video is from the author's books: 'Construction Claims: A Short Guide for Contractors' and 'Successful Construction Project Management: The Practical Guide' and 'Building a Successful Construction Company: The Practical Guide'. All available from Amazon in paper or ebook.

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An introduction to construction variation claims. Video 6 Reasons for extension of time claims

18/9/2018

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An introduction to construction variation claims for construction project managers
Video 6 - Reasons for extension of time claims.

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How To Avoid The 10 Biggest Risks Facing Contractors

16/9/2018

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Image courtesy of Stuart Miles at FreeDigitalPhotos.net

In a previous post, we considered the 10 biggest construction risks facing contractors. However many of these risks can be avoided. In this post, I suggest ways that contractors can mitigate and avoid these risks.

Non-payment can be avoided by:
1. Contractors doing research on their prospective clients before pricing the project. This research could inform the contractor if the client has a history of not paying their contractors, or of disputing invoices and variation claims.
2. During the execution of the project continually updating the client of the expected final project cost. This includes timeously notifying clients of variation claims.
3. Always being aware of rumours or stories that could indicate the client may be in financial trouble.
4. Submitting invoices in a timely manner, ensuring that they are in the correct format and have all the required supporting documentation. Don’t give clients any reason to avoid paying invoices.
5. Immediately following up late payment with the client. In fact, better still remind the client ahead of when the payment is due that you are expecting payment.
6. Working with the client to minimise variations to the project. Variations invariably add to the project costs and they could result in the client exceeding their project budget and running out of money.
Avoid losing money on projects by:
1. Accurately pricing the project.
2. Minimising waste.
3. Maximising productivity.
4. Ensuring that all work is invoiced and that items which are different to what is in the project document are claimed as variations.
5. Making sure the project is completed on time, or even ahead of time. Any delays not of your making may be claimable as a variation.
6. Ensuring that the quality of all work and materials is acceptable and meets the specifications.
Improve cash flow on your projects by:
1. Submitting invoices on time and following up with the client to make sure that the payment will be received on time.
2. Immediately submitting variation claims when changes are noticed. The variation claims must have all the supporting documentation and back-up. Make every effort to get the client to agree on the claim as soon as possible. Extended legal battles and disputes delays payment which will negatively impact cash flow.
3. When pricing the project understand the payment terms and conditions. If possible try and get some of these terms and conditions altered to make them less onerous.
4. Check the project cash flow before submitting your price. If the cash flow will be negative you could consider not pricing the project, or looking at alternatives to improve the cash flow.
Finishing projects on time. To ensure the project is finished on time:
1. Check that the construction schedule is achievable and is correct, taking into account all restrictions on the project as well as the expected weather conditions.
2. Don’t price projects where the construction schedule is impossible.
3. Ensure that the project has the required resources and skills.
4. The project team must understand the schedule and work to it.
5. Regularly update progress against the construction schedule. When slippage occurs understand the reasons and immediately implement steps to prevent further slippage and to catch up the lost time.
Steps can be taken to negate some of the impacts of adverse weather on construction. This includes:
1. Designing the construction schedule so that tasks most impacted by poor weather happen when the weather should be at its best. This includes trying to close up buildings ahead of the onset of poor weather and avoiding executing earthmoving tasks in the rainy season.
2. Constructing earth berms and drains to prevent the ingress of stormwater into the work areas.
3. Being storm ready so that incomplete work and material deliveries can be quickly protected and tied down.
4. Possibly designing and scheduling work so that sections can be built in modules in protected areas or off-site.
5. Avoid projects that have to be constructed at the worst time of the year.
Safety. It is important that all project employees are committed to working safely and eliminating safety risks. Safety can be improved by:
1. Ensuring all employees have the required skills.
2. Keeping the work areas neat and tidy.
3. All project workers undergoing a proper project induction before starting work on the project so that they understand the project rules and hazards.
Good quality is achieved by:
1. Having workers with the right skills and training.
2. Buying materials from reputable suppliers and not basing decisions on price alone.
3. Putting in place continuous checking to eliminate errors.
4. Using subcontractors and suppliers who have the resources and skills to deliver the required quality.
5. Providing the right equipment.
6. Instilling pride amongst the project team to deliver a quality job.
7. Never sacrificing quality for speed or price.
Having the right resources for a project includes:
1. Continuously training so your team has the right skills.
2. Planning projects so there are sufficient resources with the right skills.
3. Not pricing projects when you don’t have the right resources and experience and when you’ll have difficulty finding them.
Good project management. Poor management can lead to poor quality, poor organisation on the project resulting in low productivities and mistakes, accidents, low morale of the team causing people to leave or to be less productive, poor financial controls which could result in overpayments, theft and failure to invoice for completed work or to submit variation claims.
Avoiding Theft Theft is a major concern on construction projects. Not only is the direct loss of the item, or money, but there are indirect losses which include:
1. When equipment, tools and materials are stolen (even when parts of equipment are stolen like batteries) then work often can’t continue until the item is replaced or repaired. This causes loss in productivity of workers and delays to the project.
2. Sometimes when an item is stolen damage is caused to other items creating additional costs to repair the items.
3. Disruption to cash flow.

Reducing construction project risks

Construction projects are inherently risky. The weather won’t be perfect, changes will occur, everything won’t be exactly as you expected it to be, suppliers and subcontractors will let you down. Obviously contractors can’t have a risk free project. Risks vary from project to project, both in the type and the quantum of the risk. Some projects can be inordinately risky, especially when the client and the contract document place undue risks on the contractor. Some projects are best avoided. Even the biggest and best contractors have been undone by one bad project.
But, by understanding the risks on projects you can take action to limit and protect against the risk. In my next post I discuss simple actions that contractors can take to reduce and even eliminate many of these risks.

What do you think are the big risks that contractors face?
Have some of these risks caused your project pain

This article was first published on the ClockShark website.
Please share this post
To read more about the author’s books and find out where you can purchase them visit the pages on this website by clicking the links below:

'Construction Book reviews'
To read more about the author visit the page 'Paul Netscher'
Want to contact Paul Netscher please enter your details on 'Contacts'
Find out how Paul Netscher can help you

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An introduction to construction variation claims for construction project managers Video 5 - Types of claims

13/9/2018

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An introduction to construction variation claims for construction project managers
Video 5 - Types of claims

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10 Free Construction Company Marketing Ideas To Try

10/9/2018

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When you’re on a tight budget, it’s hard to invest in marketing. That’s exactly why you want ways to get the word out about your construction business that don’t cost a ton. Can you effectively market your construction company without spending a bundle? Are there free strategies that truly work?
The good news is yes. So, wherever your construction business is financially, here are 10 no-cost ideas to help you promote your services to new clients!

Create a plan. Good marketing is all about strategy. And what’s great about strategizing is that it doesn’t cost a dime. So, start with your goal. Do you want to generate new leads? Get more requests for quotes? Book more business for the quarter? Whatever it is, identify a specific, tangible goal, and then brainstorm. Where does your target audience hang out? How do they make decisions? Where can you reach them? The more time you invest in researching this information, the better prepared you’ll be to make your (free) marketing effective. Construction companies have different clients, so what works for one company may not work for your clients. Understand your clients and market place.
Blog regularly. If you’re like most construction businesses, your prospects are online. As such, your website is a major marketing tool. How can you get more people to see it? One great, free way is blogging. You’ll have to invest time to churn out quality content on a regular basis for a blog, but if you do the writing, you won’t have to invest any cash. In exchange for your efforts, blogging can help you improve search engine rankings, traffic, online authority and more. Blogs can be construction tips, or they could be short updates of your projects and important milestones reached. Include photos - but do check to ensure that the photos don't show unsafe acts, an untidy site or poor quality work.
Do something newsworthy. Think about ways you can generate free publicity for your business without a financial investment. Can you provide free construction help to a local event in exchange for promotion? Would it be doable to host a workshop or seminar at your facility on an area of your expertise? Try to make a splash, then reach out to local journalists and media professionals about it. The key to getting coverage is being legitimately newsworthy. Consider when projects reach a special milestone or safety achievement. Of course you shouldn't have them too frequently because this will take away the impact.
Join a local professional organization. Do a little research into business organizations in your area that allow free membership. Join and get networking. Whether it’s the chamber of commerce or a new alliance, you can gain new visibility by participating.
Team with other businesses. Any time you can find other local businesses to partner with, it can be a powerful, effective marketing strategy. Perhaps you specialize in small-scale handyman jobs, but there’s another business that does roofing. By referring your customers to each other, you cross-promote and both reap the benefits — and it doesn’t cost anything.
Get active on social media. Invest the time to be active on social media and it can pay dividends over the long haul. The keys are being consistent, offering real value and finding a way to stand out. What kind of information and resources does your target audience want? What will help them or answer their questions? Make your content less about you and why you’re awesome, and more about your prospects and how you want to help them. Keep providing real value day after day, and people will notice.
Use a referral program. Current customers can be one of your most powerful marketing tools when they tell their friends about your work. Incentivize referrals by offering a reward for bringing in new business. Maybe you provide a free sample product or a bonus service. Perhaps you give the referred customer a discount, as well as a discount to the one who referred him or her. Find a way to make it worth people’s time to promote you, and you get free promotion.
Build an email list. If you aren’t already building an email list, you’re missing a golden opportunity for future marketing. Add an opt-in form on your site that tells prospects why they should sign up. Stay in touch with past clients. No matter how good your relationship was and the last project you executed for them there's no guarantee that they're going to remember your company in a year's time for their next project. So send out a short email, holiday greeting, or company update once a year.
Send a survey. Email your list of past/current customers and prospects a survey, asking for feedback. Doing so not only gives you free market research, but it also reminds your audience of your services.
Hold a contest. Prizes for a contest don’t have to be expensive. You could give away a couple free products or some complimentary services, for example. So, run a contest online that asks people to sign up for your newsletter, visit your site or complete another action that aligns with your goals.

While marketing your construction company with no money is a challenge, there’s actually more potential than you may realize. Try the ideas above to start spreading the word about your business! If you stay faithful to the process, you should start reaping results in no time.

Author bio: Shanna Mallon is a senior copywriter for Straight North, a top HVAC SEO firm in Chicago that also specializes in web development and other online marketing services. Shanna has been writing professionally online since 2007.

Title image courtesy of Shutterstock.

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An introduction to construction variation claims for construction project managers Video 4 - Reasons claims are rejected

9/9/2018

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An introduction to construction variation claims for construction project managers
Video 4 - Reasons variation claims are rejected.
Ensure your variation claims aren't rejected.

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An introduction to construction variation claims for project managers - Video 3 – why construction project managers should be involved with variation claims

4/9/2018

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An introduction to construction variation claims for project managers
Video 3 – why it’s important for construction project managers to be involved with formulating variation claims

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The 10 Biggest Risks Facing Construction Contractors

3/9/2018

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Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

Projects have many different types of risks. In fact, all projects have some risk for contractors. But, understanding the risks could help you avoid, or reduce the amount of risk. Clients may have different risks to the contractor, and each stakeholder in the project faces different risks. Sometimes these risks are the same for a number of stakeholders – so for instance, if the project is slipping against the construction schedule this could negatively impact both the client and the contractor.

Unfortunately, many contractors fail to understand the project risks, or they choose to leap into a project despite the risks. Who would want to start building a bridge across a flood-prone river at the start of the rainy season, or work for a client that’s known to fight lengthy legal battles with their contractors? Indeed, contractors are often a very optimistic lot, always expecting the project to turn out well, even when it’s fraught with risks and probably destined to failure from the start. Then when the proverbial hits the fan, they console themselves by blaming everyone except themselves.

In this article, we will look at the biggest risks that contractors face and how to minimise or avoid them.

The 10 risks contractors should avoid or minimise:

Clients that don’t pay. Frequently contractors aren’t paid for work that they’ve completed – who wants to work for free? This often causes contractors to become bankrupt. Unfortunately, this also usually leaves shareholders, employees, suppliers, and subcontractors out of pocket. Of course, if the contractor hasn’t finished the project then the client could have an incomplete project. Reasons for non-payment by clients could include:
- The client is dishonest and doesn’t pay for work.
- The client has run out of money or even become bankrupt, so can’t pay.
- The project value has exceeded the client’s budget.
- The client disputes the contractor’s invoices.
Projects that lose money. This could cause the contractor to become financially stressed, impacting cash flow and resulting in late payments to subcontractors and suppliers. This negatively impacts the project, and in the worst case results in the contractor becoming bankrupt. Projects lose money because:
1. They priced the project badly, there were errors and omissions in the contractor’s price, or they failed to understand the full project scope.
2. Poor project management which leads to projects wasting money.
3. Projects being completed late which results in additional costs.
4. The contractor failing to claim for work that they’ve done. This includes not submitting variation claims that they are entitled to.
5. Poor quality work which has to be redone at additional cost.
Negative cash flow. Negative cash flow is the leading cause of contractors becoming bankrupt. Essentially the contractor doesn’t have money to pay their bills. Even profitable projects can be cash negative for large parts of the project. Causes of negative cash flow include:
1. Clients paying the contractor late.
2. Contractors failing to invoice for completed work.
3. The contract payment terms being such that the contractor receives payment several months after they’ve incurred the costs.
4. The project is completed late resulting in delays in releasing retainage money.
5. Numerous variation claims which take time to settle and agree, or which face lengthy disputes with the client.
Finishing projects late. Projects that are finished late tie up the contractor’s resources, inevitably negatively impacting other tasks and projects. They cost more in management and supervision time as well as incurring additional costs for project insurance, project offices, security, equipment, etc. Finishing a project late is bad for reputation. It could even lead to the imposition of penalties by the client. Reasons that projects are finished late include:
1. The construction schedule was incorrect, or it was badly prepared.
2. The project team doesn’t understand or follow the construction schedule.
3. The project is under-resourced.
4. The client delays the project.
5. Adverse weather events.
6. Poor project management.
7. Poor quality work which has to be redone.
Adverse weather. Adverse weather can delay the project. Invariably when adverse weather strikes the contractor incurs additional costs which could include; people and equipment standing and they still have to be paid, pumping of flooded areas, etc. Adverse weather can also damage completed work which has to be redone at additional cost and time. Adverse weather could include:
1. Extreme heat or cold which slows productivity.
2. Strong winds which prevent some work, like lifting with cranes. Wind could also damage completed work.
3. The rain which stops work, floods work areas and damages partly completed work.
4. Adverse weather could also disrupt the supply of materials to the project site, or impact offsite manufacturing facilities.
Safety. Poor safety harms reputation, it could lead to the project being shut down by the authorities and even monetary fines. Poor safety can result in poor worker morale. Accidents take management time to sort out and investigate. Accidents could result in key workers being injured, impacting the project progress and productivity of the rest of the team. Accidents lead to increased insurance premiums. Some clients will avoid working with contractors that have a poor safety record.
Poor quality. Poor quality costs money and time to rectify. It harms reputation. It keeps people back to fix, thus preventing them from moving onto other tasks and projects.
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