Unfortunately contractors lose money on construction projects. Sometimes this happens more frequently than it should, and it can lead to contractors becoming bankrupt, and clients being left with an incomplete project.
Inevitably the contractor's management will be upset and blame the construction project manager for these losses. In previous articles What do you do when your construction project is LOSING money? and Is your construction project losing money? Do you want to find out why? we discussed how important it was for project managers to find the cause of the losses, and to take action to stop further losses and if possible recover the losses already incurred. We mentioned that there were often several reasons for losses and project managers needed to understand the underlying problem. Some reasons why projects lose money
Unfortunately some project managers take the wrong actions and try and cut costs where they shouldn't. This often leads to further problems.
How you shouldn’t save construction costs
Although there will always be pressure to cut costs, especially on a construction project that’s losing money, you should never be tempted to cut costs by taking shortcuts, by falsifying test results, by using inferior products or materials that are the wrong specification, by ignoring good safety practices, by omitting materials, or using materials that are smaller or thinner than stipulated. This could lead to accidents, or structural defects that have to be rectified later. Inevitably they will impact reputation when the client finds out, as they almost certainly will. These ‘cost saving’ measures may help your construction project in the short-term, but they could tarnish your reputation, and the reputation of your company, for a very long time. So, even if these measures are encouraged or sanctioned by your senior management, never be part of these actions.
In addition, you should never try and make money from your subcontractors and suppliers by withholding money which is legitimately due to them. Nor should you impose back-charges on them for no valid reason. Your company will have other projects to construct, and subcontractors who have had to battle to be paid, or who feel they have been cheated of money, will be reluctant to work with your company again, or they will increase their prices to contend with these unfair practices. Ultimately your company will pay more. In fact when pricing new projects, if your company doesn’t get competitive quotes from subcontractors and suppliers then your company’s price will be uncompetitive, which will jeopardise your company’s chances of winning other projects.
Subcontractors who are paid on time and are dealt with fairly will usually try and help the contractor out when they’re in trouble (help you get the project finished), they will want to work for your company again, and they almost certainly will give your company their best price.
No matter how bad the project losses, never sacrifice safety or reputation to save money. If you cannot find the reason for the losses, or cannot do anything to prevent the loss, you must just buckle down and get the project finished as quickly as possible, and at least deliver a quality project to a happy client, which could lead to further construction projects, which will hopefully be profitable. At least salvage something from the loss!
Of course knowing early that your project is losing money could help you take mitigating actions sooner to prevent the loss becoming worse. The CONSTRUCTION project MANAGER'S financial duties.
Other useful articles
Is the cheapest really the cheapest? - adjudicating quotations
12 Construction Project Cost Report Mistakes You Should Avoid
Are you working for free on your construction project?
This article is an extract from the book 'The Successful Construction Supervisor and Foreman'.
© 2021 This article is not to be reproduced for commercial purposes without written permission from the author.
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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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