The economics of referral in construction

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"Construction companies are always searching for their next project."

​As construction companies we are always searching for new projects to bid on. We examine bidding lists, visit potential clients, and even advertise. But an important source of new projects is our existing clients. Our existing clients not only could have further projects for us to bid on, but they also often recommend our company to other potential clients.

I know, even with our maintenance and renovation projects at home we often ask friends and neighbours who they would recommend. Also, in our construction division we often constructed more than one project for our clients, and in some cases went on to complete 5 phases of projects.

"Many contractors forget how important it is to keep a good client."

​Yet many contractors seem to forget how important it is to maintain good client relations. In fact in this day and age of instant messaging it is even more important. The wrong tweet or Facebook post by an irritated customer can almost instantaneously destroy a small business that has taken years to build. In fact, some of the reviews posted on accommodation websites or Amazon and ebay can be quite vindictive, often going far beyond what the issue deserved. Unfortunately some people can become unnecessarily malicious.

It’s therefore important to bare this in mind, and ensure that your staff understand how important customer service is.

What is good service in construction?

​So what is good customer service in the construction industry?
​Clients generally expect :

·         A quality project.

·         A project that meets their requirements.

·         A project delivered with the minimum of fuss and inconvenience to them.

·         A contractor that provides fast and efficient service when there are problems.

·         A fair price – although unfortunately there will always be some expecting something for nothing – but then it’s probably best to stay away from these clients because there’s no making them happy.

·         A project delivered on time and when the contractor said it would be completed.

·         Honesty and integrity.

·         Professionalism.

Many of these are known before we start a project and can be measured in the course of the project. We understand the quality requirements and the schedule and we can, and do deliver on them. The problem arises when the client or owner has different expectations to ours. This is sometimes because the scope and contract document aren’t clear. But, sometimes it is because the client doesn’t understand their own document. It is important that both you and the client have the same expectations, because even if you deliver the project in accordance with the document and you are contractually correct, an unhappy client can do damage to your reputation.

A fair price is always difficult particularly when it comes to variations and extras. Sometimes the best is to try and avoid variations and ensure the client doesn’t delay the project in anyway and that changes are kept to the minimum. When there are variations the client needs to be made aware of them as soon as possible. Pricing of the variations should be fair and explained to the client. Making an extra few hundred dollars from a variation can seem a good idea at the time, but an aggrieved client might not consider your company for their next project which could be worth lots more money than the few dollars you made on the variation.

"Keeping a good client takes work"

You cannot assume your existing customers will come back to you or recommend your company to friends and other companies. It takes lots of effort to keep working at the relationship and keep meeting their expectations.

Sometimes it’s better to hear complaints from your client when you visit them, since at least they are talking to you and you can rectify the problem or explain why something happened as it did. It’s when your client isn’t talking to you that you should be worried. That’s when they have probably given up on your company and it’s too late to rectify the situation.

Some contractors do their reputation harm when they underbid a project just to get it, and then don’t have the correct resources to deliver the quality project the client expects, or they try and make up shortfalls in their price by submitting numerous inflated claims and variations.​

Contractors must look after good clients

​It’s easy to dismiss a client’s complains as just another complaining client. But you do so at your peril.

Don’t underestimate at how much damage an employee can do to a company’s reputation. Either by being rude, greedy, unhelpful or performing their job badly. Employees must understand the vital part they play in maintaining the company’s reputation and how this could impact whether you get your next project.

Do you want to learn how to manage construction projects successfully

This article is adapted from the author's books. To read more about these books and find out where you can purchase them visit the pages on this website by clicking the links below:

'Successful Construction Project Management: The Practical Guide'

'Building a Successful Construction Company: The Practical Guide'

'Construction Book reviews'

To read more about the author visit the page 'Paul Netscher'

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