0404: The Reason Why Some Construction Projects Fail

This Podcast Is Episode Number 404, And It's About The Reason Why Some Construction Projects Fail

Estimating and submitting bids is one of the most stressful and nerve-wracking sides of your construction business. It is essential to keep in mind that "break-even" in the construction business is challenging to calculate because most projects are one-of-a-kind custom jobs. Proactive contractors have systems and cost libraries with pre-priced assemblies for bidding, which works in conjunction with Strategic Construction Accounting to provide management with progress invoicing, job costing, and job profitability.

With poor bookkeeping, misguided judgment, and clerical errors come bad decisions on what projects to bid on and not to bid on until eventually, you'll run out of time and money. This is why some construction projects fail or, worse, construction companies get bankrupt. 

Whenever someone decides to have some work done, they get several bids from competing contractors because they heard someone say a long time ago. 

There are two things to consider:

The Low Bidder

Good / Fast / Cheap - Choose Cheap & Fast or Cheap & Slow! Expect the project to be late and over budget! Base costs - Taxes, fuel, cell phones, nails, glue, and small parts are the same for all contractors; no savings here. Labor - Cheap labor makes mistakes and causes damage because they are learning, by experience, on your project! Material - Price is King! So they buy and install cheap material! Tools - Cheap tools take more time, and the finished product may be hard on the eyes, but they have to cut costs! Trucks - Rickety old trucks and vans may break down, which means the job may take longer, but costs have to be cut! Office - They work out of their house or truck; so-called no-overhead Cheap Construction Manager - Biggest, "baddest" construction worker. Also, the bill collector. Also acting as a "Working Project Manager," which means the company is attempting to save money in the short run and lose money in the long term. Assembling parts and building something takes a "Tactile" mindset. Running a project is "Strategic." Put another way, no man can serve two masters as he will hate one and love the other, and the inevitable outcome is the Peter Principle, which leads to a construction train wreck. Invoices - Make no sense, the total cost may exceed the bid, and you will pay the contractor to avoid violence! Warranty - Cheap contractors cannot afford warranty work because they are "One-Hit-Wonders" never to return.

The Other Bidders

Good / Fast / Cheap - Choose Good & Fast or Good & Slow! Expect the project was done on time and on a budget! Base costs - Taxes, fuel, cell phones, nails, glue, and small hardware are the same for all contractors. Labor - Skilled labor costs more, produces more work faster with fewer mistakes, which means a quality project. Material - Quality and reputation are King! Skilled labor can install quality material faster than cheap material. Tools - Quality tools and equipment cost more and produce a product that is easy on the eyes and lasts longer. Trucks - Reliable trucks and vans mean the job is done quicker and with fewer delivery issues. Office - Skilled staff and office equipment provide for effective communication. Qualified Construction Manager - Has a construction background and formal training in project management. Most professional construction companies with good reputations will have people with credentials like PMP (Project Management Professional) assigned to oversee projects. Invoices - Are Pay Applications that make sense because they show a history of costs and payments made.  Warranty Work - This is a marketing cost because the first project is the beginning of a relationship.

Final thoughts

Never hire the lowest bidder. The sweetness of low price fades quickly while the bitterness of poor quality lingers on. When hiring a contractor, discard the low bidder because you will get what you pay for and sometimes less than what you paid for. See that you have enough time to review subcontractor pricing and make clarifications from the project manager, architect, or owner if there's anything you are unsure of. This is where writing down a list and checking it twice will come in handy. 

About The Author:

Sharie DeHart, QPA, is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com