Breaking down the most common errors in the industry.

You may find this difficult to believe - and you may even want to sit down because what I'm about to say may shock, startle and shake the very foundation of your being: We contractors are not perfect.

Well, somebody had to say it. The reason I criticize our humble collective is because every day I look around and see contractors - including myself - doing our best to cause our often paltry profit margins to become even more paltry by not doing the things that we know will help our businesses become stronger and more successful.

Of what things do I speak? Well, let's take a moment to examine the 10 Dumb Things That Contractors Do to Spoil Their Own Success ... and you tell me whether anything sounds familiar:

1. We agree to schedules that we know are unrealistic. Face it, we've all had times when very late in the (often) harried negotiation process for a contracting project - when the budgets, preliminary drawings, specs, hard costs and, finally, contracts have been hashed and re-hashed - that the real completion date gets unceremoniously interjected into a conversation leading up to the signing. And (entirely coincidental, of course) it's a full two weeks shorter than the construction window that you'd been working under all along. So what do you do? You're sure not going to trash the job at this stage, and you can see the owner's serious about the date. So, for the first time on this job (there'll be more), you reluctantly accept the change in plan ... and hope you can work it out later on down the road.

2. We agree to profit margins that are lower than what we really want or need. Recently, I accidentally left a packet containing my own in-house estimate breakdowns (including profit and overhead numbers), material proposals and sub-contractor quotations at the office of an architect whom I had met to close a job. Embarrassed and feeling that I'd let my deepest and darkest secrets out of the bag, I expected to receive a call from the architect chastising me for taking advantage of the owner and reaping such outrageous profits on the job. I did receive the call the next morning, but instead of a reprimand, the architect - barely able to contain his laughter - snickered into the phone, "Is this really all you guys make on these jobs?"

I think it would have felt better to have been chastised for being greedy.

But, the episode only solidified what I'd believed for quite some time: Our industry has gradually, but determinedly, grown into a disproportionately competitive enterprise. Rapid and raging competition, owner sophistication and the loss and lack of control of our own destinies (via competitive bidding, owner/architect-partisan contracts, control documents, bid-packages and more) has ultimately resulted in eroding away any and all chance that the average contractor enjoyed of reaching consistently sustainable profit margins. Growth and success, it seems, has become as much of a product of providence as skill, sweat and diligence.

3. We try to be the owner's friend. This all-too-human attachment commonly results from being in prolonged society with the owner over an often protracted construction project schedule. It simply becomes too easy to become friends with the owner. Now, of course, this is a wonderful achievement on a human level, but unfortunately, we've learned from life that this type of relationship often finds itself at odds with the cold, clinical and calculated mentality required for sound fiscal, business reasoning. Better put: You're more likely to give away items (work that you legitimately should have charged for) to a friend.

4. We try to be the architect's friend. This problem is similar to that above, but potentially far more damaging in that the architect is normally far more involved with the day-to-day, nuts-'n'-bolts of the project. With a friendly architect, it can be quite easy to fall into a pattern of give-and-take (you do this for me - I'll do this for you) and swapping one favor for another (future) favor. Trouble, of course, arrives at the end of the job, when all of these favors suddenly come to monetary fruition, and the architect - who now mysteriously reverts back to a staunch owner's representative - develops a severe and debilitating case of "selective memory," forgetting many of the promises that (coincidentally) would have afforded you additional compensation. Even more startling is that - even though struck down with this terrible malady - he still manages to recall (with crystal clarity) every credit that should be issued back to the owner.

5. We accept people at their word. Running the risk of stereotyping, I've observed over the years that contractors - as a group - seem to have a marked inclination for taking a man at his word. Many have been in the game a long time and still embrace much of the old school philosophy - likely handed down from their fathers and grandfathers. This included sealing deals with a handshake and accepting verbal commitments and shying away from demanding everything in writing - especially "gentlemen's agreement-type" things.

But, of course, we live in a different world from our father's, and most of us have felt the sting of being too trusting. "Next time's gonna' be different!" you vow, after your most recent lapse, but then sure enough - on the very next job - you fall right back into the same old pattern and habit of accepting people at their word. And like clockwork, at the end of the job, you get burnt again ... and the wheel spins 'round.

But chivalry aside, unfortunately, at some point you need to ask yourself if your (however laudable) explanation for accepting verbal promises is a reason - or an excuse - for your failing. Is your noble justification merely a way to cover up for the fact that you (and your crew) are simply being lazy in the field and are failing to chronicle, cost and administer changes and clarifications as they ought to be

done - in writing!

6. We mishandle and poorly evaluate the impact of change orders on our bottom line. Mishandling change orders - particularly changes in the field - has an enormously negative impact on a contractor's profit line item. Changes in scope of work occur on virtually every construction project, and effective handling and administration of these changes is critical to maintaining a profitable job. The trouble is, change orders can show many different faces and can nick you in many different ways. It can be a truly daunting task to address their every aspect. Of what aspects do I speak? Well, here is just a handful of ways that we allow the change order process to suck profit from our projects:

  • We ignore small changes. You know, the "not-so-big-at-the-time" items - that get added for no cost simply because they just seemed too small to generate paperwork over: like running the base molding farther than detailed or digging a little deeper than spelled out on the plans. Of course, the trouble with small changes is that - over the course of a prolonged construction schedule, there can be a whole lot of them, adding up to significant (and unaccounted for) dollars by the end of the project.

    We give in to our public relations side. There is always the temptation (and I'm constantly guilty of this one) to "throw in" a change for owners whom you wish to impress or win over for future work or just because you like them. Although I could probably make a case for such gestures being periodically appropriate, the important thing to remember is not to get carried away with your generosity. Construction contracting is a business, and most owners (often business people themselves) understand the concept of charging for your product or service. If you think you're having a weak moment, call up IBM and ask the company to throw in a free modem for your computer at no charge. Their response should get you in the right frame of mind!

  • We proceed with changes without getting an adjustment in construction schedule. Sure, there are some changes that truly don't affect schedule, but there are many more that legitimately require extension. Asking for the extra cost of the change is often deemed enough by the contractor, but what about the liquidated damages that linger at the end of the job? The owner won't be shy about demanding his penalty, so don't be shy about demanding your rightful extension to the schedule.

    We proceed with the changes before the item has been calculated or before all the parties agree to the cost. On most construction projects, there is constant pressure to maintain the schedule, even if it means allowing the owner and architect to make changes without including you in the discussion. And again, in the spirit of cooperation, you often proceed. But keep in mind that once you perform that extra work, your negotiating position greatly weakens. And you may, at the end of the job, eventually be forced by the owner and architect (who is holding the money) to accept whatever remuneration they deem appropriate - an amount that can range from reasonable to laughable.

  • We fail to charge adequately for the additional office and administrative time that goes into administering change orders. I recently completed a city hall project where the amount of office man-hours required to cost, negotiate (phone time), account and administer only change orders was (we estimated) up around 250 man-hours. There were hundreds of them. (The plans and specs were a complete mess.) Indeed, it is not unusual for more hours to be put into processing changes on a job than are spent on the base contract. This is real time and real money!

  • We fail to cost change orders in the same way that we'd treat a new job. Changes can come fast and furious, and often it's all too easy to just take (for example) that additional quote from a sub, mark it up and shoot it out as a pricing proposal for change. But did you include supervision time, trailer, site telephone, layout, handling, etc. in your bid? General requirements such as these can be legitimate parts of a change and should be taken into account.

And while we're at it, have we tracked the material, labor and equipment required for the change separately out on the jobsite? Do time cards and material tickets break out the changed work? Did that information make it to accounting? And finally, was it billed and collected? Don't laugh! I've seen some that were processed just fine right up until the time it was to be added to the continuation sheet for billing and then never made it!

7. We try to solve all of the owner's problems. One of the chief reasons many of us got into contracting in the first place is because we consider ourselves problem-solvers - mechanically and technically oriented individuals who enjoy solving task after task. Unfortunately, this attribute can also get us into trouble on the jobsite. You see, we problem solvers also often have a marked tendency to express our opinions on just about any subject matter where we see a need - and we see a need pretty much all the time. On the jobsite, this gets manifested in the form of correcting (what we see as) flaws, errors and missteps in the construction and design of the project. The trouble is that sometimes the owner actually listens to what we say!

Now, the good news is that this is America - and we're allowed to speak our minds. The bad news is that IT'S NOT OUR JOB TO DESIGN THE BUILDING! That's what architects and engineers are for. Let them do their jobs. (Yes, I know that sometimes they don't do their jobs, but that's a problem that should be handled between the owner and architect.) Besides, every time we open a "new can of worms," the project schedule has a way of becoming clogged, adversely affecting our labor productivity. When labor slows, money is lost! So, keep your mouth shut and the schedule moving ... and be content in the knowledge that you're secretly so much smarter than

everybody else.

8. We allow multiple punchlists. I'm not sure where or when the tradition of generating multiple punchlists came into being, but I'm sure a contractor wasn't there when it occurred. This insidious practice pretty much throws fair play out the window and allows the architect to generate a punchlist (of which a third of the items may be fictional), wait for the contractor to finish the list É and then start all over with a new punchlist with new items (including nicks and marks that are caused by the occupants of the new building). I've had jobs with three, four and five different punchlists (with the architect holding our money throughout) until finally it reached the point where I had to announce to the owner and architect that "We are done," pull my men and demand my money. In short, there should be one punchlist, period.

9. We fail to defend ourselves from (increasingly) partisan contracts and documents. We contractors rarely read the specification manuals cover to cover. Surprised? I didn't think so. There simply isn't time, and the manuals have simply grown too large and complex. Personally, I'd be more concerned about a contractor who did have time to read the manual completely! But, this does leave us with a glaring concern. With the exception of a handful of obsessive-compulsive construction contract enthusiasts, only a measured percentage of the extraneous legal jargon, indemnifications and "whereas the party of the first part" clauses ever really get read, comprehended and (if need be) rebutted.

This being the case, it's been a relatively straightforward exercise for owners, architects and engineers to incorporate weighted and biased wording into the specifications - wording that covers and protects their ass(et)s while funneling through to the everyday contractor more and more responsibility and liability. Today, the contractor is left with comparatively few legal rights and leverage on the very projects that they're building.

Just take time to read - really read - Division No. 1 of many specification manuals and you'll see what I mean. If taken literally, there is virtually nothing of which the owner and architect aren't absolved. Classic clauses go something like this:

"... although the designer has made every effort to ascertain that information contained in the working drawings and specifications is correct, it is the sole responsibility of the contractor to verify and comply with all site conditions, code authorities, governing bodies (and it goes on ....)."

Now add a few "... for no additional compensation ..." and "... the architect's interpretation shall be final..." clauses to the pot, blend in boatloads of superfluous and boilerplate specification and voila, you've whipped up a bewilderingly obtuse (but effective) architectural-indemnity soufflé.

So, when disputes do arise, our (occasional) victories become more a product of defiant stands, stubborn ranting and raving and drawing lines in the sand than of our actual detailed rights. Having few tools to work with, we're often left with only the extreme retaliatory measures of filing liens, legal action (generally only idle threats since we've entered into their contract, so it's not likely we'll score many legal victories) and work stoppages not because we want to, but because it's all we have left.

10. Regardless of reasons 1 through 9, we keep doing what we're doing. Good for us!