Focuses on Construction Business Profitability for Subcontractors
March 5, 2009
Bill Dexter, a risk-management consultant and trainer, talked to
subcontractors and general contractors about maintaining profitability
in construction during a webinar this afternoon that was hosted
by the Construction Specification Institute. In addition, Mary Jones,
a California attorney specializing in alternate dispute resolution,
was on hand during the presentation to comment and discuss.
Dexter began by telling his audience that profitability is not
just about making money, but also keeping the money that they earn.
"This is a high-risk, low-margin business," Dexter said.
He pointed to a number of issues that subcontractors and general
contractors have to deal with that cause profitability loss. For
example, owner-drafted contracts can be a serious concern. Dexter
explained that these contracts are those slanted to favor the owner.
Other examples that can lead to profit loss include changes during
construction and the owner's performance, i.e., not making timely
payments, authorizing change orders, etc.
One of the most important issues to consider is indemnification
of the general contractors/subcontractors providing protection of
the owner. Jones advised that it's important to try and shift that
risk back to the owner.
Another "money leak," according to Dexter, is being the
"If you are the low bidder on the project the owner may still
expect [the highest level] from you even though you may have made
cost cuts in bidding that job," Dexter said.
Multiple prime contracts can also be a concern.
"This is when the owner wants to be the general contractor
on the job," said Dexter. "This can be a problem for all
subcontractors because the owner does not necessarily have the skills
to manage the job." He added, "Also, owners wanting to
perform the work
if not addressed this could pull profitability
from the job."
Dexter then explained that the purpose of the program for today
was to discuss contracts and to determine the absolute best way
that they can be tailored to a company's own business and needs.
When talking about the different types of contracts, from the professionally
prepared contracts available from associations such as AIA and AGC,
to preparing their own, the majority of participants responded that
they do not prepare their own and instead use the pre-printed forms.
Dexter said there were pros and cons to using the pre-printed contracts.
As a pro, he said they were all totally test inside the court system,
but as a con, "The language is extremely detailed
encompasses such a broad spectrum that it may not be specific enough
Jones added, "Make sure when using a contract your specialty
is represented in it."
Dexter shared many of the benefits in preparing your own contracts.
"It's not as complicated as may have assumed," he said.
"It tailores the contract to the way you do business
and can include an exact description of your tasks, benefits and
When working with a contract you've prepared, Dexter added that
it's important to still educate and work closely with clients. He
offered a few suggestions.
"If you've written your own contract, go over it word for
word with your client. Explain what every clause means," said
Dexter. "Also, invite clients to suggest revisions; you're
not letting them make changes, but you're just asking if there is
anything in the contract that they feel uncomfortable with."
Today's webinar was the first in a three-part series. On March
12 a webinar will address managing the risks associated with code
compliance, specification and industry standards; managing communication
and documentation to keep the owner aware of the costs throughout
the project; and avoiding confrontation after delivering the final
invoice. The March 24 session will cover the latest information
on alternative dispute resolution; establishing internal policies
regarding dispute negotiations; and transferring costly risks away
from your company.
Stayed tuned to USGNN.com for reports from these next sessions.
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