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USGNN Original StoryWebinar Focuses on Construction Business Profitability for Subcontractors and Others
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 low bidder.

"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 … and encompasses such a broad spectrum that it may not be specific enough for you."

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 remedies."

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 for reports from these next sessions.

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