How to Maximize Profits on Your Projects

How to Maximize Profits on Your Projects

Small changes add up to big dollars

By Bill Goodman

Every dollar counts, and every penny wasted is precious. Losing incrementally small amounts on your construction projects can add up to thousands of dollars very quickly by the end of a project.

So what can be done about it? Maximizing profit must be a top priority along with completing projects on time. It’s key to not only focus on daily tasks and responsibilities, but to make time for cultivating the financial tools and strategies that can help you meet your goals. Consider implementing these two proven strategies to maximize your bottom line and grow your competitive edge:

  1. Accurate General Conditions. General conditions in construction include the onsite administration, supervision, temporary facilities, temporary protection and soft costs required to get a project built. Estimating accurate general conditions for projects can be a simple task when the estimator is accountable for getting it right. Most estimators use unit prices that are rarely checked against the actual final job cost. For example, creating a budget for a temporary toilet seems easy, right? An eight month job should cost $100 per month, but when the field superintendent sees that there are 40 extra men on the job and more than one toilet, it means that more than one service a week is required. This might increase the actual job cost by as much as $200 per month. These extra costs will add up to lost cash.

The estimator’s primary job is to calculate an accurate estimate of what it will cost to build each project. After each completed project, the estimator must look at the actual job cost to see if he miscalculated, overestimated, or underestimated any of the project line items. Before pricing any project, the estimator should meet with the project manager and field superintendent to determine what will be required to run the project that’s being bid on. Estimators should also research to determine if they are charging the right price for the project needs and staffing, specifically temporary signage and barricades, fencing, temporary power, safety and first aid, and final clean up, just to name a few.

  1. Charge for All Amendments on Change Orders. Change orders are written documents amending the original contract agreement between parties observing an addition or change in scope, price, time, schedule, terms or work items on a construction project. Most often they require extra finances for the additional services required by the change.

If formal approval or authorization for extra work is postponed for days, weeks or months after the event occurred, then the customer is in a great position to settle or offer to pay a discounted price, change his/her mind or decide that the additional work should have been included in the original contract. To avoid this problem, present a complete cost breakdown for every proposed change order that your customer requests before starting the job. Use a standardized format, cost template and rate sheet to ensure that you include all additional costs ensued from added work. Every time extra work is performed, extra costs become evident. What are these extras costs? Some examples include processing paperwork and payments, writing change orders to subcontractors and ordering materials and equipment. Liability insurance and overhead cost may also go up. If the project has a payment performance bond, this should be calculated into the pricing. The general condition costs that are needed due to time extensions caused by the additional work or services should be included. Some items may have to remain on the job site for extended times, such as: construction trailers, temporary facilities, fencing, protection, etc. Do not short change your company by failing to ask for everything necessary to complete a job. Most commonly, change order requests are presented as labor, materials and hard cost plus markup, without extra required soft costs for many of the items noted above.

Making money is not easy in the construction industry. Look for every advantage that you can to boost your net profit margin, so that you are not giving it away.

William Goodman, Senior Project Manager for Triune, is a highly accomplished, multi-talented project manager with over 30 years of construction experience. He encompasses excellent skills in preparing schedules and managing job costs, budgeting, contract negotiation, design-build and pre-construction services.

The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.


How to Improve Your Odds of Winning

How to Improve Your Odds of Winning

Increasing your bid-hit ratio

By Ed Krum

Competition in business is often fierce. In order for a company to thrive, it must achieve reasonable growth by means such as increasing profitability, jobs and sales volume. With contracting businesses, one of the primary means to obtaining jobs is through bidding.

The bid-hit ratio shows the percentage of jobs bid on in relation to jobs/contracts secured. A ratio of 5-to-1 would indicate that a company is averaging one contract for every five jobs being bid upon. In a perfect world, a low bid-hit ratio, like 2-to-1, would be ideal. A company that typically negotiates their jobs creates a false bid-hit ratio because they count all work under contract vs. work that they actually bid. Contractors that get most of their jobs from bidding public works or from bidding against a long list of competitors have a higher bid-hit ratio.

Once a contractor has identified the specific customer types that he wants to pursue, there are some simple strategies for increasing the bid-hit ratio and maybe improving overall profit margins.

  1. Limit the Competition. Typically all contractors want to bid on projects that have only 3 or 4 contractors selected to bid. Look for opportunities where the owner procures work through a short list of bidders. Pursue potential customers where you can compete on value and qualifications. Find those owners who recognize that the services that you offer are not simply commodities meant for the lowest bidder.  Such opportunities exist, but you will have to cultivate them. This strategy will definitely increase your chance of a greater bid-hit chance. Obviously, less competition equates to a higher probability for success.
  1. Try Something Different. Getting stuck in chasing after the same types of projects and customers over and over hurts your bid-hit ratio greatly and reduces the efficiency of your estimating staff. Be more selective, eliminate jobs with long bidder lists and pursue only the jobs where you have some type of competitive advantage. Having a strong relationship with someone on the selection committee is one example. Making this a top priority and working hard to get pre-qualified for the targeted projects greatly increases your bid-hit ratio.
  1. Let yourself be Known. Try not to bid projects without first getting a chance to meet the decision maker. Your goal should be to find owners that are concerned with more than just price. When you meet the decision maker, ask questions such as:  a) How many are bidding? b) Who are they? c) Who won your last project? d) How will the bids be opened and evaluated? e) What is the most important factor in selection of the contractor? f) Will they negotiate?
  1. Limit your Affinities to Others. As a subcontractor, why not send your proposal to every contractor bidding on that project? Oftentimes trades have an affinity to one or a few general contractors and will bid only to them.  While loyalty is important, you should not utilize this practice if it negatively affects your bid-hit ratio and, ultimately, your business.

In closing, these simple guidelines may prove to substantially help your company win bids, stay competitive and increase profitability, and, in an ever-increasing market, not much could be more valuable.

Ed Krum, Senior Estimator for Triune, is a highly-accomplished, multi-talented project manager with over 25 years of commercial construction experience.  He is skillful and highly regarded in value-engineered, conceptual, competitive, negotiated and design-build estimates.

The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.