Dr Schleifer’s Weekly Construction Message
From purely business perspective we should be known as “contractors” even if you consider yourself a “constructor” because the initial and critically important function in construction is the transaction, the contract (also referred to as the agreement). From a functional business perspective, the construction business is not primarily about the process of building brick and mortar, but rather about entering into an agreement to provide construction services.
Something like Uber or Airbnb.
Uber is not a transportation company. It’s a software company that provides vehicle owners and riders with a platform on which to execute a transaction.
Airbnb is not a lodging or hotel company. It’s an online platform that provides homeowners and travelers an arena in which to complete a lodging arrangement (transaction).
Contractors enter into written agreements to provide specific construction services.
If the contract is not drawn correctly the project is impacted, potentially to the point of failure. If the project is completed a year after the due date in the contract, or substantially over the contract price, through no fault of others, the contractor may not have delivered the service he or she contracted for even if the project is used for 100 years thereafter.
Starting at the Beginning
Throughout 2021, we are going to take a methodical look at construction industry best practices from top to bottom.
The initial and primary business practice of the“contractor” is to enter into contracts. You may be a sub-contractor working with a general contractor, or an owner procuring a designer or general contractor, or you may be contracting with material suppliers or a labor union. In any event, your primary and most fundamental business practice and responsibility is to enter into profitable written agreements (contracts).
Here’s an imaginary whimsical letter composed by a Simplar researcher to illustrate the intricate relationship that contractors have with their contracts (agreements). While you read, ask yourself if you could have written a similar letter. A hypothetical contractor is writing this imaginary letter to the contract document (agreement) that he executes, as if it were a person.
From Contractor: Dear Contract Document,
Let me start by telling you I appreciate you and all the good things you do for me. I will always need you and will forever rely upon your strengths. With that said, I have noticed a few disappointing realities over the years that I felt would be best for our relationship if I got them out in the open.
First, I have realized that even though I rely upon you regularly, you don’t give me what I really want and need. Sometimes I use you and the project goes OK, and then other times I use you and the project finishes late or over budget.
Second, you don’t really prevent non-performance from the vendors that I need and use. You only penalize them once it has happened.
Third, after I sign you, I never seem to have reason to open you…unless there is a problem. I need more than that. I need something that is actively engaged in helping me predict potential risks and solve them before they happen.
I know all my problems are not your fault. I realize that sometimes in my haste to get you signed, I may not give you the fair treatment you deserve. And sure, the people that set the expectations for the project and get you signed are rarely the people that will actually be doing the work. And yes, I don’t always document performance and close out a project like I should.
I will always need you and use you on all my projects. But I need more than just a contract. I need experts. From now on, I am going to start using you within a value-based approach to projects.
(To see the Contract document’s response to this imaginary letter, tune in next week, 1/27/21, to the Weekly Construction Message on this Blog site, letstalkbusiness.net. Find out what the contract said.)
A Value-Based Approach
If you find yourself struggling with profitability, schedule and cost overruns; you find the process slow and contentious when negotiating extras or getting paid, or you’re mired in constant legal hassling, it is time to stop blaming your people and take a closer look at your contracts. Most problems start there. Very few owners, designers, contractors, or vendors realize this. We need to focus on executing more professional, profitable, and equitable contracts.
We will be discussing Simplar’s value-based approach to procurement and contract execution in subsequent Blog Post Messages.
Keep in mind that if you stumble at the start, you rarely finish first.
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