Out of Tune
A construction project is an intricate labyrinth of independent/inter-dependent craftsmen making carefully coordinated contributions to the finished product over an extended period of time. Perhaps no other human endeavor requires such precise complex coordination. Even a 100-piece orchestra functions symphonically for only a few hours while complex construction projects often endure for years. What’s more, orchestras function simultaneously while construction projects function both sequentially and simultaneously thereby compounding the complexity and inter-dependence.
The Construction Symphony
General Contractors are the maestros of the construction symphony. They not only compose the piece, they also conduct it. Architects and engineers may write the music, but the GC composes the orchestration and conducts the musicians through the performance.
Sub-contractors are the GC’s musicians, each playing a different instrument under differing circumstances following a different set of trade practices. By their nature, contractors are fairly independent and not always team players. Imagine a conductor trying to conduct a symphony with musicians who don’t necessarily want to play with others and see musical performance as a competition among equals.
Sometimes a construction performance can last for years with subs entering and leaving the project over the duration! Imagine an orchestral performance with some players sitting in after the overture and other players getting up and leaving midway through the performance.
Good luck, maestro!
The Weak Link
Even though the percussionist may crash the cymbals only once in 50 measures, what happens to the performance if he crashes them at the wrong time? Ninety nine other musicians may perform together flawlessly, but the cymbalist can bring down the entire performance with one careless crash.
Beware the subcontractor who doesn’t get his materials delivered to the job on time. Or the sub who “can’t find” enough workers to deliver his part of the project. Watch out for the subcontractor who needs a little advance to meet payroll this week. Or the sub who is still “waiting for a delivery.” Any one of these can halt the progress of a construction project. If any subcontractor is unable to complete their work for any reason, even one with an insignificant portion of the work, they put an entire project in jeopardy.
Contractor Evaluation and Selection
The reality today is that the failure of one or more contractors on a project can have a significant impact on the financial condition of the other contractors on the job. This intense inter-dependence and “weak-link” factor is often overlooked by project owners and their general contractor simply because it is too frightening to ponder. It is, however, the main reason that “low-bid” selection must be carefully scrutinized. Experience tells us that the “low-bidder” is often the “high-risk” producer that could put the entire project in jeopardy.
During the Performance
As the conductor guides the orchestra through a performance he is constantly on the lookout for trouble. Did a player miss a beat or play slightly out of tune or “come in late”?
The general contractor must also be on the alert for trouble during construction. “Missing a beat” during construction often looks like:
- Complaints from suppliers or subs about unpaid invoices.
- Partial or late payments.
- Contractors asking for advance payment or help making payroll.
- Unexplained cuts in crew size.
- Declining work quality.
- Overbilling of quantities or percentage of work completed.
- Requests for payment for materials ordered or on supposedly the way.
- A change in foremen, supervisors or mid-managers.
- Any unexplained reduction in the work force.
Trying to discipline contractors during construction by holding back payments often compounds the contractor’s cash- flow issues and accelerates the potential for default. In these uncertain times, the ability of a contractor to be bonded may be considered an indicator of a contractor’s reliability. Attempting to bond unfamiliar contractors seems like essential protection until you find out that many low-ball offers are not bondable. Unfortunately even prequalification isn’t an absolute guarantee against default because after prequalification and during extended periods of construction on lengthy projects, negative factors may develop that compromise a contractor’s ability to perform.
Strike Up the Band
Several significant insights have emerged from our research on contractor default:
- Selecting contractors on the basis of “low-bid” algebraically increases risk of failure.
- Many other quality factors must be considered before final selection.
- Even if contractors have been selected carefully, their performance must be monitored diligently throughout construction.
- The risk of contractor failure is always a concern.
Read More: The New Rules of Risk and Simplar.com