Benefits of Keeping Momentum

Have you ever built a snowman? I was just a kid when my friend and I built a snowwoman along Interstate 14 in California. She was a beauty and as she started to take shape, drivers on both sides of the freeway would honk their horns and wave as they passed. Not only was snow an unusual occurrence in Southern California, but a 10-foot snowwoman?

At the time, I didn’t realize that the things I learned building this snowperson would apply to construction. For example, I learned that rolling a small ball of snow downhill is a lot easier than rolling it up or on flat ground. I also learned that people pay more attention to things that are different.

Momentum directly relates to profitability. I mean that if a subcontractor’s momentum on a job is high, profitability will be much better than if the momentum is low. What are some things that reduce a subcontractor’s momentum? Here are a few:

Delays
Interferences
Disruptions
Sequencing
Accelerations
Changes

I recently interviewed Dr. William Ibbs, a professor and group leader of the construction management program at the University of California in Berkeley. He is also a very active construction consultant who has worked on some of the biggest projects in the world, including Boston’s Big Dig and the reconstruction of the Panama Canal.

Although I had asked Dr. Ibbs many questions, there was a particular comment he made that addressed the issue of momentum. He said, “Many contractors don’t see or address impacts until it’s too late.”

There are actually three contractor categories:

Those that don’t see cost impacts
Those that see cost impacts but don’t address them
Those that see and address cost impacts in a timely manner

Which category best describes your company?

THE ROOTS

Owners, managers and field supervisors of subcontracting firms are pretty good at identifying profit slippage, yet more often than not, they don’t see the cause. For example, when an area of a job is delayed, accelerated or re-sequenced, a subcontractor’s momentum is impacted. It’s simply the effect of the root cause. When the owner of a subcontracting firm asks his project manager why the margins are slipping on a job, the project manager might respond by saying, “Well, it’s because area ‘A’ was delayed, and the work had to be done in a different order and we had to man up to get it done on time.”

The project manager is just reporting the effects of the issue rather than the cause. In other words, the root cause of an issue has an effect. For example, getting to the root of a delay is simply asking “Why?” until you get to the cause. This could be the owner, general contractor, vendor or another subcontractor. Or it could be an internal cause.

The question then becomes, “How do we link a change to one or more of these momentum killers?” In the case of an acceleration of the work, we would have to ask why the work was accelerated until we find out the root cause. That cause might have been an owner’s electrical change that delayed the work, which now has to be accelerated to meet the schedule.

Changes are momentum killers unless you include the loss of momentum in the change proposal.

There are at least three ways to be late:

Not seeing a change’s impact on base contract work at all
Not addressing the cost impact in a timely manner
Signing a change order

SAY GOODBYE

As you know, change orders contain waiver and release language wherein you give up your rights to additional compensation. But you may not realize the importance of this language because you haven’t been burned bad enough yet. That additional compensation might be the unknown, unseen or unrealized (at the time) impact that the change order had on base contract work.

What kind of cost impacts? Most change orders release the owner and general contractor from the following cost impacts:

Delays
Interferences
Disruptions
Sequencing
Accelerations

Yes, these are the same momentum killers we’ve been discussing throughout this article. And yes, waiver and release language is designed to shut the door on those contractors who finally realize that the changes negatively impacted their momentum and resulted in a loss of profit.

I’ve had many construction attorneys put it to me like this: “Change orders are binding, and you simply cross out what you can’t agree to.”

If you can’t agree that a change did not delay, interfere, accelerate or disrupt your work, or cause it to be done out of sequence, you shouldn’t sign the change without crossing out what you can’t agree to.

DOUBLE-EDGED SWORD

Owners or executives who are managing subcontracting firms are part of the problem when it comes to change orders. For obvious reasons, they apply a significant amount of pressure on their project managers to get change orders approved and executed so they can be billed.

This kind of focus assumes that the change order was priced correctly. However, according to Dr. Ibbs, “Contractors typically under price change order work.” Yet, in reality, the owner and contractor are telling the subcontractor’s project manager that his prices are too high, and the project manager’s boss is applying pressure weekly to get the change approved and signed. It’s really the perfect storm for the owner and contractor because they know exactly what’s happening behind the scenes.

As a result of these internal and external pressures, project managers will reduce pricing to get changes approved and sign the change order agreeing to the waiver and release language. So, I have to ask again, which category best describes your company?