Dollar-Making Decisions

With these risks, you have some control over winning or losing.

(Photo credit: ©iStockphoto.com/Rafal Olkis.)

During a break at a convention in Vegas, three contractors and I walked through the casino watching the people gambling. Most were playing slot machines. Some were at the roulette wheel while others were rolling dice, and many folks were playing poker or other card games. We saw some people winning money and some who were not so lucky.

One contractor asked us which of these games we thought gave the best odds of winning. The second contractor said he enjoyed playing blackjack, but didn’t always win. The third spoke up and said, “I do my gambling at home where I made the money to come here and have fun watching these losing games. You realize the only winners at casinos are the owners of all these games that are programmed to take in more money than they pay out!”

We all laughed but totally agreed. When you decide to become a contractor, you become a gambler with whatever risks and odds you want to take. The big difference is you have some control over the odds of winning or losing.

Comparing Risks Vs. Rewards

We then enjoyed our lunch sharing “risk vs. reward” dollar-making decisions.

The first, and biggest, dollar decision is, “Do I want to work for wages or gamble on making more money as a business owner?” If you are lucky, you will find good work, get the right bid and contract, finish the job on time, satisfy your customer, and receive your money with enough profit to stay in business and take good care of your family.

The next critical dollar decision is, “What can I do to reduce all the risks involved with this financial gamble?” If you came up through the trades with on-the-job experience, you need to have enough business knowledge to capably deal with bidding, negotiating, reading and writing contracts, handling extras and change orders, generating critical documentation and collecting your money on time. This list continues with liens, insurances, bonding, taxes, overhead costs and investments.

You can reduce these risks by studying, going to school, hiring a knowledgeable employee, and using an attorney and certified public accountant. Belonging to your local trade association will provide access to affordable sources.

Likewise, if you have a business education, you need jobsite knowledge and applicable code information that you can gain by working at the trade or hiring capable employees who have that expertise and experience.

You simply cannot gamble in this competitive industry without having both!

You will need enough money or credit to buy everything you need, pay your labor and provide for your family. You may consider subbing parts of a project or using a partner or joint venture.

You can reduce many of the risks involved in submitting a bid on any project, large or small. The word “estimate” means “a guess.” You must predict everything you will need to do or furnish to complete that project, as well as what might possibly go wrong. You should value engineer any feasible cost-saving methods or design changes to improve the project. You must carefully read the entire set of bid documents, visit the jobsite, submit requests for information, and include every alternate and addenda in your proposal.

I hope you have ample experience, job knowledge or historical labor costs to accurately estimate your labor costs. You may rely on your estimator or one of your foremen who has that ability. There are also estimating manuals available for all types of construction and flat-rate pricing guides for service work.

When you consider gambling on a new type of construction or in a new market area, you can order the bid documents and establish what you feel would be a competitive bid. Attend the bid opening but do not submit your bid yet.

Once you become the successful bidder on a project, you need to negotiate a fair contract or subcontract to guarantee you will be paid on a timely schedule. Do not sign a standard contract until you carefully determine every risk has an equitable reward. Many contractors submit all these potential problems on their proposal:

You now encounter a very costly risk of not getting your equipment and materials to the job on time. You can reduce this risk with a simple pre-job conference with your estimating staff, purchasing department and project managers. Create a simple checklist with all the critical submittals, samples, shop drawings and purchases with “by whom” and “by when” assignments for every task.

Producing a quality, on-time project and collecting all of your reward is your greatest risk. To do this, you need an efficient, cost-conscious management team. You also must establish and post a written chain of command to ensure positive communication between project team members. Use detailed job descriptions for employees, and maintain pluses and minuses in each employee’s file to encourage and reward extra effort.

Your jobsite foreman (a superintendant on large projects) is now in total control over how much reward you will earn on that project. He has the authority to make financial and legal decisions. The foreman’s documentation and communication with the main office is extremely critical, especially with job logs, deliveries, change orders, inspection, rentals and commitments.

A foreman or superintendant’s friendly, “How can I help you?” attitude will motivate your employees and assure positive cooperation with your customer’s representatives and the other contractors on that site. He should encourage value engineering with employees to produce a faster, cheaper and better product.

You must reduce your risks by providing qualified, skilled craftsmen to produce quality workmanship. I hope you are using a skills inventory database to clarify what employees can do and what training they need.

Many contractors utilize union craftsmen to minimize necessary training. The UA’s Standard for Excellence is helping to ensure better production and cooperation. Open-shop contractors already have a skilled team or must find, hire, train and maintain employment for additional craftsmen. They can minimize these risks by:

1. Reviewing résumés and checking with previous employers. Many contractors require a drug test.

2. Proper orientation including a skills inventory, haz-com and MSDS locations, safety policies and possibility of flex time.

3. Much of the specific task training for new employees can be accomplished on the jobsite, during or after work hours. Your fab shop or outside classes also may be necessary to enhance their skills inventory.

4. In addition to rigid lost time, cost control at starting time, coffee breaks, lunch time and quitting times, you need a measure of actual work performed. You can use piecework, a 6-8-10 daily rating on employees’ timecards or cost-code each labor task to compare with your estimate. This also provides valuable historic information for future estimates.

If you do not already know the reputation of your potential customer, you should ask anyone you know who has worked for him.

At the end of our lunch, one contractor laughed and said, “I never realized that old saying, ‘No risk, no reward,’ should actually be, ‘The smaller the risk, the bigger the reward!’”