construction team on site

Stop Giving Money Away


Every dollar counts and every penny wasted is precious. Losing small change on your construction projects can add up to thousands of dollars at the end of the year. So what are you to do? Maximizing profit must be a top priority right along with getting your projects completed on-time. By setting aside a little time to focus on increasing your net profit, it will boost your bottom line and allow you to make a lot more money. When you’re too busy working on the jobs, scheduling crews, or doing work tasks, you don’t take or have enough time to focus on finances, financial tools, and strategies which can help you hit your goals. Consider implementing these two proven strategies to maximize your bottom line and grow your bank balance.

Accurate general conditions

General conditions in construction include the onsite administration, supervision, temporary facilities, temporary protection, and soft costs required to get your projects built. Estimating accurate general conditions for projects can be a simple task when the estimator is accountable to get it right. Most estimators use unit prices which are rarely checked against the actual final job costs. For example, creating a budget for temporary toilets seems easy. An eight-month job should cost eight times $100 per month = $800. But when the field superintendent sees there are 40 men on the job, more than one toilet and more than one servicing 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 a lot of lost cash.

The estimator’s number one job, and accountability, is to calculate an accurate estimate of what it will cost to build each project. After every job, he or she must look at the actual job costs to see if they miscalculated or under estimated any of the project line items. Before you price every job, the estimator should get with the project manager, field superintendent, or foreman to determine what will be required to run the project they are currently bidding. Take a hard look to determine if you are charging the right price for:

  • Project manager, superintendent, and their vehicles
  • Project photos, signs, as-built drawings, etc.
  • Temporary facilities, trailers, toilets, sanitation, etc.
  • Temporary utilities, electricity, power poles, water, phones, etc.
  • Temporary fencing, gates, barricades, site lighting, heating, etc.
  • Safety, first aid, shoring, access roads, security guards, etc.
  • Water quality control, dust control, etc.
  • Trash, cleanup, window washing, final punch-list, etc.

Charge for all the changes on change orders

Change orders are written documents amending the original contracted agreement between parties and setting forth an additional or changed scope, price, time, schedule, terms, or work item on a construction project. Most often they require additional money for the additional work required by the change.

As contractors, if you had ten dollars for every extra work item your company, project manager, field superintendent, or foreman did without a signed change order before the work was performed, could you have retired several years ago? When your customer asks for extra work, why is it so hard to get it in writing? Everyone knows the contract requires signatures on change orders prior to starting extra work. But when you postpone getting a formal approval for extra work until days, weeks, or even months after the event occurred, you have no leverage with your customer. And when you have no leverage, your customer is in a great position to settle or offer a reduced discounted price with you, change their mind, or decide the additional work wasn’t really extra and should have been included in the original contract.

To avoid this problem, present a complete cost breakdown for every proposed change order your customer requests in advance of starting the work. Use a standardized format, cost template, and rate sheet to make sure you include everything the additional work actually costs. Every time extra work is performed, the followings costs are incurred:

  • Project management to process the paperwork
  • Supervision to supervise the work
  • Accounting to process the payment
  • General condition costs as the job will take longer:
    • Trailer, toilets, water, and utilities
    • Power and power poles
    • Trucks and equipment
    • Small tools, ladders, bins, etc.
    • Small items, nuts, bolts, hardware, etc.
    • Temporary facilities, fencing, protection, barricades, etc.
  • Liability insurance
  • Overhead and profit

Don’t short change your company by not asking for everything you deserve. Most change order requests are presented as labor, materials, and hard costs plus a markup without extra required soft costs for the many items listed above. If your company does $5,000,000 in annual sales of which $250,000 is performed as change orders or on a cost-plus basis, not charging for everything you spend can cost you as much as $25,000 or more per year in lost revenue or net profit for things that you actually had to pay for.

Making money is not easy in construction. Look for every advantage you have to boost your net profit margin.

Business - Commercial Construction Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.