Seems the island of choice in topics lately is Guam.  With the volume of construction work anticipated to be procured on the island in the coming decade, everyone seems to be talking about it.  Of course talking about it and actually getting there and doing the work are two different things.  Obtaining labor, shipping material and equipment, and managing such a remote job site surely will post construction issues and potential surety issues.  If you are one of the many looking at this venture, put together a strong plan and team and I would think start slow to work out any bugs in the process.

I was a guest on a local internet radio show - Atlanta Business Radio (www.atlantabusinessradio.com) last week.  I was shocked to actually get a call from a prospect a couple of hours after it aired from a representative of a potential client and scheduled to meet with her after her vacation.  I was left in awe at how technology has changed the name of the game and allowed even the smallest or most obscure companies to get some air time that larger stations wouldn’t touch.  I pursued this avenue to possibly generate leads, but also to get more practice at public speaking, which I have never been fond of but find myself more and more required to do.  The format of an internet radio show also allowed me the chance to hear myself speak afterwards and learn what I can improve on and what important points I wanted to touch that missed.  I need to make my pitch more efficient.  Overall, it was a great learning experience.

Not a day goes by that I am not amazed at the advances technology makes - from concept to design, from sale to final walk-thru.  Technology has made our quotes more accurate, our billings more manageable and has helped to connect our people in ways not imagined even just a few years ago.  If we aren’t on board with technology, we are losing efficiency and opportunity.  I would dare say that statement cannot be argued with.

From a marketing perspective, technology allows us to search for and track leads without effort other than lifting a finger.  It allows us to virtually “meet” potential clients without actually meeting them.  Entire pre-engagement conversations can occur without physical contact.  This is great in many perspectives, but what it does is even more so set apart the face to face meetings that are such an important part of the marketing campaign of our companies.  Technology is the great leveler of our generation.  The system that allows small companies to have a larger presence than they could normally.  It also allows larger firms to break into smaller, more manageable customer focused sub groups without actually fracturing into an uncoordinated mess.

But there is still nothing like face time with clients and potential clients to help set your firm apart.  There is still nothing more effective at maintaining good word of mouth than a busy executive reaching out to past clients and discussing the projects that they have done for them.  There is nothing nicer than a handwritten note during the holidays expressing thanks for work past and hope for more in the future.  There is nothing better than getting to know your client a bit deeper than email allows. 

My point is that as technology allows us to become more efficient and capture more market than we thought possible with less effort, it also allows us to hide behind our desks and not build real relationships with our clients and potential clients.  Let’s not forget to network, talk with and shake hands with our clients, lead generators and prospects and rub elbows with them in more relaxed settings.  I say use technology and leverage it as much as possible as the benefits are amazing.  But the fundamentals of our business are relationships built over time and in person.  An internet radio show provided a lead to me at no out of pocket cost other than some gas and and hour and a half away from the office.  But that lead must be met with good personal follow-up in order to amount to an opportunity.  We should use technology for all its worth - but lets not lose the art of shaking hands.

It seems inevitable that we will be impacted by inflation at some level in the near future.   Considering the small margins some contractors are earning to win construction projects and the potential length of these contracts, it seems inflationary pressures are one more element that may turn small profits into damaging losses.  What are you doing to hedge against inflation and the potential impacts it will have on your long term contracts?

I’m trying to get back on track with my blogging, and I wanted to put out a request for editorial ideas for 2010.  We will be working on the CBO’s print editorial calendar, as well as ideas for our e-newsletter, webinars and web original content.  We will be looking at what relevant and practical topics we need to tackle to enrich our readers and website visitors in the coming year.

I’d love to have your feedback as we work through our ideas.  I just attended an invaluable three days at the Construction Financial Management Association (CFMA) annual meeting last month and, as always, returned with a multitude of editorial ideas. But I’d also like to hear from our readers, print and online, about what you need or want to read more of to help you get through and manage your business during this very difficult time.  What do you have questions about, what are you struggling with, what wonderful new concept, investment or product is helping you or what is driving you crazy?   

Let me know what you think and what research we can do here to get you the advice you can use to maintain and/or grow your business right now—and I’ve heard more than once lately, “maintain” is the new “grow”.  It would be nice, though, to defy the odds and effectively cut expenses and build business just enough to show some growth through this period.

Help us to help you.  I look forward to hearing from you. 

A couple weeks ago we helped a client develop a schedule of rates for labor and equipment to be used on a cost reimbursable project.  The rates needed to “fully loaded” to include direct, indirect and overhead recovery costs.  Their client required substantiated backup for each of these rates. 

This is a relatively common project that we do with clients and is a very important for both cost reimbursable projects and for change orders.

There are several ways to go about this - one is the very simplistic way of taking a huge pool of costs and simply dividing them by the number of field hours and then calling that your “labor burden” or “overhead recovery.”  While this is simple on the accounting side I’ve never seen this stand up too well in a negotiating or claim situation. 

We prefer a much more granular approach where we break things down into much more detail and really look at the drivers of those pools of costs. 

For most companies we see this takes a lot of explaining and a lot more work to put together because there truly isn’t a great understanding about the “flow” of money. 

Too many people simply process transactions without actually thinking about what that transaction means.  This is true for accounting, project management, equipment management and estimating. 

Great software makes the problem worse because it allows someone to simply “enter data” and then the software supposedly takes care of everything else.  People run reports and they seem to have “good information” but when pressed they can’t truly explain how all the numbers got there or how they interrelate which is the critical part. 

One thing we consistently see is that estimators, project managers and accountants who have done the job manually (pencil and paper, graduating to Excel then to software) typically are much more in-tune with how things really work and can spot problems much more quickly. 

This is the reason why when we setup things like field production tracking systems we do them manually at first because the crew leaders learn more that way.  We may migrate them to an electronic system down the road but we always start with a manual system because it helps people learn faster. 

The book “The Toyota Way” talks about this in regards to the lean manufacturing process.  Automation of data is not always the most efficient way to truly share information. 

So, back to this client - the financial oversight was handled by the contractor’s mother who had been doing accounting for over 50 years!  She relied on hand “green sheets” for reconciliation and while that seems like it might be slow I can say that she had more access to relevant information quicker than we have seen with any other client. 

She truly “knew” the numbers and how they related to each other.  She wasn’t just giving us reports out of the system.  This was completely refreshing since it isn’t something we see often. 

Bottom line(s) -

• 1. We got the rate schedule done in about 30% of the time it would normally take
• 2. They were able to understand and articulate well each line item and backup worksheet that went into making up the rates
• 3. They got the job!

We see too many companies who believe that software is the solution and too many people who have “grown up” only using software and don’t truly understand the dynamics of the information they are entering or reporting on. 

Don’t fall into this trap - focus on knowing your data and how it relates to the operations of your business.  If you need to go through the processes manually for a while to learn this it will help you in ways you can’t imagine. 

Demand this from your team - if you ask what is “behind” a particular number you should be able to get quick, concise and detailed answers.  If you hear “I need to look into that” too many times that should be a big red flag.

We are seeing increased requirements for subcontractor bonding by general contractors.  Only a year ago we saw subcontractor bonding requirements only on subs with contracts in excess of $250,000 or if they made up the critical path of the project.  Today we are hearing of generals requiring all subs with contracts as little as $50,000 being required to bond. 

In talking with some generals this presents an interesting dilemma.  Jobs are so competitive these days with profit margins being slim that bonding a vast majority of subcontractors can actually have a negative impact on securing the work.  On the flip side, with so many new subcontractors entering the public arena and other subcontractors being essentially desperate to win work to stay alive, it is risky to list a low bid subcontractor you do not know without requiring them to bond. 

What is the right balance of bonding to remain competitive and mitigate risk?  There is no right answer as this depends on your business philosophy.  However, bonding the critical path always makes sense in my opinion.  The peripheral trades, unless they are specialized, my not be as necessary.  For these trades, replacement contractors may be easily obtained without impacting job performance and profitability.

I read recently that in a survey commissioned by Move - 62.5% of Americans think of their home as a place to live rather than an investment.  I have no data to back this next claim up, by my guess is that only a couple of years ago that the results would have been inverted.  The commercial contractors among us deal with recovery periods, payback metrics, etc. on a daily basis.  Many business customers use payback metrics to determine what features they will add in a facility. 

What the results tell me this time is that the expectation for cashing in on one’s home have evaporated.  Springing for a gourmet kitchen is now a luxury and not an investment.  A steam sauna (and the five times a year it is turned on) in the Master Bath might not be worth the extra cost.  Yep, as homebuilders and custom remodelers, we are back to the process of selling basic shelter and not dreams.  Or are we?

It is too easy to dismiss the trends of today as truths of tomorrow.  Look at where believing the axiom that home values never decrease took us!  More than ever, we have to become part psychologist and understand what drives our markets and clientele.  In order to do that, especially in a difficult market, we have to tie the “wants” together with the “shoulds”.  I want a new Master Bath, but I should insulate and put in an on-demand hot water heater first.  I want a new kitchen, but I should upgrade my legacy furnace - and so on.  Do your best to understand your clients “wants” and the rationale behind their “shoulds”  If you can make these two meet in reasonable harmony, you have a potential project. 

I have never approved of the practice of telling a client how much more their house will be worth with a renovation - this is misleading at best and we are making an effort at dispensing knowledge most of us are not expert in - but those projects that add long term value to your client have a better shot at success than vanity projects alone.  Do your best to tie the vanity (want) with long term value (should).  This isn’t groundbreaking or new, but as sales become harder to come by, understanding the psychology of consumerism can be helpful.

I have been getting a few calls from clients lately looking for the surety company personnel that handle takeover work of failed firms.   Seems a lot of people are starting to get the feeling the time has come when the low ball bids are going to come back and haunt the bidders.  We have begun to see some stress in the marketplace and I would expect this to rapidly increase during the second half of this year.  To much job borrow going on which makes firms count on getting the next job to survive.  With the competition today this strategy is only going to last so long.  Long run this is probably good news as it will weed out the firms the weaker firms and leave behind healthier, better run companies.

While at no point with my feeble intellect do I wish to declare a “bottom” to the national economy in general and our industry in particular, I would like to mention that it may be a good time to create a dream sheet of equipment purchases/staff positions, etc. that you may like to have in the organization you envision your company to become.  The reason I mention this is that, for the few items I have been dreaming of owning in my organization (dump truck & a walk behind concrete saw to name a couple for me) but have been putting off purchasing have become incredibly affordable on both the new and used markets!  I don’t personally intend to make a lot of capital purchases yet, but I have my dream sheet ready.

Maybe there is a position in your company you wish to fill with a seasoned veteran that you don’t have to train extensively, or some capital equipment you would like to own but haven’t pulled the trigger on.  Both are in abundance and, in relative terms, are becoming more affordable. 

Check with your accounting professional, please,  but some tangible equipment purchases are eligible for a 50% bonus depreciation deduction.  This equipment must be original use.  Granted, your company will need to be profitable in order to use the extra depreciation, but those that are both profitable and have cash will find amazing deals on new purchases and may be able to write off 50% of the equipment in the first year!

When and what to purchase is completely your call.  But the stars are lining up to check off some of that wish list you never thought you could afford or were willing to spend any dedicated funds from your budget on.  Don’t forget your business fundamentals - cash only; maintain your rainy day fund; only purchase items that have a short payback period that you can recover in your job costs or charge on a separate basis; make sure the equipment satisfies a functional need and is not strictly a vanity purchase,  etc.  Call this one of the only upsides to this bear economy we have seen in about 1- 1/2 years.

Like many of us that grew up in a rural setting, I have had a fascination with alternative energies for nearly as long as I can remember.  My neighbor had a well with a pump driven by a windmill that worked up until the late 1980’s.  We often lost our electricity service in the winter and used an old generator to run a few lights and the refrigerator.  More often than not our Franklin Stove was supplanting the hot water heat system in the old homestead during the winter months, and our house had a rainwater cistern directly outside.

As a rule, rural folks tend to live “off grid” more than suburban or urban folks. But we were just doing what we were supposed to: conserving, collecting, harvesting and operating as independently from the “city” as we could.  We were probably considered by many to be rural “hicks” back then - but in many cases that very lifestyle would now be considered “Green”, and we would be pretty hip!

Things go in and out of style.  Some of us build our businesses on capturing the “in” thing of the day and make a decent living at it, for a while.  But those businesses must constantly strive to remain on the cutting edge of trends and fashion.  The point of my short post here is that I don’t think the “Green” cause de jour will stick around forever.  But I do think that sound, fundamental building practices that are enhanced by the green movement will remain with us and improve over time.  Air sealing; improved insulation practices; non-toxic paints and coatings; conserving and reusing resources where possible; alternative energy sourcing, etc. - these items will never be a fad.  I firmly believe that energy conservation and materials will be the focus and primary growth trend in our industry for the next few years.

Let’s face it.  Home equity is tapped out and used up.  Easy credit was last year’s method of madness for homeowners to expand their home to luxury status.  All based on the now faulty premise that home values won’t deflate.  If we want to remain successful as viable building entities, we must stay as “trendy” as possible without ever forgetting our primary focus – being known as experts in sound building practices while providing exceptional counsel for our clients. 

Our average job sizes will most likely get smaller and our profit margins will probably take a hit.  But those of us that make a determined effort to stay informed of the latest news in building science while honoring the time honored fundamentals of sound construction and design will find a new market or adapt to an evolving one.  Sound building practices and wise counsel that evolves with the latest advances in science and technology, delivered at a competitive & fair market value and implemented with exceptional customer service will never go out of style.  The job types and size may change year over year, but the fundamentals of excellence will not.  These fundamentals will serve us in the best of times and the worst of times, and are the premise on which our companies must be built.  In order to compete, our marketing must be focused on the green movement and other trends of the day.  That doesn’t mean that time honored fundamentals of excellence are trendy.  We just have to blend the two – style and substance – into something that the average consumer can get their arms around.  My next post will revolve around some ideas that I have seen work.