Adults in the room

I recently heard a comedy bit by Whoopi Goldberg where she was talking about her childhood. When she was a child she asked her mom if she would be killed in a plane crash. Her mom spoke unequivocally; “no darling, you’ll be just fine”. This lead me to think of how we as adults seek to provide stability, security, and reassurance to children. We are willing to promise things we can’t control because we place greater importance on our duty to the child’s emotional well-being than our fears of being wrong.

Adults in the room

Estimating is about controlling risk. Sometimes risk is controlled by making someone else responsible for the worst that could happen. Everything from insurance policies to subcontracts amounts to an exchange of risk for profit. Far from the absolute assurances of a parent to a child, trading risk for profit involves a lot of limitations on what’s really at stake. In the most extreme cases, it’s hard to see where they’re accepting responsibility for anything at all. The accountability dodging is so intense these firms are failing at their purpose, which is to relieve their client of risk.

Winning a bid that leads to contract, essentially transfers project risk from the client to the General Contractor (GC). Read enough Prime Contracts and it will be evident that the intention is to lay all risk on the GC. Typical contracts provide options for the client to withhold payment, levy fines, or even replace the GC on their project. The contract is written to protect the client from as much risk as possible.

In contrast, the GC has little to no latitude to demand proof of funding or timely design revisions in the case of missing information. Both of these issues have profound implications on the project’s odds of being successful. In some cases, contractors will request proof of funding before signing the contract. Tragically this is too late to help the estimator. A contractual stipulation that proscribed the maximum response time from the design team could potentially discount the projects risk

Adults in the room

Hard lines and fuzzy details aren’t for everyone…

Estimators might get five to ten working days with a set of plans before their firm is expected to accept millions of dollars in risk. It’s terrifically common for all Requests For Information (RFI’s) to be answered via a single addendum issued a day or two before the deadline.

It’s impolitic to say it, but this practice means that the real risk of the job isn’t evident until the last day or two. The unstated assumption of the Client and Architect is that the bidders somehow know the unknowable. Estimators are expected to be the adults in the room by providing stability, security, and reassurance to the client. A careful reading of most Request for Proposals (RFP) communicates the client’s desire to shift all risk onto the GC whose proposal is the most complete, and least expensive.

It’s interesting to note how there are some missing elements in the client’s priorities. Consider how difficult it is to draw a perfect set of plans. This task becomes nearly impossible when unexpected conditions are revealed during construction. Even “clean” ground-up projects can encounter something unexpected like an archeological find. No matter what the driving issue, the GC must be able to communicate, negotiate, and maintain production with the design team. Client RFP’s never address these issues beyond occasionally stipulating the change order process in their specifications.

You might ask how a client could evaluate GC’s communication, negotiation and management skills during the bid stage. Truthfully, it’s difficult because there’s no uniform standards for these skills. The closest most clients get is to conduct interviews with the low bidders prior to making a final decision.

Adults in the room

It’s the combination of peril and opportunity that can have you wishing you’d stayed at the office…

I propose a different approach. Fair bids are accomplished by uniformly shared information, and uniformly upheld expectations. If clients want better communication, negotiation, and management on their projects, they need to define and uphold these standards everyone, including their representatives.

RFP’s could include clarifications that the design team has X number of hours to respond to RFI’s, and that RFI’s are only counted as answered when the GC agrees they’re answered. This prevents RFI’s from being answered: wait for reply. I’m sorry to say, that I’ve encountered that game several times in my career!

Further, changes to the project could follow a proscribed resolution scheme which escalates the issue in proportion to its impact on the job. Reducing the time spent dithering, haggling, and arguing over blame reduces the project risk, which reduces the cost.

Adults in the room

After further investigation, it was revealed that Scot just liked to argue.

The reason the “blame game” is played is because mistakes cost money. At a bare minimum, it’s time for contracts to admit that design errors and omissions exist. In some markets there is a tradition of carrying a contingency fund to pay for these issues, in others, the client is expected to hold their own fund. The problem is that nearly all risk is transferred to the GC at contract. Holding the GC accountable for design shortcomings carries a fundamental dishonesty into the project. If the GC has no authority to direct design resolution, they are caught in a situation where they pay for the mistake and they have limited ability to make it less expensive to the client. Design teams who must pay for their own shortcomings are much more inclined to seek timely and cost-effective solutions. Further, the practice would cause many design teams to reconsider putting incomplete plan sets out to bid. Experience has taught me that hard bidding on incomplete plans leads to delays, change orders, budget over-runs, and client dissatisfaction. Sadly, in most cases the client blames the GC because contractually everything is the GC’s responsibility.

Absolutely everything pertaining to decision-making needs three things attached to it. First is a timer to illustrate how long it’s been an issue. Second is an estimate of its schedule impact on the project. Third is an estimate of its budgetary impact on the project. Issues must be prioritized according to their net impact on the project. Issues are only counted as resolved when the problem, solution, schedule, and cost is fully (and contractually) settled. Signed change orders should never be optional. If the work changed, so did the schedule. Even “free” changes should be recorded for future reference. Change order pricing needs an expiration date because the window of opportunity is always limited. Expired change orders are recorded as “declined”. All of the worst jobs I’ve ever done had a long list of outstanding, unresolved, and unpaid change orders because the client was given carte blanche to disregard the process. Time spent doing extra work drove delays on contract work, and the client felt no compunction in citing delays as their reason to decline payment for change orders.

 Adults in the room

Skip a step and problems might fall on you.

Clarifying this process and the expectations of all concerned unifies the standards under which the project will be conducted. Contracts contain innumerable words defining how under-performance intersects with litigation. It’s well past time to define how projects should be successfully run. Every GC advertises their unique brand of “Building relationships”, however the real mark of success is how well they manage to safely, ethically, and profitably get things done regardless of client or design team cooperation.

Another means by which a GC can control risk is to better define what they’re really bidding. Clarifications and exclusions are the simple explanation or listing of what you are and aren’t accepting responsibility for. However the project you are bidding exists between the clarification (inclusion) and the exclusion. Make sure of everything that falls into the gap between them, because the client expects you’ve got it in your bid.

For the really risky jobs, it’s time for a narrative approach. You’re seeking to illustrate the entire arc of your concerns; unknown existing site conditions, a demanding schedule, a weak design team, a limited client budget, etc. What you’re proposing is a solution and it’s price. The solution is driven by your ideas and your team. Subcontractors might shy away from the job as drawn, but a GC with a solid plan and a willingness to “go to bat” for their solution reduces their risk tremendously. Basic assumptions about the limitations of what you’re doing need to be communicated explicitly and clearly in terms the client will understand. If there’s a chance your assumptions are wrong, you must be honest about the risk that presents to your client.

Be advised that an unethical client might take a perfectly spelled out, low-risk solution to your competition. If this is a concern, I strongly encourage you to reconsider bidding to such a client. Until and unless professionals shun bad clients, our industry will continue to suffer.

Adults in the room

Dishonest business:  One guy eats it, hoping the other guy chokes.

Life isn’t fair, and we’re often expected to handle things we can’t know about beforehand. Being the adult in the room is about more than promising things you can’t control. It’s about understanding that plain speaking and honest dealing are the only real tools we have to control risk. As professionals taking on the incredible risk of these projects, it’s our duty to be responsible and to lead by example.

 

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© Anton Takken 2015 all rights reserved

 

 

 

About Anton Takken

I chose to focus on estimating for a few reasons. Chief among them was that it's a position that's hard to fill in most companies. Job security and advancement is easier as a result. Unique to this job is a higher vantage point over the company and its place in the market. Bids are generally over in a few weeks which keeps things from getting boring. The reasons few of my colleagues pursue estimating comes down to a few misconceptions. The first is that it's the builders version of accounting - perceived as a lonely and quiet life among the charts and plans. The second is that it's not engaged in the construction process. Lots of the appeal of the construction industry is the sense that individual effort brought a plan into reality. The teamwork and camaraderie present among tradesman seems conspicuously absent at the estimators desk. Finally, I think the last reason is that it's daunting to be responsible for setting the price of something that's never been done. The good news for folks in estimating is that it's much more social than advertised. An estimator's phone is constantly ringing. Taking the opportunity to build relationships with the bidders creates a positive atmosphere and encourages everyone to do their best. It can be too much of a good thing which is why it's common to arrive at their voicemail when you're calling with a question. A strong rapport with the bidders can be invaluable. Subcontractors have much more exposure to what's going on in the market and they're often eager to share their knowledge. Learning from these experts is a priceless opportunity that's often overlooked. More on this in a bit. I decided to start this blog because I noticed that estimating has applications in many arenas. Over the last few years I've helped estimate in fields ranging from software development to blacksmithing! The more I thought about it, the more I realized that it's not about knowing what everything costs, it's about knowing how to figure that out. I believe the very first step to knowledge is to seek it, the second is to retain it, and the third is to pass it on. I hope to share some insights into how estimating is done and hopefully have some fun doing it. My experience is mostly commercial construction, but I'll try to make everything as generally applicable as I can. There are many aspects of business that all markets share yet it's remarkable that one of the most consistent is the failure to recognize that estimating is the very first step to a successful project. So if you're frustrated that work isn't profitable, or exasperated that there's never enough time to get the job done, this blog will be worth your time. Feel free to email me at: estimatorsplaybook@gmail.com View all posts by Anton Takken

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