There are a lot of unavoidable surprises in construction, but there are also those that can be avoided with a reasonable level of diligence, and, where possible, that is a worthy goal, especially in challenging times like we find ourselves in now. To avoid those unnecessary risks, builders can take a piece of advice from author Stephen Covey and "begin with the end in mind."
In other words, ask yourself how you want your organization to look and behave during and after a crisis, and build toward that scenario. This could mean that, at the end of any challenging period, you will emerge strong and healthy, if perhaps somewhat smaller, or you can come out of it struggling to recover from an experience that left scars on both your team and your balance sheet.
If your preference is the former, then a clear approach to managing your project pursuits process will be necessary. Really think it through, and then, armed with this vision, you can decide how to proceed.
Project Pursuit Decision Process
Risk awareness and management begins with your approach to project pursuits. The project pursuit decision process is the earliest possible juncture to begin to address potential project risks, or avoid them, and retain control of your destiny.
In unsettled times like these, with many variables in play and an economic crunch looming, it is not uncommon to see builders take on work outside of their core strengths and then struggle to deliver profitably—or deliver at all. Most in construction have at least one project we can reflect back on and clearly see that taking that work on was a mistake from the start. With the benefit of hindsight, it is easy to see that much of the risk to a project—from subcontracting risk to supply chain to cost and schedule risk—is "baked in" at the project pursuit decision stage. The results of this decision-making process determine your potential for success or distress in dozens of ways.
Being proactive about your pursuit decisions is being proactive about all project risks. This single factor has the potential to keep you out of more trouble than anything you can do after you have inked a deal for a project, and the subject is worth exploring in depth.
Most contractors have either a formal or informal process for assuring that pursued projects provide your company with the best opportunity for success. A consistent project pursuit decision process, also known as a "Go/No-Go" or "Prebid Project Risk Assessment," facilitates a well-informed decision because it provides a consistent filter on which to rely, serves to reduce individual enthusiasms or biases, allows a chance to incorporate lessons learned, and ensures you the best chance to apply solid risk avoidance or management practices, as appropriate.
In addition to your core project pursuit considerations, factors to consider when pursuing projects in challenging or uncertain times will include finding ways to apply your vision and strategy in several ways.
Work with Owners and Designers That You Know and Trust
If you do, you will know how fairly they tend to manage contract issues, how flexible they are likely to be when the design or material changes make sense, their certainty of funding, their schedule and cost priorities, and the likelihood of their involvement in subcontracting and supply decisions and ultimately your ability to execute on your subcontractor qualification and subcontracting strategy. These factors matter in a challenging situation.
Make Reasonable Schedule Commitments
In all likelihood, your next round of projects will not be built as quickly as your experience tells you used to be possible. Changes in how work may be performed or sequenced on site, especially coupled with any supply chain impacts, will make a tight construction schedule that much more dangerous and potentially costly. Make every effort to incorporate new realities around sequencing, time, labor, and materials in your schedule.
In the near term, as projects that have been suspended restart, it is very important to consider the overlap between restarting projects and new projects. Evaluate potential stacking of labor versus availability in the project's geography and ensure that the project pursuit decision incorporates reasonable considerations of labor demand and availability. Similarly, exercise caution around materials. It is very important that schedule commitments are based on reasonable forecasts of material availability and that all parties (owner, contractor, or subcontractor) fairly allocate risks via contract clarifications and exclusions.
Understand and Only Make Reasonable Cost Commitments
It is very important that cost commitments are based on reasonable assumptions as well. Do your best to understand the new set of circumstances driving costs, and incorporate that understanding into your cost commitments. Shifting supply chains may mean there will be cost deltas from historical data.
These point to the fact that historical data is only a snapshot in time and that the current reality will likely require some adjustments to that data.
Review the Specific Project Contract Language with Legal Counsel
You have likely been reviewing both owner and subcontract language on existing projects; use the knowledge you've gained there to ensure strong practices are incorporated for all projects, and do NOT take on a new contract that has the same problems you have identified. The details matter with regard to risk allocation and protection of all partners.
Stick to Your Core Competencies
If there's ever been a time to double down on your strengths, this is it. Avoid "firsts" and exceptions; your knowledge of what is typical and expected in a region, in a project type, for the market, etc., will help you identify and avoid issues from the start, especially at the design and constructability stage. Play the long game, knowing that the insights and relationships you have in your wheelhouse are serious competitive advantages and that leveraging those advantages will also mitigate many potential project issues.
In summary, consideration of these factors in your project pursuit process has the potential to position your organization for success in the best of times and can be critical for survival in times of disruption. Keep your focus on your core strengths. Use your Go/No-Go consistently, and don't make exceptions. It has never been more important that your firm uses all of the tools at your disposal to choose the right projects to pursue and to "begin with the end in mind."
Thanks to Jim Richert, risk engineering leader of subcontractor default insurance, for coauthoring this article.
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