Project Estimates

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In Bidding, What’s the REAL Total Cost?

February 10, 2012 in Customer Relationships, Project Estimates | No comments

Price? Transaction experience? A combination of the two? Judging from a few meetings I’ve had recently, seems like it depends on who you talk to.

Investors. Last week, I was talking with the vice president of a publicly traded real estate REIT. He said that when considering all parts, pricing should theoretically be the same. To him, it’s about the service and the delivery. This sounds simple, but it’s easier said than done.

 

Petrochemicals. A major petrochemical contractor on the Gulf Coast recently that told me that in his world, many times his pricing is the same as his competitors. Then it is the “service experience of safety” that sets him apart. While he is in a unique situation (he still has money flowing in from the last 5 natural disasters) he’s had three record-breaking years in business.

Developers. This week, I was having dinner with a long-term customer in Baton Rouge who said that success in business is about delivery and quality as much as anything else. So when businesses are failing in these times, it’s not always about the economy. Good business practices will survive.

What I’m saying here is that while price is important, the experience and quality of delivery are huge factors in winning business. Service experience can theoretically equate to a dollar amounts, whether recognized or not.

I try to share with our prospective customers that the first bid is just the beginning point, it’s not the middle and it is not the end. So here’s what we do throughout a job:

  • Avoid over-promising. We deliver the best cost the first time. There will always be something cheaper out there, but it’s not the final cost a customer will pay.
  • Follow-up. I check in periodically throughout the job, circumventing normal lines of communication. I want to ensure to we are delivering.
  • Adjust. When tweaks are needed, we make them immediately.
  • Stay on time. We close out ontime with quality and this leads to repeat business.
  • Keep it “fun.” Then we get to do it again.

How do cost and experience balance in your industry?

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email

 

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Change Orders and Communication: How to Avoid Hanging In the Balance

October 28, 2011 in Customer Relationships, Project Estimates | No comments

Image Credit: REUTERS/Shannon Stapleton

On construction jobs, the unexpected is…well…expected.

Circumstances inevitably change. In our case, codes are updated, conditions in earthwork shift or we encounter any other variety of circumstances that affect the outcome of our work. To me, when considering a construction contract–or for that matter any written agreement–good communication and change management are essential to success and long term relationships.

I remember a particular Friday last March very clearly. I was meeting with one of our then project managers, when I realized we had not been keeping a customer relationship in-the-know about a changed aspect of their project.

Later that day I called our customer to explain what might be on the horizon. For several weeks following, I spent many hours gathering information and systematically sharing it with him.

The situation turned out okay, but could have been much different had we not immediately communicated what we saw on the radar. It might have been late, but fortunately it was not not too late for our relationship.

Because of our experience, I was glad to seen an article on the topic from Construction Executive Magazine. I found these points helpful and thought you might too, whether you are a contractor or in any service industry.

There is a legal distinction between “change” and “extra.”

  • A change is a modification to something listed in the contract.
  • An extra is a service or material not listed in original documents.

*As you read potential contracts, look for how these are addressed.

“Change Orders” and “Change Directives” are different animals.

  • Change orders are when both parties can agree on the timing and price of changes.
  • Change directives are born of disagreement. There is a dispute over what should be changed and how much should be charged.

I find it critical to communicate “early and often” if change is suspected. This gives us the benefit of time and more importantly, allows us to take the appropriate steps to mitigate.

How have you been successful at managing the unexpected?

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email

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Why We Hired a BIM Specialist

August 16, 2011 in Continuing Education, Project Estimates | No comments

A while back, I mentioned our desire to explore Building Information Modeling (BIM), a database which catalogs a structure throughout its life cycle in real time 3D. We felt the system would provide a value-add large enough to merit hiring someone to manage our efforts. I’m pleased to say we found the right fit.

William Byrd, a graduate of Auburn University’s Building Science program, has a long history with modeling technology. His father, the manager of a steel manufacturing company, brought home drawings of machine parts that his shop was building.

William learned the basics on their home computer, and found a passion that led him to complete his senior thesis in Construction Information Technology using BIM.

I asked him to put together a list of what BIM can do for a construction company in terms of customer benefits. Here are the areas he thinks will be most useful:

Presentation. Owners, investors and contractors can see their building taken from a 2-dimensional plane to a model. They can now “walk through” a structure that has yet to be built.

Collaboration. For architects, general contractors and owners, working together on a model gets a conversation flowing. Through BIM, all parties can begin their partnership earlier. This saves time in the long run by avoiding costly changes or mistakes.

Forecasting problems. Constructing the building virtually can aid in finding problems in the design or the constructability of a project.

Record Keeping. With a complete model, an owner can see what exactly is hidden behind a wall or a concrete slab. In renovations or repairs, this can be invaluable.

It is our belief that BIM will drive efficiency in the construction industry in the same way that AutoCAD (and equivalents) revolutionized how drawings are completed by architects and engineers.  We’re confident it will give us the edge in both negotiated and hard bid work. We’re pleased to be early adopters.

I will ask William to check in occasionally, sharing thoughts on BIM upgrades and tips from along the trail. We look forward to sharing our experience.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email

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If You Want the Win, Practice and Prepare.

July 14, 2011 in Customer Relationships, Leadership, Project Estimates | 1 comment

We recently made a presentation to a prospective customer who had an adaptive reuse project that seemed perfect for us. It involved revitalizing an area of the city, which is exactly the type of project we enjoy. We confidently answered all the questions in the RFI, and the presentation seemed to go flawlessly.

As we left the meeting, I told my two colleagues that we had nailed it. There was no way they would use anybody else. A few days later I received a call from the architect informing us that we were not selected for the project.

This disappointment was a great reminder for me. I realized that despite my optimism, I had not spent enough prep time on the presentation. Yes, I had answered the customer’s questions, but I hadn’t gone beyond that. I let an over-booked schedule get in the way of the dress rehearsal one of our project managers suggested. It might have cost us the project.

I know better. Over the years, these have been my tried and true rules for successful presentations:

Don’t oversell yourself. Owners don’t want to have to spend time weeding through contractors who make lofty promises.

Ask, then listen. A contractor who asks questions, carefully listens to the responses and then makes a reasoned proposal is more believable.

Work for your wins. No matter how many projects you have won in the past, you are not a shoe-in for the opportunities you persue. In the end, it’s good to know that you got the job not off only from past merits, but because you came prepared, then went above and beyond.

Think like an athlete. The pros don’t just practice before games. It’s a year round job.

Every day is an opportunity to practice selling what you do and promoting your services. When the next opportunity comes up, how will you get ready?

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email

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Hot Gas Reheat: Worth the Extra Cost?

July 12, 2011 in Commodities Pricing, Construction Trends, Project Estimates | 1 comment

Last week, I was having a conversation about pricing on an HVAC system with Heath Cather in our office. Why had the mechanical engineer chosen hot gas reheat? It’s more expensive and sometimes unnecessary, I offered.

He mentioned a trend he’s noticed. With all the mold law suits lately, we are seeing recommendations for a sure bet against moisture: hot gas reheat.

What is hot gas re-heat?

With this system, you have two coils in the air handling unit. The air first travels across a cooling coil which de- humidifies, then it crosses the hot gas coil that raises the air temp back up 15-20 degrees to further dehumidify and render the air neutral, eliminating over-cooling.  Once the thermostat calls for cooling, the hot gas drops out in order to lower the space temp.

Why are we seeing more use of hot gas reheat?

I talked with a mechanical contractor relationship of ours for details. This is what he told me:

Recent requirements to introduce large amounts of outside air into the workplace can result in the rise of the  indoor humidity level in the space. People want to combat this by purchasing a unit with excessive cooling tonnage, a “bigger is better” mentality. The over-powered unit causes the system to short cycle, not running long enough to de-humidify. We’re left with excess moisture, which can lead to mold.

Thoughts on combating the moisture with hot gas reheat:

  • Energy code limits the use of electric re-heat to 42,000 btu and below.
  • With hot gas reheat, the average 5-ton unit sees a price increase between $2,800 and 3,000, rising significantly as the tonnage increases.
  • If the space is cooling, it is de-humidifying, whether humidistat is calling or not.
  • Humidity control from a properly sized unit can lead to energy savings. Lower humidity in summer will make you feel more comfortable at 75-77 degrees, while if the humidity is high , 70-71 degrees may not seem comfortable. The opposite is true for winter operation.

Takeaways:

Hot gas is more expensive. A standard  and properly sized system has been proven to be just as effective in humidity removal and comfort control.
Know what you’re building and communicate it. What will the building be used for, and are there special climate issues involved? This is another reason design build works for many clients.
Application is key. HVAC is not a one size fits all discipline.From a contractors stand point, we see the addition of hot gas reheat on the increase and the majority of the time justified.  However one should stop and evaluate: do we really need this, or is it just insurance for a 3rd party?

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email

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Construction Material Costs Are Defying the Laws of Economics: Why?

June 10, 2010 in Commodities Pricing, Construction Trends, Customer Relationships, Management, Project Estimates, Projects, Recession | No comments

The short answer: To me, nobody knows.

If we compare the normal demand for commercial projects in the United States to our current climate, the market is down 30-50 percent. The laws of supply and demand tell us commodities prices should decrease in order to level things out. The opposite is happening. On average, we are paying more for materials then we were last year. But why? Some may blame globalization, but I’m not so sure I agree.

I think it has more to do with manipulation of the futures market and the operation of hedge funds. These interfere with “normal” or what used to be a matter of supply and demand. In 2004 and 2005, steel prices rose 50-60 percent after being flat for many years. It got to the point that it was embarrassing. On long-term projects, I would have to go back to the owner and tell them of increased cost for no change in scope.

Then there was the asphalt. I remember being on vacation and meeting with someone from Wall Street. He was blaming rising prices on increased oil use in India and China, but I think this was faulty logic. Hedge funds and various other investment vehicles were driving the price of oil up.

The increases we have seen in the last two or three quarters are far less dramatic, but they do spike. It makes it really tough on our customers. During the last 12 months, average reduction in commercial construction has been in the 35 percent range. However, construction material prices rose almost 3 percent in February. Lumber went up nearly 8 percent in January and was almost 18 percent over the year before. All commodities including steel, copper and brass have increased while demand is decreasing substantially.

Now people are blaming China again. There are many myths about China and I am not sure what to believe. Their gross domestic product has increased while their energy consumption decreased. I’m just not sure how that can happen.

I will say over the last several weeks of bids, the prices have remained relatively benign, which is a good thing. Maybe we are getting back to core factors of supply and demand. I hope so, at least for a while—for our business, but more so for our customers.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.

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Do Rigid Job Titles Restrict Your Team’s Performance?

February 26, 2010 in Customer Relationships, Leadership, Management, Project Estimates, Team Building | No comments

Over the years, I have noticed how many people get attached to job titles, particularly in their letters and on their business cards. Some are in the game for a higher rank, and achieving their desired title is almost like wining an Olympic medal. It’s something for them to hold on to.

If I had my way, we at Stewart Perry might consider having no titles on our business cards at all.

Some of our team members wear so many hats in their day-to-day tasks that a standard business card couldn’t hold enough words to properly title them. Having said this, I suppose the reality is that we all need titles to communicate a general idea of our role to new contacts. After they get to know us, our actions and our good word should be our title.

As an example, there are two titles in our organization that are co-mingled: estimating and project management. I like a team approach where one person’s job is primarily estimating, but with the ability to negotiate subcontracts, develop scopes and create schedules. This estimator would partner with a project manager for follow though.

Our estimating team members sometimes know the market in a different way than those who have been involved in the “trees.” They see a total view of the marketplace and beyond. Estimating requires a bit more of an engineering personality – more cautious, careful and a bit more clinical.

Depending on client needs, estimating doesn’t always take the lead on a project. Sometimes our project managers will guide the estimating function of a job with a teammate from estimating. By getting involved early, project management becomes a stakeholder in the success. I’ve found this minimizes communication breakdowns.

Either way, I want the team to own or manage a project from all angles so we can we provide the best results, value and delivery to our customer relationship. The simple truth is each team member likes doing different things. When they all work together, we’ve got a winning combination.

If properly approached, it doesn’t really matter which job title is completing which task. The sum of the parts is always greater than the whole.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.

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Construction Trend: Quick Issue Vendor Liens and Lower Subcontractors Insurance Limits

February 19, 2010 in Leadership, Management, Project Estimates, Tips from the Field | No comments

From my perspective, these tough economic times have had an impact the unwritten rules that long governed the way construction businesses operate. Case in point: the vendors employed by subcontractors seem much quicker to file liens these days, even without communicating with the contractor. Insurance limits are being lowered on aggregate and umbrella coverage to save cost. I think both are driven by credit and profit concerns in today’s financial climate. Both create undue hardship on relationships.

In Florida, if businesses provide goods or services, are not in direct contact with the owner they are working for and they wish to preserve their lien rights, they must provide a “notice to owner.” We are seeing vendors and subcontractors providing these notices in many states that have no such law. It creates a creditability question in the way the owner or the lender views the project contractor. This can lead to slow creditability question, which tends to complicate the problems further.

A few things you might consider moving forward:

Listen to what the market is saying. Know the reputation of the contractor you are commissioning to build your project. A low, low price will feel good until credit problems erode trust over the course of construction.

Sometimes, vendors may unknowingly or knowingly misappropriate funds that are received from subcontractors for their account on a specific project.

Keep communication open on all fronts. Ensure paperwork is completed promptly, but isn’t unduly burdensome for the circumstances of the project. Paperwork should match the project. I would rather have a subcontractor or vendor work on the build of our projects than the details of the paperwork…if I trust them.

Be proactive by creating tools to motivate prompt payment to the responsible parties. Don’t let the funds get sidetracked to other non-related projects.

Everyone is looking for the angles these days, so deal with a responsible contractor and subcontractors who know the project and the market.

If a subcontractor is not currently carrying the insurance limits normally required, then consider reevaluating the particular risk of that project. Maybe go with the lower limits.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.

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Current Pricing Trends Are Good News for Construction Relationships, But How Long Can Costs Stay Down?

September 2, 2009 in Commodities Pricing, Customer Relationships, Project Estimates | No comments

SP_downward_trendBecause of the current imbalance of supply and demand in the commodities market, the cost of construction has been trending downward over the last year or so. Some of our projects take years to develop, and before this correction, the previous several years saw 3-4% increases annually. It’s hard to come back to your customer relationships and routinely share news of a bigger bill. The tables have now turned. The projects we bid a couple of years ago are costing less to finish than we anticipated. But how long can this continue?

I watch commodity prices every week, and over the last 60 days some have increased on the order of 30% or more. This will ultimately lead to higher building costs after supply balances with demand. I am not sure when that will change, but it will change.

I have mentioned to some of our customer relationships that I believe the next couple of quarters might be a good time to lock down pricing. Of course there is also a school of thought that there’s another shoe to drop with commercial real estate values. Who knows?

To make the best decision, it’s important to educate yourself. Among other newspapers, I try to read The Wall Street Journal daily. At the first of the year, it seemed like they published very few articles reporting positive news, but now the mix seems to be about 50/50. Lingling Wei and Peter Grant published an excellent article Monday regarding the commercial real estate sector, its relation to the economy as a whole and why the downward trend might stay a while.

As a practical example, I recently visited with a friend at the Sewanee: The University of the South. In the course of our conversation, she relayed her concern about the low pricing they received for a new project. The advice I gave her is the same I would I offer you. As a developer, if the contractor that submitted the price was qualified, proceed on but have a contingency to take care of those “misunderstandings” and change orders which will occur during these times. The low price you receive initially is just the beginning of the process. Be careful to keep a reserve in case our downward commodities trend starts moving back up.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.

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Trend in the Making: How the Economy Affects the Way We Bid

August 17, 2009 in Commodities Pricing, Project Estimates | No comments

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We recently priced a pro ject in Atlanta (a little less than $1 million job), which had several general contractor bidders and a ton of subcontractor quotes. In fact, there were a total of 20 subcontractors competing for $70,000 worth of HVAC work. Amazing. What’s even more amazing is that our cost was exactly the same as the general contractor with the lowest price and we came

in second. The difference? The general contractor with the low bid put $0 for his overhead and profit. At first blush an owner may think that is a great deal, but in keeping with the laws of economics someone will eventually lose.

Something similar happened when we priced a project we are currently constructing in Richmond, VA. After being awarded the job, our sprinkler subcontractor said his price included reusing the old pipe, a new one for me in the industry. Everyone is looking for ways to get “low.” We are currently buying steel bar joist at the cost of the raw product—bar and angles. So basically we are getting the design cost, engineering cost, fabrication cost and the freight for free, as are our customers.

The recession has compelled many to find innovative ways to cut costs. Interesting times for sure.

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Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham, Ala. Contact him via email.

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