Out of the Dark
Subcontractors that embrace a tech-savvy approach are shedding new light on profits.
High risk, little reward. This is an unfortunate yet all too familiar occurrence for today’s subcontracting companies which are constantly forced to come in at the lowest bid, yet operate on the thinnest of margins.
Recent shifts in the construction market that have forced owners and general contractors to become even more cost conscious have only heightened the pressures that subcontractors must endure. As the market continues to evolve and lean remains the name of the game, it has become abundantly clear that in order to survive, and ultimately thrive, subcontractors need a new approach to the job.
One would assume information technology to be the obvious choice. Yet approximately 59% of general contractors responding to the Constructech 2008 National Construction Technology Survey say less than half of the subcontractors they work with are regularly using technology on the job.
While some would consider this statement as yet another knock against subcontractors and their delay in embracing technology, Constructech magazine sees another trend emerging. The changing market conditions coupled with the fact only a small percentage of subs are readily embracing technology has created a perfect storm of sorts for subcontractors willing to apply technology.
Now is the time for subcontractors to take a fresh look at how technology can alter traditional business models and help bring profits out of the dark.
Staying Ahead
An accurate estimate is your foot in the door to new projects. But in some instances having the most accurate numbers, using technology, might work against you.
Mark Tinnelly, chief estimator, Nead Electric Inc., www.neadelectric.com, Carlstadt, N.J., explains, “I would say (technology) does not give you an advantage (simply) because it is so accurate. In other words, you don’t have the human error in it. I have seen us lose jobs because it is so accurate, but as we always say, a good estimate never won any job. The guy using paper is still leaving something out and that means his number will be lower.”
More so, he says estimating technology plays a bigger role once the job has been awarded, particularly in keeping on top of fluctuating material costs and having the luxury to report in specific ways to contractors.
Tinnelly uses BidWinner Plus from Accubid Systems, www.accubid.com, Concord, Ont., and recalls an advantage when working on the National Sports Museum in New York City. The price of copper and steel—two primary materials on the job—were in constant flux and the rapid changes threw costs “out of whack.”
“I (use a program) which has a daily per pound stock market price on copper,” says Tinnelly. “That shows us futures and where copper has been over the years. So when we do a long term job like this we can try and predict, using copper futures, where it will be in six to eight months based on the past five years.”
During the middle of the job the price for copper began to sky rocket from what it was when Nead Electric was originally bidding the job.
“But we had ourselves covered on the increase because we had updated info that we were able to put into the estimating system,” says Tinnelly. “And I am able to go in and change pricing and the system updates my pricing across the entire job.”
Currently the company is doing all the cabling work for the new stadium of the New York Mets. Each major television and radio station will have their own booth at the stadium and will pay for their particular cabling involved.
“We had to break all (of the cost information for each station individually) out for (the owner) after we had the job won. The technology was helpful there, because the way (we imputed the data),” adds Tinnelly. “If we had to do it with paper-based methods for the estimate it would have taken us weeks. Instead it took us three days.”
Digital Accuracy
For Pyramid Electric Inc., www.pyramidelectric.net, Memphis, Tenn., an electrical contractor, migrating to digital workflow has been a slow, but steady progression. Brian Haines, vice president/project manager, Pyramid Electric, captures digital images of jobs and emails them to partners, but the thing he is particularly hooked on is using digital submittals with contractors and engineers.
“The one thing that I find our project managers (dislike) most is preparing submittals, doing the clerical work, making copies, etc.,” says Haines. “We’ve now taken it from a mundane process to a more engaging process by going to manufacturer’s Website, pulling off the exact cut sheet, marking it up digitally with Adobe Acrobat, and then preparing a digital submittal to send to the engineer. It is then in play and we don’t have to make all of the copies, although there are still jobs requiring we use the paper copies.”
For the past two years the company has been pulling down plans from online plan rooms and digitizing the files with a wide format plan scanner. The cost to rent the equipment saves the company nearly $200/month versus what the company was spending per month on paper.
“The intangible benefit of the system is the ability to make half scale sets for our foremen so that they have a set of plans as they are walking around,” says Haines. “We can mark up a set here in the office, scan it, and print it, and bring it into the field. We can log into the plan room, download files from the local builder exchange, print them, and be working on a project in a matter of minutes as opposed to days.
“We purchased our last PC with (digital takeoff technology) in mind, but we have never pulled the trigger on that one—mainly because we knew that we would need to train a dedicated estimator to use it and currently our estimators are more familiar with paper than pixels,” says Haines. “I currently use a 24-in. iMac running Leopard as my main computer, so flipping through volumes of prints is as easy as scrolling with the mouse.”
For subcontractors looking to make the leap into digital takeoff technology, there are many options. Some leverage Microsoft Excel, allowing subs to move into the digital world yet stay within the comforts of spreadsheets.
According to Tally Systems, www.tallysystems.us, San Diego, Calif., its QuickMeasure Onscreen product uses the same interface as paper blueprints, only with a custom toolbar in Excel to measure directly into existing spreadsheets. Estimators click on an area, bringing up the digital image, and measure around the image. Once complete, the numbers are sent back into Excel and it stores a picture of the mouse-generated takeoff in Excel and keeps track of the location of the original file.
Aimed at masonry contractors is Tradesmen’s Master Estimator 3D from Tradesmen’s Software Inc., www.tradesmens.com, Orland Park, Ill. During the takeoff stage the estimating program provides detailed piece counts.
Using a wall banding, for example, the company says users enter the elevation and the program generates materials, with the intelligence to know where to add and subtract for openings and control joints.
Risk Management
Some argue the biggest transformation needs to be with managing risk. John Rapaport, general counsel/director of operations, Component Assembly Systems (CAS), www.componentassembly.com, Pelham, N.Y., says it is common for subs to not realize whether they will make or lose money on a job until it is 95% complete—or in other words, too late to make corrections.
Rapaport and his team at CAS, a commercial drywall and carpentry contractor, have put in efforts building applications on top of its accounting system CF Data Systems Inc., www.cfdatasystems.com, Weymouth, Mass., all centered on tracking costs and managing risk.
“A big part of subcontracting is your change orders, and figuring out how do you manage all of that risk? You have your original contract, but I would say 10-15% or more of a contract on an adjusted basis will end up being proposals or tickets in the field, which end up in limbo,” he says. “You cannot bill them until you get a change order which can be a challenge itself. Meanwhile you are accumulating labor costs and often that can be the difference between a good job and a bad job.
“The system has become a risk-management system that allows us to tell at which stage of the workflow things are at. We can see all unbilled tickets, whereas before it would have been sitting on someone’s desk.”
Gaining transparency into pending items allows subs to see exactly how much risk, or as Rapaport says, how much “credit” they have on the job. This can help determine if you are going to keep working or if you will hold off on doing extra work until you get paid.
“This allows us to fill in the grey areas on jobs, taking steps to see along the way, 15-20% complete, to see where we are at,” he adds. “We have status meetings along the way, we send out PDFs pertaining to job status, which includes labor codes, percent complete on labor codes adjusted for hours with additional work, etc. If we have a problem with some labor codes, we switch up the manpower and get better personnel on the job. In the past, we would just keep doing the job not knowing we had a problem.”
Electrical and mechanical contractor Egan Co., www.eganco.com, Brooklyn Park, Minn., has found success in developing applications on top of its job cost/accounting technology from Microsoft, www.microsoft.com, Redmond, Wash., and WennSoft, www.wennsoft.com, New Berlin, Wis.
Egan’s Web-based labor tracking system is derived from a process originally tracked via Excel. Jim Nonn, CIO (chief information officer), Egan Co., says it was pioneered this past year and has saved several hundred thousand dollars in labor costs.
“This comes from a method we use called counting,” says Nonn. “Counting allows us to more accurately predict where our labor will turn out for each individual task that occurs on a job. It allows us to make corrections much sooner on a job. In most construction jobs, you get a big job and you are excited and think things are all smooth with the job. Then towards the end you realize things are not as smooth as you thought.
“With counting it is the opposite. You start out with projections based on these counts and counts are based on the number of hours that you work. You start out and usually you have to ramp up production, which means your labor is not as effective as it is later in the job. So it feels that when you are running by counts that your job is actually behind, so you are driving harder at the beginning. So at the end you end up at a much better place.”
Egan Co., has also created a digital dashboard that allows project managers to see information for specific jobs and in order of relevance, as opposed to accessing the entire database. It highlights jobs that are under billed, for example, and places that action on top of the list for outstanding receivables.
“What is exciting is we can build applications like this because we were smart about the partners we chose on the technology side. The partners we chose put all of their info into an open end database, allowing us to access that info and report off of it in any number of different ways,” says Nonn.
On Center Software, www.oncenter.com, The Woodlands, Texas, offers Digital Production Control, which uses the company’s On Screen Takeoff and QuickBid to integrate estimated labor production into digital takeoffs. This allows users to track labor production and payroll from the field. It visually displays which estimated labor productions are being achieved, outperformed, or falling behind. Users are able to see this instantly rather than at the end of the job, where overruns can be costly.
When new technology comes to market, wall and ceiling company KHS&S Contractors, www.khss.com, Anaheim, Calif., is quick to embrace the solutions that make sense for its needs. The company is completing implementation of a project management module from Penta Technologies, www.penta.com, Brookfield, Wis. Replacing a proprietary application that it had in place for years, the new system is fully integrated with its accounting system, which means the company will no longer need to spend time reconciling data between the two systems.
According to Gina Smith, controller at the company, dashboarding capabilities add further benefit. She says, “It makes it very easy to track all of your items, particularly if you are running multiple jobs or multiple facets on a job and have outstanding items.”
The company is also training on Business Analytics technology, which will enable users to pull relevant data out of the system in various formats conducive to the way in which it needs to be viewed.
“The system has a lot of flexibility. Business Analytics allows us to slice and dice info and get it out of system the way we need it, which is important for reporting with general contractors,” says Smith.
WennSoft recently released its Project Management Portal, built on the Microsoft SharePoint platform. Based on the premise many project management applications have too much information or require too much training, this portal mirrors many of the paper documents that subs use daily and has a user-friendly interface based on the SharePoint Server.
According to WennSoft, the portal is accessed via SharePoint 2007 and contains tools to create and track change order logs, correspondence, and RFIs (requests for information), among others.
Overall it is a brand new construction world, and this is just a sample of the technology available. Subcontractors that embrace the right technology tools have more control over their profitability than ever before.