In my six years of working in the Australian construction market, a consistently voiced customer concern is the relentless pressure on margins.
With many tenders now allowing almost zero-margin, construction firms must find ways to stand out from the competition besides offering the lowest initial tender price, while at the same time reducing internal costs. In this environment, reliable repeat client business, or winning tenders where price isn’t the sole deciding factor, can be the difference between surviving and thriving.
A great previous project experience builds momentum
Contractors who are growing profitably cite the importance of the project delivery experience to their clients’ assessment of project success. One critical factor in that experience is the relationship the head contractor maintains with subcontractors throughout the project.
When developers choose a partner for their next project, increasingly they look for a track record of successful delivery. They know that a seasoned project team working well together delivers three key measurable benefits:
- Projects are more likely to come in on time or ahead of schedule.
- Variations are managed effectively and promptly, without lengthy and costly disputes.
- Project teams are happier and more productive, having spent less time resolving issues, managing conflict and dealing with administration.
Claims and payments: The breaking point
It’s been eye-opening to work for an online technology provider that in only 17 years has grown from a start-up to a global powerhouse by improving the ways project teams collaborate to manage information and processes. I’ve learned that one key area where Aconex can relieve stress, risk and time constraints is in the month-end madness of claims and payments. Builders large and small tell me that when project relationships break down, this process is most often the culprit. And this persistent problem has been largely unrelieved by the online revolution.
The industry has never managed to resolve three fundamental challenges that impede this process: wasted effort, inadequate data for decision making, and a lack of transparency.
- Wasted effort. In construction environments with already high and ever-increasing labor costs, it’s staggering to see the time wasted in duplicate efforts by highly skilled employees of both head contractors and subcontractors. For example, a subcontractor spends considerable time preparing a progress claim in their internal system or on a spreadsheet, only to send it to the contractor as a PDF. A contractor employee then re-enters the data, line by line, into the subcontract scope in their own financial system. With each individual subcontractor often submitting claims in different formats, between the time to interpret each format and the risk of human error, it is no wonder so many CFOs despair at the time and money wasted in this manual process.
- Dealing with poor data when making decisions. Not only is the current process for managing progress claims extremely inefficient, but the outcome is also entirely unsatisfactory. Specifically, once the claim is manually entered into the contractor’s finance system, it’s still completely disconnected from all the correspondence, documents and other information the project team needs to complete the claim assessment. To comply with Security of Payments Act response times, project managers often have only a few days to make key decisions and respond to the many claims requiring action each month. Typically, all the correspondence and documentation concerning variations, progress on site and time extensions isn’t recorded in the in-house finance system, so often decisions must be made without all the necessary information. Risk of overpayment is a constant concern – and a classic basis for disputes.
- Lack of transparency in the process. A common complaint from both head contractors and subcontractors is the lack of transparency in the current claims and payments process, as well as unwelcome surprises. It’s typical for a project manager to first learn of subcontract variations only when making a final assessment of a claim. Often, subcontractors complain about limited visibility throughout the process, as payment schedules don’t explain differences between claim submission and assessment.
The ultimate cost of month-end madness
It’s easy to see the negative effect of current industry handling of claims and payments in the offices of many construction companies. Project team members express frustration with the time wasted on mundane admin tasks; heated conversations arise over unnecessary disputes, extra costs, and delays impacting project budgets and schedules; and unhappy clients vent their exasperation.
Over time, this inefficient process also significantly degrades the relationship between head contractors and subcontractors, often to the point of total breakdown – with a huge detrimental impact on the project delivery experience. This in turn can substantially harm a builder’s ability to win repeat profitable business from clients seeking long-term partners who reliably deliver positive outcomes.
The future is here
Aconex is already the #1 cloud platform connecting project teams. I was thrilled to see the full release earlier this year of Aconex Connected Cost which includes collaborative progress claims capability. Connected Cost eliminates these challenges from the project delivery experience. It’s about time!