According to researchers at Arizona State University, preconstruction costs can account for as much as 5% of a project’s total budget, depending on the type and complexity of the project. If we were to apply this number to the global construction market, which is expected to grow to $14 trillion by 2025, approximately $700 billion dollars could be spent annually on preconstruction by the end of 2025. So why are contractors willing to commit such a large sum on construction projects before they ever break ground? And why are project clients willing to pay it?
The simple answer lies in an esoteric quote from the Chinese philosopher Sun Tzu “The smart leader doesn’t engage the conflict until the outcome is already certain”. What was true in 500 BC China, is true in construction today: The foundations for any project’s success are laid well before you break ground.
Every dollar spent in the preconstruction phase impacts the project being delivered on time and on budget. According to the Construction Industry Institute, well-performed pre-project planning can reduce total project design and construction costs by as much as 20% and minimize the total project design and construction schedule by 39% against the authorized estimates. Project success ultimately boils down to controlling predictability and profitability.
I’ve always loved the visual metaphor of a skyscraper, for describing construction. A complex latticework of steel beams and girders shoots into the sky with a flurry of coordinated activity on every level. The higher and more magnificent the building grows the more critical a solid, reliable foundation becomes. In the construction lifecycle, preconstruction is that foundation.
Modern construction is fiercely competitive and margins are tight on a good day. An unstable foundation, based on poor planning and implementation is a sure fire way to undermine project success, well before you even set foot on site. On the other hand, there are all sorts of practical steps to mitigating early project risk, that should look familiar to everyone reading this article:
- Carefully planning the scope of work and participating in design management and constructability reviews.
- Scheduling out every element and milestone in the production.
- Creating a project budget, including the creation of contingencies to account for unforeseen costs.
- Controlling costs through processes like estimating and value engineering.
These are steps every project goes through. However, there are big differences in terms of project outcomes, for builders who are committed to doing preconstruction well, and those who are just going through the motions.
So, in that spirit, below are seven pieces of guidance, sourced from seasoned construction veterans, on how to turn investments in preconstruction into a competitive advantage:
1. Take the Time to Align on the Soft Goals of the Project
I consider myself lucky to be surrounded by folks who’ve spent decades in construction and have amazing stories to share. Always insightful, often hilarious, one story in particular encapsulates this sentiment best. Nate Tockerman, a close colleague, spent over a decade working as a project manager for Rosendin Electric before we met.
“I was once awarded a large tech campus project in Silicon Valley, where my GC customer beat out the competition in their interview by directly addressing the owner’s parking needs. By prioritizing the end user, they were able to solve one of the owner’s largest pain points. The GC ultimately won the job by investing Biz Dev hours, putting together a well thought out presentation that focused on both the technical and human elements of the project.”
It’s a good reminder that construction projects serve human needs. The preconstruction phase of any project is your opportunity to tease those out. Doing that well could be the difference between winning or not winning the job.
2. When Selecting Partners or Vendors, Never Skimp on Your Due Diligence
It might seem counterintuitive but often the greatest risk exposure on a construction project comes from your downstream partners. I think FMI said it best “The risk of making a poor award decision can result in general contractor bankruptcy”. Many projects have gone sideways because of contractors and subcontractors who overextended themselves, had a bad safety record, or were not qualified for a particular scope of work.
A best in class approach to pre qualifying vendors has to consider 3 things: character, capacity and capital. Has this firm ever defaulted on a contract? Is their current manpower sufficient for the project under consideration? Do they have sufficient equity and liquidity to support the work?
Companies who have the most success in pre qualifying partners have created standardized processes across projects. The very best of those have adopted integrated Prequalification tools in order to assist their team.
“Our teams have a lot on their plate and they don’t have time to jump from one software to another in order to find the information they need to get the job done.” – Amanda Finnerty, Director of Internal Operations, Commodore Builders
3. Use the Right Tools for Estimating a Project or Risk Ending up on the Hook for Unprofitable Work
There is a classic example of a contractor trying to win a competitive bid. The preconstruction team is under immense pressure to complete take-offs and estimates quickly so they can bid multiple jobs. It’s a competitive job and margins are tight so they don’t have to miss by much for it to come back to haunt them. Worst case scenario, that estimator misses something expensive and their company wins the job but from day 1 they’re underwater because the general or project owner is holding them accountable to their original quote. With increasing pressure to win competitive bids, this type of circumstance is more common than you might think. Underestimate too far and you lose money, overestimate too far and you won’t win the work so accuracy in cost estimation and the ability to reliably provide value engineering are keys to winning work that will turn out profitable. But doing that requires tools to speed up take-off and estimating without sacrificing accuracy.
“With Procore, our estimators on our team went from bidding 2-3 projects a week to 7-8 projects with a much higher win rate.” – Jesse Guenter, CEO & President, Lee Technology Group
Digital take-off and construction estimating is an essential investment for builders today. The old paradigm for manual takeoffs or spreadsheet estimating is simply too slow to stay competitive. Take as an example, the folks who adopted Procore Estimating, moving away from Excel, were able to estimate and bid 3 times the amount of work they were prior.
“Our estimating time has been cut in half, if not more, and our take-off/bid accuracy and efficiency has increased substantially.” – Shannon Freda, President, S Freeda Corp
4. To Avoid Missing Things During Constructability Review, Be as Collaborative as Possible
Mistakes or misses may not show up until months down the line but when they do, they hurt. It’s a near certainty that this puts the specialty contractor into conflict with the general who in turn will be in conflict with the owner if the schedule slips. This often involves a lot of finger pointing. Unfortunately, If it’s bad enough or not dealt with effectively, everyone ends up in litigation, which is bad for everybody except the lawyers. Fortunately, there are some amazing tools available to help builders avoid a miss. BIM has been revolutionary in terms of its impact on clash detection or constructability review. The application of 3D models has made it far easier to identify potential issues during constructability review.
“Before Procore, we were using 2D drawings that didn’t reveal problems until equipment was being installed. Now we have an effective way to deliver models to the field and resolve issues before the work is put in place.” – Howard Simble, Robins & Morton
Even if you’re not using BIM models, digital design coordination is vastly superior to the old analog paradigm. Better yet is having tools for design coordination integrated with your tools for project execution. This helps bridge the gap between VDC teams and the operations team to quickly log, assign, and access coordination issues in one central location. It also makes collaborating with upstream and downstream stakeholders so much easier, by keeping tracking collaboration in a central location. Which brings me to my next point.
5. Engage Design Partners Early to Help with Value Engineering
Estimating a job to determine cost is just a starting point. Estimating & constructability provide an opportunity to collaborate with your client partners who can dramatically increase the value delivered to the owner. The superintendent and the specialty contractor have real insight into where plans or designs can be adjusted to make the project cheaper and easier to build. This has a big material value for everyone involved. It saves the owner money which will improve relationships. It makes it easier for the GC and the SC to build, which increases the likelihood of being on schedule.
I’ll go back to Nate to help me encapsulate this one.
“If a few hours of estimating and discussing finishes with the Super can save a million dollars in cost, that is a no brainer. Just as important is being able to track those decisions for reference during construction for WHY we have those changes. That insight makes for a compelling story to the operations teams when the owner or architect can’t recall why they don’t have the original scope the operations teams may recall from prebid design docs. After all, most VEs get addressed in drawing revisions or submittal markup and approval and can be hard or impossible to audit.”
6. Have a Solid Plan for Handoffs to the Project Team and Between Stakeholders or Suffer Delays and Data Loss
How do you quantify the impact of a poor handoff? If you’ve ever watched a relay race, that sounds like a silly question. Slow or incomplete handoffs between the estimators and the project manager are incredibly common and have real tangible costs associated with them. If the project team doesn’t have all the planning and design documents they need, as well as a record of design changes that came up during constructability review, they’re likely to make a mistake down the line because they don’t have the benefit of full context. As integrated delivery methods grow more common, and the need for precon and project execution teams to continually pass documentation back and forth throughout the project lifecycle increases, the need for smooth handoffs increases as well.
The same is true between specialty contractors and design partners. Everyone on the project benefits from being able to pass questions and information back and forth quickly and securely. An inability to do that can create delays, data loss, or lost bids. This is where a not so subtle difference between platforms and point solutions becomes really critical. Platforms, like Procore, connect all the people, assets, data streams, workflows, etc. on a project. They make cross stakeholder collaboration better. This saves time, it makes teams more efficient, it eliminates double data entry (which everyone hates) and it leads to better project outcomes.
7. Have a Plan for How you are Going to Pay for Preconstruction
Not everybody carries overhead to simply bill for precon and not every project owner is going to be convinced of its value out of the gate. Certain delivery methods allow for this to be a job cost when you move away from simple hard bid. Fortunately, integrated project delivery methods are becoming more common across the industry as folks begin to recognize the impact of early contractor involvement in projects. Even for those who are working on projects where the owner isn’t footing the bill for precon, it’s still worth the investment. Plenty of mid market contractors out there may perceive that they lack the budget of their big enterprise counterparts. That’s often held up as a barrier to investing in preconstruction. The truth is however, mid market companies can be very nimble because often the risk of trying something new is easier to shoulder with very little downside.
That said, the change management process required to embrace best in class preconstruction is going to be easier to deploy incrementally. You don’t need to be perfect tomorrow or adopt all 7 of these recommendations to see an impact. These can each be implemented, one by one, to make them easier to swallow.
The Original Inquiry
So, how are smart builders making money before they ever break ground? By embracing steps like these. By adopting the right digital tools for preconstruction. Moving away from the old analog paradigm and towards integrated platform solutions. Fortunately for everyone, preconstruction tools have gotten considerably better over the last several years. In October of last year, Procore announced the release of our own estimating solution. Integrated into the Procore platform and connecting the process of take-off and estimating, into bidding, change management, project management and cost management. That joins our solutions for Capital Planning, Prequalification, Bid Management, Design Coordination as a central component of one the industry’s most powerful preconstruction solutions.
Because we operate as an integrated platform, Procore allows preconstruction teams to manage their entire workflow in the same platform their project execution counterparts use to manage project delivery. This makes the process of tasks like cost estimation, bid management, collaborative design, project planning and even value engineering easier than ever before. Tools like these can dramatically increase the profitability of a contractor’s projects by allowing them to avoid the types of missteps that eat into profit margin while staying competitive in their bidding process.