Expert: Roger Zona - 4/10/2011

Question
QUESTION: Hi Roger,
i am very new here..
actually i am deeply stressed out because of the construction company that we have registered around 4-5 months ago.
we have already missed out 2 small projects because of not having enough workforce, we also tried to get the work force from the market but very very expensive, the cost was reaching beyond any profits so we dropped the work.
now we have the power to bring in the work forece, enough to do a small or mediam sized project.
Currently its just me helping my dad run the company some how, ANY HOW......
i have many questions in my mind but i want an advise from you, HOW SHOULD I PROCEED WITH THIS COMPANY, Do i need to employ enigneers to the company?
i am also looking for a project manager who already has some experiance in the construction industry to help me run the company and to work with me on percentage basis...
i would be really very glad to read your advises....

thanks a million.

ANSWER: Dear Xuib,

My daughter spent a year in Bahrain with the American Embassy and had tea with the Queen of Qatar on a social occasion.  One of her fond memories.

First I must tell you - I don't know about Qatar codes, business requirements, etc.  I can only advise you based on my experience.

When I needed experienced labor (carpenters, masons, etc.# I use a "Labor Pool" company.  They pay the labor including taxes and insurance.  For example, the charge for a carpenter would be $24/hr.  The carpenter would receive $16 and the rest goes to the Labor Pool for taxes, insurance and their profit.  Today our economy is poor and I can hire all the help I need for less than the normal wage and for short term.  My biggest worry is that there are no injuries on the job which would require "workmen's compensation" because the insurance rates are very high.

One of the most critical considerations is the estimating of a project.  Your estimator is the key to profit or loss.  I recommend software estimating programs.  It makes calculations for you and is a saved documentation of a project.  Compare what was estimated with what was actually used.  For example, I estimate projects using subcontractors for many trades such as electrical, air conditioning, plumbing and roofing and calculate the labor and materials for the portion of the project that my own staff will do.  Then I add the overhead #office expense#insurance, a contingency factor #usually about 2%# and lastly - profit.  I Try to net a 10% profit but rarely make it.  Usually I am satisfied with 4% to 7%.  And too, the size of the project will help determine the anticipated profit.  Check your quantities estimated against what was actually delivered and used.  

As for a Project Manager, often I have a "working" superintendent run the project.  I expect weekly reports of progress and expenses.  If I have mis-calculated a phase of work, I need to know quickly so I can compensate and make up the difference in another phase if possible.  A Project Manager can oversee several projects.  In the 70's I had 16 projects under construction and three project managers to handle all the jobs.  Each project had a Superintendent or Foreman that reported to the PM.  In 1977 I was responsible for building and closing nearly 1200 homes.

The bookkeeping is a critical position.  The bookkeeper or accountant should be responsible for accounts payable and receivable and should monitor company finances.  I expect a weekly report from my bookkeeper outlining the expenses paid, the anticipated expenses to be paid i the next month and a plan for payment of the expenses as well as a schedule for funds to be received.  Here we collect money once a month and pay bills once a month.  I found that I could get priority service and response if I paid my subcontractors twice a month.  To my subs that were regularly used I am considered a "bread and butter" customer and they depend on my always having a project in the works.  They make their higher profits with private projects that are never repeated.  

I am a big believer of "time management" and find it helps me handle calls from customers and clients in a timely manner and solve problems in their infancy.  Weekly meetings with subs and suppliers should be brief and to the point.  Solve problems when they are little and you never have big problems!

Be very careful of how much authority you give a PM or Foreman.  Suppliers will try to bribe you PM if he has the authority to select suppliers.  For example, I once had a Kitchen Cabinet manufacturer offer to give me, personally, a "bonus" for each kitchen order.  My response was "deduct the bonus from your bid proposal".

As for Engineers, they are usually independent contractors and I only hire them when I need their professional opinion or recommendations.

Very important - buy a good digital camera and several memory chips.  Take pictures weekly of every phase of work.  Especially when there is an inspection.  It is the best way to document a project.  Download the pictures and create an album for each job.  Give your customer a copy of the pictures.  You may prevent disputes with a picture of actual conditions.

That's it for openers.  Here in the US the construction industry is still very fragmented.  Don't try to complete with the unlicensed contractor.  They will say and do anything to get a job knowing they will cheat the customer by requesting extras.

I hope this has been helpful.

Roger
Ask The Contractor          

---------- FOLLOW-UP ----------

QUESTION: HI Roger,
thanks a lot for your wonderful answer, helped me a lot.
just one simple question from your experiance, since i am doin ACCA and want to run a construction company what do you think i should get into a construction company first for some experience and then do something about the company or directly start it? because i have no experiance in construction what so ever, what would be your advise?

Regards xuib

ANSWER: Dear Xuib

Basically the construction business is like most businesses - you need to have a basic understanding of accounting, you should know how to estimate a project, and you should know how the many trades function.  When I make an inspection of a job, I know what I am looking at and can tell if the project is being built on time, as per the plans and code, economically and safely.  If you don't have some background on the procedures and methods of construction your subcontractors will soon figure out your short-comings and take advantage of you.

In Florida, a new contractor must obtain a license or certificate of competency.  That means he must have at least 4 years experience working for a construction company and has supervisory experience.  He then takes a three day written test and must pass with a minimum score of 72 points.  He is then eligible to apply for a license which means he must be financially responsible, insurable and, in some cases, bondable.  

I think it would be advisable to get some first hand experience - either with an existing construction company or an architectural firm to learn the basics of construction.

At one point in my career I was running a large housing company and had 16 projects under construction.  In a year we would close between 1200 and 1400 living units - single family homes, townhomes, duplexes, high rise condominiums and apartments.  I had three project managers (they supervised more than one project each), 28 to 30 field supervisors and 16 to 20 field foremen.  A foreman would have to become certified before he could get promoted to supervisor.  It was a good incentive and the company paid for any schooling required.

I wish you luck and hope you are very successful.

I have a question.  Do you know anyone in Bahrain?  I met a college student who was training to become the Minister of Housing for Bahrain.  His name is Habeeb Habeeb.  He was a guest in our home when he arrived in Florida to attend the University.  I have not been in contact so I am not certain he became the Minister, but that is what he was training for.  Perhaps you could contact him if he is indeed the minister.  My email address is:  askthecontractor@live.com

Again, Good Luck

Roger



---------- FOLLOW-UP ----------

QUESTION: thanks a lot Roger, you have helped me a lot.

I don't really know any one from Bahrain but i do know guys from Dubai, in fact they were willing to work with us on partnership basis but Unfortunately that couldn't go on for long because of some reasons.
I really want to go on with the company rather than being Employed for the whole of my life, as you have mentioned that initially it would be preferable for me to do JOB in some construction company to get hand of some real experience before i can start up with my own company. I think that is the best idea.

Sure, i would be glad if there is any way i can talk to Habeeb.
Thanks for your Email adress I will talk to you soon.

Regards,
Xuib

Answer
Hello Xuib,

Just wondering how you are doing.  Did you find a job with a construction company?  If possible, you may consider coming to Florida and the University of Florida in the city of Gainsville.  The university has a School of Construction.  Assuming you already have an associate or bachelor degree, it is a 2 year course.  Just a thought.

Roger