Construction Informer

Here’s the kind of thing that makes the construction industry look petty and unprofessional. Drywall installers in Jacksonville, FL haven’t been paid for three weeks because of a conflict between a contractor and a subcontractor. At least that’s the way it looks. The news report doesn’t specify whether either entity is the prime contractor or not, so it may be that it’s a conflict between a sub and a sub-sub. Regardless, people not getting paid while those who are supposed to be managing the project bicker with each other is one of those things that makes construction look like a second rate occupation. No wonder it’s difficult to attract people.

What does this say about the management? If one contractor says they were paid and the other says they weren’t doesn’t that send up a red flag to the owners? You have to wonder what other kinds of “money problems” are going on at the site. Tensions like these between major players doesn’t speak well for the project as a whole. The workers should be paid and at the same time a project-wide review should be taking place to find out what’s going wrong on this site.

The mobile and modular home industries have known for a long time about the cost savings and better structures that can be created in a “factory” setting. While these same manufacturers have not always used these advantages to their best purposes they have shown the possibilities that exist. One case in point where they haven’t always stepped up to the plate is in the area of sidewall insulation. Many mobile homes over the years were built with 2×4 studs and so the insulation space was pretty limited. They could have just as easily been built from 2x6s. The problem was that they were supposed to be affordable and using 2x4s saved money.

Today, building housing components off-site is one key to building quality, lower-overall cost homes. According to PATH, Partnership for Advanced Technology in Housing, “prefabricated” components reduce onsite construction time, improve the quality and precision of materials and ultimately reduce construction costs. But these new types of prefabricated house parts are quite different from those of the by-gone days of mobile home building. The panelized systems could be made of a rigid piece of insulation sandwiched between two sheets of oriented strand board, (OSB), standard framing covered with sheathing and even lightweight steel wrapped around rigid insulation. In a report sponsored by HUD’s Office of Policy Development and Research entitled, “ Design, Fabrication, and Installation of Engineered Panelized Walls: Two Case Studies,” these walls systems were touted as promoting the “affordability, quality, and structural safety of housing.” So why aren’t these systems used more today?

Quite simply, it requires builders to rethink how they do most everything related to building a wall. That’s it. It’s simply a matter of redesigning how the work is done. But I predict that the builders who are willing to tackle their processes and refine them to make panelized construction their specialty won’t have any trouble staying busy.

For anyone who spends any time managing the actual work that goes on at a site they know it would get pretty murky if they tried to allocate costs to the various parts of their job. One minute they’re explaining plan details to a subcontractor and the next they’re meeting with an inspector, or banker’s representative. Things get even foggier when they find themselves stepping in to clarify a work procedure for the employees of an absent subcontractor. While “technically” they shouldn’t be doing that, “realistically” they decide their intervention to be of minimal risk and they respond in order to keep things on schedule.

But what about the support people who back-up those front line managers? It gets even tougher at that level to keep track of the numbers of copies or FAXes the admin person handled for each job. Or, the number of phone calls those same team members fielded and to what job to charge them. This extends across the field of the folks back at the office, and for that matter, the office itself. Consequently these items and many others get assigned to “overhead.” And while they have lived there nicely for a long time there are those who suggest it may be time to reassess how overhead is handled.

In their “ Case Study-Overhead Costs Analysis,” Yong-Woo Kim and Glenn Ballard reveal that using profit-point analysis and applying activity-based costing would be a more effective and accurate way to allocate overhead. They point out that traditional cost accounting has been criticized for the past 20 years because it fails to “report the cost of activities and processes,” and that other industries have abandoned it for activity-based costing (ABC). Instead of putting all overhead costs under a resource that is common to all of the company’s products, like labor, the overhead items are directly applied to the activity that benefited from that overhead.

The authors go on to present a case study that demonstrates how this methodology was used on an actual project for Sun Microsystems. The conclusion was that the process was “feasible on actual construction projects and has many positives, with some limitations.” The profit-point analysis that this method allows yields data that can help with future subcontractor selection, provide some insight regarding the performance of subcontractors, help when negotiating fees for additional work and can add some efficiency to employee tasks since they are required to fill out activity forms. A big plus is that data compiled can be used in the future in creating more accurate bids and in convincing clients to use particular specialty subcontractors.

There is much more about construction efficiency at the Lean Construction site.

As the sub-prime debacle goes through its process we see credit tightening and even people with very good credit are having difficulties getting mortgages. As more people are forced to stay in the home they have they will be spending money to maintain and upgrade those homes.

Interestingly, prior to 1999 and the beginning of the official HUD recording of the sub prime market, the total value of improvements nationally had never reached much over $92 billion. Suddenly in 1999 that number surged to more than $100 billion and hasn’t looked back ending up at almost $175 billion in 2006. Even maintenance and repairs which had bounced around in the $40 billion range for the 12 years ending in 2003, climbed above $50 billion in 2003 and has been inching modestly upward ever since.

If historical records are any indication remodelers will be seeing a continued emphasis from home owners on wanting alterations (defined by HUD as “changes or improvements made within or on the structure”). From 2003 to 2006 the total value of alterations climbed from just under $92 billion to almost $130 billion.

Additions appear to be a mixed bag. After a major slump in 2001 they held steady for a couple of years at around $20 billion, then declined by $3 billion in 2004, rebounded in 2005 and then took a steep decline to $13.5 billion in 2006. There’s no where to go but up with this segment especially if people are going to have to stay put.

Maintenance and repairs is a segment that does not post big gains in short periods but it is a constant. For anyone who can hang a door, fix a step or patch a roof this market is one that can help stabilize other parts of a remodeling business.

So, if you work on existing structures in any capacity, now might be a good time to be thinking about whether or not you’d like to expand. If so, there are alliances to forge with suppliers, helpers and other talent so you are ready to handle the new business.

Inefficiencies in how we build things extract a heavy toll on the industry and on ourselves. These things push up costs, cause delays, increase the chances of mistakes and probably worst of all they rob us of time. And time is life. They also cause a lot of stress. And stress is a killer. This is the first in a series of articles and podcasts exploring various inefficiencies.

Time and time again I have seen the lack of materials bring portions of jobs, and in some cases entire jobs, to a standstill. These material deficiencies come in a few common forms. Not having any materials at all is probably the worst scenario since you can’t even shift work to other parts of the project. Not having enough materials of a given type means one part of the job stops and if that one part is crucial to other parts moving forward it also stops those. Not having the right materials usually means scrambling to find the right materials while a portion of the job goes on hold. There are other materials problems but these seem to be the most common from my experience.

There’s no substitute for planning when it comes to reducing materials deficiencies. While many people in construction seem to like to “fly by the seats of their pants” the reality of poor planning means they’re loosing money, time and eventually small pieces of their sanity. The neat thing about planning is that if you do it once really well that plan is re-usable for other projects, or even for other parts of a project. If you take the time to do thorough estimates, keep records of how accurate those estimates were, and then incorporate changes to how you estimate in order to continually improve your accuracy, you will find that materials issues will greatly diminish. Not, go away. But at least become more manageable.

One thing that helps me to minimize repetitive estimating tasks is to use the “assembly” function of my estimating package. That way I end up with a materials list for a given quantity of production. If it’s an exterior 2×6 wall then I know not only how many studs, plates and blocks I need, but also how many nails I need per linear foot of wall. Once I’ve calculated this one time it’s not going to change materially unless there’s a change in how the wall is assembled.

There are other reasons that materials can come up in short supply and if someone else doesn’t suggest some I will get into more of those in the future.