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rockstar.esq

How to know when it's time to quit playing along

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We've all heard the adage that "the customer is always right", or "it all pays the same".  I'm sure we've all had experiences where diplomacy and patience were rewarded.  It's been my experience that a polite, patient, and diplomatic approach is successful in the vast majority of disputes.  Giving people room to be mistaken without pushing for apologies or corrections allows them to "save face" which often allows them to appear magnanimous in the end.  You never really know what people are going through.  There are lots of organizational rules that may require some mental gymnastics to justify an otherwise obvious solution.

There are however, times when playing along with a false premise will work against you.  One of the most common ones for tradesman is when it comes to change orders.  The client hired a General Contractor, who in turn hired a Subcontractor. When the client wants to make a change, they ask the GC to price it up, so the GC asks all the affected subs to price the change.  The GC must be prepared to explain/defend the cost of the change order which leads them to scrutinize the pricing they receive from their subs.

In most situations, the GC will present themselves to the subs as focusing on their "duty to the client".  They will claim to need breakouts, detailed explanations, charts, graphs, pictures, signatures, etc.  Sometimes it's valid, oftentimes, it's not.  Remember that whatever information you supply, can be used against your interests.

It's important to point out that most contracts allow the GC to apply overhead and profit to the sum of all change orders.  Now, it might seem like that would create an incentive for the GC to encourage high change order prices from their subs.  Here's the thing, not all of the "client changes" are actually due to the client changing their mind.  In fact, it's entirely possible that the GC is asking for change order pricing to fix something that they, or the design team screwed up.  GC's live in mortal fear of upsetting the delicate ego's of design professionals, because the majority of clients rely on their Architects to provide a shortlist of recommended GC's for the request for proposal.  

Now I'm not saying that subcontractors should take the short-sighted view that working relationships have no bearing on change order pricing.  What I am saying, is that the GC often presents themselves as "defending the client" in situations where the client will never see a bill for anything close to the real cost of what's being done.  

So at this point the question becomes "how do you tell?".

I'll give an example.  We had a project with a one year schedule, that was already late 3 months in.  The GC was not conducting weekly subcontractor meetings, they didn't provide three week "look ahead" schedules, etc.  Simply put, they didn't use any established best-practices to maintain the schedule.  They did however, publish a revised project schedule that pushed the end date.  Over the course of the first year, they did this nine times.  Each time they revised their schedule, we tried to pursue a change order for the additional duration.  Their counter-argument was that the scope of work never changed, so we were not entitled to any additional compensation.

Efforts to explain basic concepts like overhead, opportunity cost, efficiency, inflation, and general conditions were all met with endless demands for greater transparency.  Every revised schedule simply added time to tasks which meant that we were never in a position where we could leave the job, nor could we get an efficient working shift out of our men.  Everything about this job was very frustrating because the GC was consistently blocking progress.

Now take a moment and look at the bigger picture.  We have a job that was supposed to be completed in one year, that over the course of nine schedule revisions, slipped to one year and five months.  If you spent a veritable fortune to hire a GC to build your project, wouldn't it be a rather big deal that it was delayed almost half a year?  Construction case law is rather clear on these matters.  Clients can and do pursue serious penalties for lost revenue when their projects are delayed.  This is the number one justification for why GC's demand that subs complete change order work before the paperwork is finalized. 

Not only are there enormous penalties at risk, the GC has project operating costs (general conditions), overhead, and the opportunity cost of the profit they would have made if they'd been free to pursue another project after this one.  All totaled, it simply doesn't make any sense that a GC in this position would continue to avoid all efforts to finish in a timely manner.  In fact, about half the GC's in this position would willingly open their own wallets to pay overtime to any and all subs whose work could make the deadline.  The other half will produce a spreadsheet showing how they intend to apportion the estimated penalties to each individual subcontractor should the job fail to be completed on time.  In both cases, the "brass" will be on deck making absolutely sure that everyone is putting their back into it.

With all of that understood, it's far more likely that this GC has submitted and received approval for time-extension change orders.  There are only three things that could negatively affect their profitability at this point.  Finishing early, paying subs for their losses due to delays, and finishing later than their most current end-date.

From this perspective, it suddenly makes sense that the GC staffs the job with people who are perfectly befuddled about anything that would lead to either of those three outcomes.  The goal is not to deliver the job in a timely manner.  They pretend to need more information about our change order because they will foot the bill, not the client.  Stalling for time works in their favor.

Playing along with the notion that this is a typical change order deprives us of some important common ground.  This is a very prominent GC with twenty plus years of experience in a large metro area.  They wouldn't have survived this long if they allowed jobs to spiral out of control.  5 months beyond the year contract is a 42% overrun on direct job costs.  Competitive GC bids at this level have between 3 and 5% profit.  Even if there weren't any penalties for being late, this company would be losing money on the entire job inside of one month.  Patiently explaining things to Project Managers who are playing dumb will never get us where we need to be.  The entire "dumb but honest" construct is a dead-end.  

In contrast, we could shift to pressing this GC to provide evidence that they've addressed the very real threat of liquidated damages to the client for their egregiously late delivery.  As part of the "team" we can point out that we're very concerned over the complete lack of visible best-practices as it applies to scheduling, workflows, and trade coordination.  Should the GC fail to provide any of the requested evidence that they've handled these important things, we could let them know that we intend to draft a letter to the client informing them that we have no confidence that this GC is capable of delivering the contract.  While we're at it, we could invite our fellow concerned subcontractors to sign on as well.

See odds are very good that the GC's change orders for schedule extensions were partially justified by the estimated impact on the subs.   If so, the client would expect those funds to be distributed to the subs.  If not, the client knows that the subs were intentionally excluded.  Both conditions expose the GC's gambit.  This sets up a situation where some heretofore unheard of executive at the GC can sweep in, and clear up the "misunderstandings" by negotiating a solution with us.

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Sounds like your example of a GC is a micro-manager who isn't willing or able to make decisions so just goes along with whoever he feels he's in most fear of. Usually their own ego.

Can't say NO to change orders no matter how impossible and not knowing how, s/he won't tell the people expected to make them work. I'll save you tales of examples of antics of the last guy I worked for like that and what happened to him.  

Being part of the field crew who were expected to work to impossible schedules and provide results for which which HE'D already a submitted a design. Seriously he actually threatened to sue the material's lab because the test results didn't match what he'd decided they were in advance. Being the field guys we were the whipping boys, seems we'd screwed up the field tests and sample collection. 

How'd we deal? One retired, I transferred to another section and #3 stayed on but his drinking problem made him not want to have to compete with anybody for a position. So, the subs call it quits and if necessary sue for compensation. We got our paychecks, he had no control of that even though he tried.

The guy was an extreme example but I've met others. Guys who are over their head but can't admit it so the only solution they can think of is to control every aspect of a project. Unfortunately their very nature prevents them from making the kinds of decisions that level of control demands. 

I THINK I have a handle on the situation you're describing, even a cause. I'm not sure if the subject title is a question, solution, or a statement. Unfortunately I'd already started responding before I thought about that. 

Hmmm?

Frosty The Lucky.

 

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Rockstar:  I think that it would only take a couple incidents like what you describe for the subcontractors to start ignoring RFBs from the General or bidding high in hopes of not getting the job.  Word gets around to avoid projects from this GC.  If you can't make money because of delays a sub shouldn't bid.  It may be that it is another example of the philosophy of a bad job is better than no job.

Also, and this is, of course, a legalistic answer but it is possible to put delay clauses and penalties in a contract between the GC and the sub.  Sometimes subs need to get up on their back legs and protect their own interests.  A good lawyer could draft a contract that would protect the sub in a case like what you describe but not go into effect if the delay was caused by the owner or anything out of the control of the GC.  Similarly, the various documents and schedules could be made mandatory with penalties for being late or unreasonable delays.

Everybody get so wrapped up in the AIA standard contracts that they think they were brought down the mountain by Moses and cannot be modified or, if you do, you will be struck down by a lightning bolt.

And, in the end, if the GC has a reputation for unreasonable delays of treating the subs poorly then just don't bid for that GC's projects.

"By hammer and hand all arts do stand."

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The sort of behavior of the general contractor usually will take care of itself in smaller markets as word gets around that it's a nightmare to sub for. 

Pnut

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