5 (Not So Obvious) Costs of Construction Delay
A New Take on an Old Subject
S.S. Saucerman / January 2018
You know by now that construction schedule delays are killers. That’s Construction 101. I’m also assuming you’re aware that delays cut into your bottom line because you understand that the longer you tie up manpower and resources, the more you will inevitably pay for the following:
Forced over/double-time rates to facilitate schedule targets and demands.
Increased supervision and worker man-hours, which carry with them straight wages, fringes/benefits, expediting/logistical time, human resource cost—and all the expense that comes with having employees on site.
Extended jobsite general requirements and conditions costs such that for storage trailers, offices/office supplies, phones/fax/computers, temporary utilities, fencing and security, Dumpsters, Porta-Johns™ and the necessary things that keep a job site running smoothly.
Bigger office and administrative salary outlays for project managers, safety officers, quality control personnel and more (depending on the project).
Extended indirect/administrative expenses such as insurances, bonding, accounting and document (i.e., change orders) administration.
Disruption in company cash flow in the form of 1) having projected monthly payments come in lower than expected due to the lengthening of the schedule, thereby “stretching” out the finite contract amount over more distribution periods, and 2) unanticipated deferment of the release of last-payment retention monies and securities at the end of the project.
Material price increases arising from materials being ordered later than originally anticipated. (This one pops up a lot more than you think.)
Increased costs to store materials on site due to 1) longer periods of protection from the elements (to reduce damage), 2) security against theft/pilfering and 3) the dreaded “double-handling” that goes with moving materials back and forth for site access or other logistical reasons.
Costs associated with the disruption of your own and/or a subcontractor’s continuity that often result from schedule delay and interruptions. This includes additional mobilization costs due to being interrupted during a phase of work originally anticipated to be performed in one continuous exercise.
Similar to that above but this time regarding additional breaks in continuity from not having equipment and/or other specialized resources available when required.
Penalties/fees associated with not meeting schedule demands, often in the form of liquidated damages. LDs are monetary compensation (most often expressed as a ratio, such as $500/day) that the contractor must pay back to the client for each day the construction project schedule extends past the promised (made at contract time) completion date. In theory, LDs aren’t considered to be punitive (punishment) but more a recompense for things such as the client’s downtime, lack of productivity, loss of use/rents, or construction interim loan interest expense that may arise from his new building not being ready to go. However, penalty or not, it is not unusual to hear of a client threatening to assess LDs to extract additional performance and/or otherwise prod a tardy contractor along.
So now that we’ve covered ramifications one normally associates with prolonged project schedules and the things many construction professionals already understand, I’d like to go further and discuss a handful of (what I’ve found to be) less tangible—yet just as (more?) consequential—fallouts from construction schedules extending longer than they should.
Diminished Worker Morale
Imagine you’re a construction site superintendent overseeing a multimillion-dollar project, and you have the unenviable task of coordinating perhaps eight to 10 skilled trades (from different unions) and dozens of material deliveries during any work day. Break a sweat yet? OK, now let’s suppose each of these trade crews have their own agendas, motivations and opinions (of which they’re seldom afraid to share; funny how that is in construction) regarding virtually everything affecting their work. Even on a “normal” day, interaction between these parties and the superintendent can be, well, tense.
Now just for fun, let’s toss a completely unannounced and highly volatile “delay-grenade” into the whole mix and see what happens. It isn’t pretty (although perhaps enlightening if you happen to be an anthropologist studying the de-evolution of man). Just like that, everyone’s well-crafted schedules are out the window and any/all previous goodwill and cooperation between parties is supplanted by attitudes far more mercenary and hostile. Friendly exchanges are replaced with sharp looks, and crew leaders seem to be spending inordinate cell minutes explaining once again to corporate why they can’t be in Houston on Monday.
Before long, the work environment that started out with so much potential and positivity at the beginning turns dark and stormy as an almost visible burden lands on the shoulders of every soul unlucky enough to be affected by the delay. And this added level of pressure does something to a person. Individual pride in one’s work almost inevitably grows less important, and the more primal need to just “get done and get out of here” takes over as the lone motive force for getting through the day. Morale? Well, maybe on the next job.
Introduction of New General Requirement Costs
So, it’s already a given that extended schedules cause you to pay more for general requirements (GR), like those listed at the beginning of this article. This is pretty straightforward. But this makes one very important assumption. It assumes the GR line item was even present at bid time. Let me explain with the following example: When the project was bid, it was assumed by the estimator that no cost provision for winter weather construction (we’re a northern contractor, so this comes up a lot with us) would be required in the bid. This was perfectly reasonable at the time and based on the projected work schedule included in the bid package.
Fast-forward to the present: Everyone’s on site and working, but the project schedule has been steadily slipping over the past weeks and months. Now the exterior work that you’d planned on performing in crisp, pleasant fall weather has been mercilessly pushed out until after Christmas.
But once again, let’s make matters worse. Let’s also suppose that your company was partially responsible (as is often the case, it’s seldom one culprit that single-handedly sends a schedule south) for being behind, so the remedy isn’t going to be as easy as approaching the client with a slam-dunk change order.
So, what do you do now? The client wants the exterior done. Period. He starts bringing LDs up in progress meetings. And after a few terse talks with your own corporate office (who are comfortably out of the line of fire) you do indeed sheepishly ask for a change order to cover the cost of the temporary tenting, heaters, fuel, reduced productivity, added supervision—everything you’ll need to complete your work in cold weather.
It doesn’t go well. Because the client is well aware you’re culpable for being behind, your request for additional funds is received less than cheerfully. Instead you are rewarded with 15 colorful minutes of your client instructing you to insert your request deep within the confines of a wholly adult and anatomically descriptive body location. In the end, you 1) ultimately eat the cost for winter weather and 2) disenfranchise your client in the process, all due to schedule creep.
Heightened Exposure to Accidents & Liability
Here’s one we recently had happened to us on a project, so we felt its impact firsthand. Most of us know that in today’s world, safety and accident prevention is no longer optional on the job site. The days of a contractor treating the subject as an afterthought—or something that’s addressed only after an actual accident occurs on site—are long gone. We live in a litigious world, and most commercial construction contracts call for strict written safety and accident prevention plans and protocols before any of your workers can go on site. One may even be judged for future work according to past safety records or workers’ compensation scores.
It’s serious business, and any risk manager worth his/her salt will tell you that the primary way to reduce accidents on a job site is by decreasing your exposure to those accidents. (See where I’m going here?) It then follows that the longer your project schedule extends, the greater your exposure for potential accidents will be. You can also factor the morale argument into the equation stating that as the project drags on, the greater the likelihood that a worker’s caution, attentiveness and vigilance toward all things safety-related may begin to weaken under the yoke of schedule pressures.
Loss and Disruption of Future Work Opportunities
A stark reality for most contracting firms is that their company resources are (more or less) finite. That is, regardless of size of scale, any particular company model is built around a relatively static number of employees in the field and a known quantity of ancillary resources (i.e., equipment) that are available to them at any given time. If you’re larger, the number is higher; if smaller, there’s not so much. Simple. This means that (with minor exceptions involving temporary personnel and so forth) there’s generally no manpower to fill in once the company’s “stable” of workers and/or committed equipment has been exhausted.
This restriction can hurt a company in two ways. First, it can become a major factor in management’s ability to go after future work. I can recount many times in my own office where we’ve had solid construction opportunities presented to us but inevitably chose not to participate simply because we wouldn’t have manpower available to perform the work according to the proposed schedule. It’s always a difficult call because no one likes to turn down work. And sure enough, a year later, after all our other schedules had played out and all the delays had already wrought their havoc, we looked back and wished we’d gone after some of those prospects. Now, of course hindsight is 20/20, but it does demonstrate the effect schedule delays can have on overall work flow.
Then there’s the flipside: You do choose to bid the job based on your current manpower and resource projections, and you (hooray!) win the bid. You made a good choice based on the data at the time, and now you have a hard-won contract in hand and a start date on the calendar. But here’s the thing: You based your proposal on the fact that Crew A would be finishing up Project A roughly two weeks prior to this new Project B’s start date. You even gave yourself two weeks of leeway. But in the time between presenting your proposal and receiving the award letter, the [insert back-ordered critical path piece of equipment here] for Project A went belly-up on its promised delivery, and Project A was now a month behind. Just like that, both projects are in peril. And now, through little fault of your own, the only thing you have to look forward to is the next item on our list.
Loss of Client Trust
I saved this one for last because, to me, it’s arguably the most devastating and destructive consequence of project schedules going on longer than promised. It’s about trust—or more precisely, your client’s trust in you as a person and in your ability to deliver on your word. Building construction is a funny business. Though our end-product may consist of gigantic monoliths of solid concrete and steel, we are still very much a service industry. Where manufacturers sell a tactile, tangible widget that the customer may hold in their hand, we sell ourselves. Our client is paying for our promise to deliver the many layers of service required to construct their project at an agreed-to price by an agreed-to time. If you should break that promise, you’ve failed to deliver your “product.”
Which leads me to a phenomenon I’ve watched play out time and again over the many years I’ve been doing this. It goes like this: The contractor wins the contract. It’s one of many jobs he’s juggling at the time (doesn’t it always seem to be like that?). But this happened to be the runt of the estimating litter at the time and so garnered the least attention to detail. After all, there are only so many hours in a day. Right? So, our contractor has mobilized on site and the work is underway. A mistake happens. It can be anything: a constructability issue, a missed cost item, maybe a bad cell on a spreadsheet causing a hole in your scope.
And though it doesn’t happen often, this time it’s a fairly substantial slip-up—enough of a misstep to interrupt continuity on site and tack another month onto the schedule. Of course, this in turn inflicts considerable distress onto the client who is a businessperson himself and (as you’re now finding out) doesn’t suffer such gaffes well. Oh, but we’re not done. You see, the mistake itself wasn’t even the worst part. The worst part was that it happened early in the schedule.
Just two weeks in (on an eight-month schedule) and already the lion’s share of goodwill, comradery and trust you’d worked so hard to establish during the sales/bid period now lies faltering on life support. But it’s not only the backlash from the mistake itself. From here on out—and all the way to punchlist, you’re virtually assured to be under enhanced scrutiny, deeper analysis and heightened distrust. Clients don’t forget things like this, and now his caution flags are straight up. It will take a tenfold effort to coax him down again—if he ever goes down. Unfortunately, you’ve been through it before so you know from experience that once you land on the wrong side of a client’s suspicions, the only thing you can be assured of for the rest of the job is less leniency and a heightened, critical awareness of everything you do on site. As for the benefit of the doubt? Forget it.
Construction project delays will never, ever go away completely—not as long as humans are involved. But with clear communication, strict discipline and consistent enforcement of rules, policies and expectations from those running the project, the damaging effects of delay can be mitigated. And by reinforcing to every member of your company—office and field, the doctrine that all delay is directly proportionate to X number of lost dollars, you can forward the process of transforming delay into something more tangible, something easier to quantify, wherein the ability to effectively target and (hopefully) implement remedies will prove that much simpler to those in charge of such tasks. Good luck!
S.S. Saucerman is a full-time commercial construction estimator and project manager for a large upper-Midwest general contractor. He is also an established freelance writer and author whose work spans 20 years. In addition to construction and writing, Saucerman also taught building construction technology part-time for 11 years at Rock Valley College in Rockford, Ill.