Profit Maximization, Risk Management

The evil three “D’s” of construction–and how A/E’s can protect themselves

Surprises, by nature, are hard to anticipate. In the roller-coaster world of construction, the person who anticipates the unexpected, usually wins.

As a risk-management specialist for nearly three decades, my success comes from predicting the future for my clients, helping them maximize profit and minimize risk. One way I do this is by staying apprised of the many stories (and debacles) that take place.

I pay close attention to projects gone awry–not only what I hear from clients, but the really ugly stories that are reported in the news. It’s amazing how much valuable, practical, relevant advice you can pluck out of everyday articles, to help your business be more successful and highly profitable.

I see too many sincere and hardworking A/E’s fall victim to the three evil “D’s”: Delays, Disputes, and Dissatisfaction.

Sadly, architects and engineers often get outmuscled by aggressive people looking for easy prey. Occasionally, they actually mess up, which gives us a chance to learn from their mistakes.

To that end, here are four amazing stories I recently came across, and the lessons we can learn:

Story #1: School board shocked by massive hike in architect’s fees (through no fault of the architect)

A new college campus was being built in Florida. The initial project size was 40,000 square feet, but the scope kept increasing (as scopes often do), and the project nearly doubled in size.

The architect’s contract (wisely) stipulated a fee increase contingent upon the project’s size, which means as it grew, so did the paycheck. The school district staff was aware that the architect was owed an additional $400K, but astonishingly, they did not tell the school board for 18 months, because they were worried the added cost wouldn’t be approved.

Board members were furious about this “minor oversight”, but took the high road and approved the additional fee, because the architect did nothing wrong, and did not deserve to be penalized.

Had the board been more vindictive, the results could have been catastrophic. There may have been a nasty dispute, even a lawsuit. The firm may not have been paid, and their reputation could have suffered.

A similar story happened to a client of mine, with a very different ending. His firm designed an assisted living facility for a client he had worked with for 20 years. Construction was expected to take a year, but the contract included a provision that if the project continued beyond termination of one year, then the firm would charge its standard rate as an additional service.

Sure enough, the project lasted for an additional 1.5 years. Rather than inform the owner, the client said nothing for a year and a half, at which point he submitted a bill for an additional $180,000. The owner was livid and refused to pay. Then, the client offered $30,000. They finally settled on a very bitter $100,000. Assuming a 20% profit margin, my client actually LOST $44,000, along with a good client. If only he had been transparent from the start, things would have ended differently.

Lesson learned: Make sure your contract clearly articulates your fee–with as much specificity as possible–if the scope changes or there’s a change in conditions – say something! Don’t wait!

Bonus lesson: Make sure the person paying your fee, not just the project owner, is aware of how much money you’re owed, and approves any additional charges when warranted.

Story #2: Shoddy plans lead to flaws, delays, and increased costs

A high-rise Miami condo was under construction, when serious design flaws were discovered, leading to multiple delays and a huge increase in cost. Ultimately, a lawsuit was filed by the developer against the architect.

Among the issues alleged: the architectural firm had improperly designed the garage ramps, leading to significant structural changes being required. They improperly designed the temperature control system, resulting in high humidity in the units. The height of the building’s stairs and the size of an emergency generator room needed to be redesigned.

Amazingly, the developer was a reputable firm with a stellar history. How could this have happened? Technological challenges combined with an inexperienced firm

The developer made the mistake of hiring a neophyte architect, who did not know how to use BIM software to create real-world designs. Everything looked okay “virtually”, but when they built it in real life, the design was severely flawed.

Lesson learned: Today, pretty muchevery industry is governed by technology–from car repair to plumbing to architecture. You can be a top designer, but the team putting together the documents needs to understand the basics of putting a building together. There is no substitute for experience!

Story #3: Simple project hits unexpected delays due to careless contractor.

This seemingly straightforward project to reconstruct the track and field at a Santa Monica high school ran into serious trouble. As this article explains, contractors ran into “unforeseen challenges.” That’s a nice way of saying the contractor made egregious, inexcusable errors in layout and design, in addition to being understaffed. The architect needed to modify the design, which in turn had to be reviewed and approved by the Division of the State Architect. In the end, this actually turned out okay, considering the debacle that could have ensued, had the school not been so understanding.

Lesson learned: Owners need to select contractors who have a proven track record of success. Make sure they have done quality work, with minimal hassle, delays, and cost increases.

Story #4: Historical commission keeps rejecting design plans.

In a historic district of Philadelphia, a well-known developer has been trying to get plans approved to replace old workshops with a luxury condo tower. Yet the plans keep getting rejected, not because they lack beauty or quality, but because the local historic commission insists on what they feel is the appropriate look for such a rich, storied district.

The plans keep getting sent back to the architect to revise, often by making it more plain and ordinary, and removing anything the commission finds “offensive.” Some folks believe that allowing people who don’t have development or a design background can only lead to trouble.

Not only can arbitrary changes lead to a shoddy or even risky design, it can also hurt the reputation of the professionals working on the project. By taking them out of the equation, you set them up to be blamed when things go wrong, without having the control to make sure the project is executed properly.

Lesson learned: At the outset, create a sense of anticipation. Always know how many hoops you’ll need to jump through to get your plans approved. That does not mean you should reject a project because of red tape, but by knowing what you’re up against, you can avoid a lot of heartache, and maximize your profitability.

Do you have a story or experience (your own or someone else’s) that you’d like to share? Please leave it in the comments below, so we can all benefit from the lessons learned.

Steve Whitehorn

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