Using a real project as a case study, Barry explores practical ways software can help subcontractors increase project margin.
MARGINS are ever becoming tighter. Increasing material costs, the impact of Brexit and inflated wages associated with labour shortages, will all erode profit. You must remain competitive to secure contracts, and you can’t pay your staff less, so how do you absorb these increased costs without damaging your margin?
Part of the answer is technology. I’ve witnessed, first-hand, how integrated project cost software can be instrumental in minimising cost and thus increasing revenue on contracts. It’s a case of ‘the sum of the parts’ where incremental gains (or marginal gains, for the cyclists out there), across all aspects of a project, can result in significant overall margin growth.
A case in point, one Chalkstring client recently won a job priced on 10.9% margin, yet ratcheted this up to 18.6% upon completion. A huge difference: achieved simply by using technology to drive marginal gains.
‘A client secured a job on 10.9% margin at tender yet delivered 18.6% at project completion.’
Keen to secure the contract, the contractor deliberately prepared a very lean tender. They were confident they could ramp up their margins during construction, based on their experience of using an integrated system for estimating, procurement, and cost reporting, with its associated database of materials, labour and pricing.
Other contractors couldn’t come close to their winning bid and so the commercial team now had to ensure they delivered the £7.8m scheme successfully, while significantly increasing the overall final margin. And software played a pivotal role in achieving this. Here’s how:
Maximising buying gains
A database of live product prices enabled the contractor to instantly compare products, brands and suppliers to establish the best cost option. In this case, our client was able to generate extra margin by swapping to cheaper brands and products within spec, all of which were available within the software’s database. The software also compared like-for-like quotes from alternative suppliers, leading to significant buying gains and margin increases in a powerful, yet simple, value engineering exercise.
Controlling the supply chain
Software gives you complete control. It knows what you need to order, at what rates, for where, and when. Plus, budgeted wastage allowances, what’s been delivered to site, the material installed onsite, approved invoice values and rebates you are due. There’s simply no guesswork, no over-ordering or overpaying of suppliers. This level of control helped our client make a saving of £107k, as they eliminated over-ordering and exposed all supplier invoicing errors.
Eliminating over-booking of labour
The sheer size of contract produced 200 incoming labour applications per month. Our client used our software to automatically cross-check these against site progress, to highlight any overbooking. The result was a saving of 5% against the projected labour costs, equating to £389k.
Ensuring variations were profitable
With over £1.5m of agreed variations orders on the contract, technology ensured every single one was captured and charged – no mean feat. In addition, using their database of varying supplier prices, variations could easily be priced based on one suppliers’ rate, and then purchased on at a lower rate to maximise margins yet further.
Enabling more intelligent decision making
Because live job cost reports were available in real-time, the project management team was able to analyse project performance at any point and in huge detail. Having this amount of information visible at progress review meetings enabled the team to identify and mitigate potentially costly issues early, as well as confidently make more informed decisions based on real-time data.
We know that, for many subcontractors, achieving consistently lucrative margins can be challenge – let alone driving margin up by 7% on a contract! The reality is that it’s hard enough to manage the many spinning plates and the daily changes in scope and the associated impact on materials, labour and variation claims.
In this case study, our customer demonstrated that it’s possible to improve margins by using simple technology. Most subcontractors tell us their core issues boil down to a lack of adequate systems, and over reliance on uncontrolled spreadsheets that can’t begin to give the level of power and control that dedicated software offers.
Even if an end-to-end system feels like a step too far today, maybe software could improve just one process for you? There’s no reason why you too couldn’t gain more control, reduce admin burden, drive margins up and deliver more projects by using some form of technology.