Construction Management Tactics Every Developer Should Know
Main topic: Construction management tactics every developer should know.
From working on dozens of projects, every developer should know these few construction management tactics (in order of importance). The top two are a must.
1- How to review a pay application.
This is a fundamental responsibility of a GP, and it will require that you become familiar with the standard AIA G702 and G703 documents. Ensuring the project accounting follows reality is critical. When reviewing a pay app, there are six things to check for:
Is it notarized? While this is not a legal requirement, many lenders require it.
That a lien waiver is provided. Lending agreements always require some type of waiver. Additionally, most states have construction lien waiver laws. Ensuring your waivers follow local law and lender requirements is crucial.
The best way to accomplish this is to review the waivers as part of the pay application review process. The close-out of construction is not the time to begin collecting releases, especially when the lender requires subcontractor lien waivers since subs that finished their scope early in the project may no longer be easy to contact.The information on the waiver matches the G702. A waiver that releases a different amount than billed should not be accepted.
The amount “from previous app” column matches the amount from the “completed to date” column from the previous application.
That retainage is per contract. All construction agreements should contain retainage language, and all large projects should hold retainage. In addition, all states have laws regarding how much retainage a project owner can carry and when they are required to release it. Ensuring retainage follows the requirements is one of the ways a project owner can keep control over the project budget and progress.
The % complete reflects what is installed on site. This is often one of the biggest mistakes I see on projects.
Sometimes, contractors over-bill on a pay application, expecting to be caught up with the work by the time it is funded. The problem arises when they don’t catch up with the work, and the app is funded anyway. Over time, this can lead to a nearly paid-out contract without having a ‘nearly-finished’ job. Essentially, this defeats the purpose of withholding retainage.
If a pay application contains errors, it is the responsibility of the owner to require that it is corrected before funding it. Correcting billing errors that have compounded over months is much more difficult than fixing them as they are identified. While the consistent monthly review can seem tedious, it is better than having a lender withhold funds until any billing errors are rectified.
2- How to keep an Anticipated Cost Report.
Anticipating is the best way to manage anything, especially budgets. An anticipated cost report is an industry-standard document that all development projects must have. In this document, the goal is to document and track the following:
Contract values
Contract Revisions (change orders)
Current budget (values committed)
Values billed
Values paid
Comparing these values on a regular basis will provide insight into whether a project is on track in terms of schedule and budget. For example, if certain materials have not been purchased within the lead time windows (which should be clear by looking at the “billed” and “paid” columns), it should be clear that those scopes may be at risk of delaying the project.
Additionally, if the overall spending is greater than where it should be in relation to the schedule, then the project is not on track to meet the budget goal.
The point of this document is for it to be useful, so setting it up so that it can easily be kept up to date is critical. A current ACR is more valuable than a complex document that is rarely updated. Below is a diagram I made to illustrate how I document costs.
While this is a simplified version of what my team uses, it should be sufficient to get anyone started documenting and anticipating project costs.
3- How to review a two-week look-ahead.
A two-week look-ahead is another industry-standard document that every project must have. This document typically tracks three weeks of work: the past week, the upcoming week, and the week after, and should be reviewed weekly.
The level of detail in these schedules varies by project but should be more detailed than an overall project schedule. This is also the document that a project superintendent should be using to coordinate and schedule the trades. Large projects with multiple supers in charge of different scopes will have multiple two-week look-aheads to cover the respective scopes.
The main things to look for when reviewing two-week look-aheads are:
Is the look-ahead in accordance with the overall project schedule
Are there any coordination issues with the sequencing of the work as scheduled
Are there any specific unresolved design items that will hold up any of the upcoming work
Generally, projects with up-to-date look-aheads run more smoothly than those without. During the early stages of a project, look-aheads should highlight all upcoming procurement and subcontract execution since those items can considerably impact the schedule.
If you cannot review the look-aheads in detail, you should request that they be presented in the weekly meetings. Requiring the team to adhere to standards consistently is one way to help keep the project on track.
4- How to purchase and assign materials.
The two main aspects to nail when it comes to direct material purchases are quality and quantity.
Just because a vendor offers tile at $0.80/SF doesn't mean it's a good deal. When selecting a substitute as part of a value engineering exercise, order a physical sample and request all specs and warranty information. Then, run the substitute product by your team (architect, contractor, etc.). They should have feedback that may shed some light on the reasoning behind a very low unit cost.
Once materials are selected, and you know you want to purchase them directly from a vendor, you must ensure you understand the required quantities. There is no better judge of required quantities than the trade installing the material in question. Get confirmation from your CM/GC or trade on how much you will need to install and how much will be considered waste. Most materials will require a certain percentage to be accounted for waste. This is typically related to the pattern called for in flooring and walls vs. the size of the material. If you see more than 10-15% is calculated for waste, ask why. There may be a legitimate explanation, but you should not see numbers much higher than that.
Another aspect to consider when purchasing materials directly from a vendor is that most subcontractors will charge a handling fee. This is essentially an administrative fee to cover the costs of receiving, storing, and insuring the material, and it is typically less than the overall markup they would have assessed.
Finally, there are certain materials I recommend you do not purchase directly, and if you do, that you have the CM or related trade directly involved assisting in the selection and purchase.
These materials include plumbing, electrical, and waterproofing components. The last thing you need is to purchase 600 shower trim kits incompatible with your shower valves!
I also recommend leaving the purchase of materials required for installation, like grout, glue, compound, etc., up to the trade that will be using them. They generally understand compatibility requirements of materials and know their workforce's ability to handle the different related install methods better than anyone else.
Ultimately, the direct purchase of materials can provide excellent discounts and, through the process, cement solid relationships with vendors and suppliers. Additionally, this process can be incredibly educational if you are actively curious and involved.
5- How to separate fixture components.
One of the ways we beat lead time issues and solve an unexpected schedule crunch is to separate components. The most straightforward trades to do this with are 'the fixtures': Hardware, lighting, and plumbing.
These usually have 'buried' components and finish components. The buried components can often be ordered ahead of the finish ones. Typically, the finish components create lead time issues since they are often customizable and made to order.
Separating components allows the buried components and adjacent finishes to be installed ahead of when the entire fixture would have been available. For example, you can begin to tile a shower wall without having the finished trim as long as you have the shower body & valves installed.
Equipment systems can often be split up into components for early delivery. For example, HVAC, pool, electrical, etc., can be split into different parts-- some of them are standard and can even be replaced with a different manufacturer.
This is where a good CM truly shines; however, it doesn’t mean that, as the project owner, you can’t ask these questions or make these suggestions when you hear about a lead time issue.
When a schedule crunch happens, creativity in problem-solving and having a detailed understanding of the specifics that make up a system are vital to ensuring efficiency in a schedule.
This is also the best way to learn how your buildings work.
Only some people can or want to get into the weeds of a project. However, these simple things can help you keep an eye on the ball and save you a headache or two. It's never too late to brush up on these tactics and bring your development skills to a new level!
If you do nothing else, consistently reviewing pay applications and keeping a simple anticipated cost report can make the difference between finishing a project on budget & schedule or not.
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Main topic ideas for future newsletters.
Between conversations with clients, industry professionals (and RE Twitter) these are some subjects we will be diving deeper into in future newsletters.
Is modular the future?
What is the deal with design-build?
How I became an owner's rep.
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