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17Twenty
17Twenty
E162 || Scott Kimpland || Operationally Successful Trade Contractors
Welcome to Season Five of the 17Twenty Podcast!
This year we kick off the new season with Scott Kimpland of FMI. As a seasoned industry expert with 37 years of experience, Scott offers a wealth of knowledge on essential aspects of construction such as labor cost estimation, project selection, and fostering a robust company culture.
Scott shares valuable wisdom nuggets on successful contracting, underscoring the importance of creating operational consistency and establishing trust and communication.
Be sure to follow Scott on LinkedIn to stay updated with his valuable insights in the world of construction.
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I think it's as important now to kind of market your company to employees as it is to market your company to prospective clients.
Speaker 2:Every single individual has a story to tell and their great stories that need to be heard.
Speaker 3:I want every listener to know they have the ability to change the world.
Speaker 2:Welcome to the 1720 podcast.
Speaker 3:Happy New Year, Mountain Movers. Welcome to season five of the 1720 podcast. We hope you all had an amazing break, Good Christmas and are charged up and ready for the new year. I know we are about to break down some awesome topics specific to construction. We typically start the year off with a bang and we are this year with Scott Kimpland.
Speaker 2:Scott welcome to the podcast, man.
Speaker 1:Yeah, thanks for having me.
Speaker 2:You normally start out with letting you intro yourself and wherever that goes, let's just do that. Who's Scott Kimpland?
Speaker 1:Yeah, scott Kimpland is just a normal guy that's worked in the construction industry for about 37 years doing consulting, primarily working with labor intensive contractors, just helping them figure out how to better manage and control the biggest controllable cost in their business, which is labor. I grew up in Tampa Florida suburb right outside of Tampa in a construction family. My dad was actually an estimator for a masonry contracting firm. He was smart enough not to hire me. I was probably smart enough not to go to work for him, but always kind of grew up around the industry, loved it and ended up staying in Tampa, went to school there, ended up staying in Tampa and went to work for FMI right out of graduate school there.
Speaker 2:Every once in a while we catch a story. I've been at the same place for I think it's on the 36 plus years. That seems like an unusual story in, I guess four 2024 to have is just at the same place for so long right.
Speaker 1:Yeah, I mean I consider myself pretty blessed to have found something that I'm relatively good at, I love doing. It has an impact on my clients, both professionally their business and I've got clients I've been with for many, many years that I've just kind of seen their business grow and thrive and also personally just create personal wealth for themselves and a better life for themselves. So I'm probably one of those few people that goes to work at one employer professionally and stays there for the duration. But I just found something that worked for me.
Speaker 2:Yeah, give us an FMI, not pitch, but like, what does the umbrella of FMI do? Because I know you, at least at this point in your career, in a specific sort of vertical for FMI. But what is globally? What do they do?
Speaker 1:Yeah, so FMI is their national firm. We're based in Raleigh, north Carolina. We have offices in Tampa, which is where I'm located. We have an office in Houston, an office in Denver, cover the US. We do a little bit of international work, and at a very high level. There's really two sides to the business. One side is our FMI capital advisors. They are a they're pretty much an M&A house. They do more transactions in the construction space of the building product space than anybody out there, primarily seller representation, anything to do with transfer of stock. It might be an internal sale to a management team. Esops have become pretty popular. They've got we've got folks that do that kind of work as well, but that's kind of a transactional business. And the other side of the house is the consulting side, which I'm on and we've got a pretty wide range of service. But think of anything you know relative to managing and leading a construction related business. Most of our clients are contractors, but we have a fair amount of clients in the building product space. Construction materials, aggregates, producers, anybody that kind of touches our industry could be a client, but generally it's it's it's contractors.
Speaker 1:We do a lot of strategic planning, helping people just figure out. You know where to play, how to play where the world's going, how to get aligned in those intersections where money's going to be spent. We've got a pretty big research group that supports strategy. Usually when we're doing strategy we're doing market research too to bring some some real data to the table to help them make business decisions around strategy.
Speaker 1:We've got a group that does compensation consulting. So if you're looking at benchmarking compensation, developing short term incentive compensation plans, long term intern you know golden handcuff plans they do a lot of that kind of work. It's probably the hottest area in our business right now, just because the labor market is like it is. And I work in a group that does operational consulting, primarily helping helping good contractors become great contractors, and I'd say you know, probably 90% of my clients are either specially-traded contractors, but people that kind of live and die by their ability to manage and control labor. The strategy group they tend to work more with larger GCs, that sort of thing. So we've got a pretty good mix, and it could be even in the civil civil markets as well. We do quite a bit there.
Speaker 3:I haven't heard that many people that started their construction journey on the consulting side and so from the upbringing your dad didn't want you to be involved in the masonry, but construction wasn't so scary that it completely kept you away. So how did you start?
Speaker 1:Yeah, I got out of graduate school. Actually, I got my undergraduate in 1984 from the University of South Florida in business and at the time I graduated in 84, I kind of saw the opportunities that some of my friends were getting and people that I went to school with, and they weren't too exciting. So I kind of went and hid in school for a few more years. I got my MBA out of the University of South Florida in 87. And interesting, I was interviewing with several firms, had a couple offers that would require me to move and leave Tampa and one of my classmates, a buddy I went to school with. I ran into him one evening and said, hey, you need to interview with this firm. And so at the time FMI would hire kind of freshly minted MBAs. They'd kind of staple them to the hip of a senior guy that knew the industry and you kind of traveled with them for a period of time and learned the business and it kind of learned the industry and learned what we did. So that's kind of how I got my start.
Speaker 2:And so then you're stapled to the hip of a senior fella that shows you around and, as I recall from when we talked at lunch, that since you're in a couple of different spots, but eventually you pulled out and said, no, this is the space that I want to live in. Specifically, where are all the other stops you made along the way there?
Speaker 1:Yeah. So at that time we would hire. I would call it kind of more of a generalist model. So on any given day I might be helping somebody with a compensation related issue. Next week I might be working with somebody on strategy, strategic planning. A week later I might be helping somebody operationally and you guys are probably too young to remember.
Speaker 1:But the market took a dip in about 92. 92 was a little bit of a downturn and we reevaluated our business at the time and kind of figured out hey, we're about a mile wide in everything because all of our people are generalists and an inch deep. So at that time we kind of reorganized and I just happened to be working with a lot of labor intensive guys at that time and I was never the smartest person at FMI. We've got some really bright, talented people there. But what I quickly figured out is, with these trade contractors, if you're spending $20, $30 million worth of labor a year, if you can help them improve productivity by 5%, it's a real impact to the bottom line. You can do the math on 20 million at 5%, a million bucks, you can throw the bottom line.
Speaker 1:So I just got passionate about working with trade contractors. They're one of the few people in the industry that actually build stuff anymore Most general contractors and construction managers. They manage contracts, they manage schedules, they manage change, that sort of thing. But the trade contractors actually build stuff. And that was always exciting to me and I can remember my dad till the day he died driving me around and pointing to buildings that he built 20 years earlier, that he'd lost his butt on and they'd given him a second heart attack. It's just something about the tangible things we produce as an industry. They're still standing 50 years later. You can show them to your kids and that just kind of always juiced me up.
Speaker 2:That's how I think we're probably all like that Maybe everyone who lives in the built environments like that. But we'll drive by a building now these days and I'll pull off. I wonder who's working on that is it?
Speaker 2:Try to see what job trailers are over there and if I see a buddy who's on, I'll take a picture and be like, hey, man, see your stuff over here. It's just. It is a sense of like pride and seeing the physical labors of your work like going up and collegial, in the sense that I love seeing air quotes, I love seeing your job trailer there and saying, hey, this is your job, that's cool. I didn't know you were over here. That's awesome. How's it going? There's something to that. So I get that for sure, yep.
Speaker 3:My wife several times, more than several times, as I scroll off to look at an office and I start tinkering with the facade anchoring and it's at like an event for her and she's like he's in the glass business. He's just leave him be for five to 10 minutes. He's going to go discover what the systems are and all that.
Speaker 1:Well, the truth be told, I'm not very handy. You wouldn't want me to build your doghouse for you, right?
Speaker 1:So I'm not going to be touching any, any important technical stuff on a job, but I just always found that environment to be cool and I always, I always found it interesting that, while you have a lot of people who maybe don't have a formal education but they're incredibly smart, if you look at the things that that we're able to build and just, you know, we just got back from a trip to Italy a few, a few months ago and just looking at the things people built without technology, without tools, without equipment, but you know this, this industry just always figures out how to rise to the occasion. And you know, I'm kind of reminded, you know, if you go back to COVID, what was it? March of 2020?
Speaker 2:Yeah.
Speaker 1:And you know the kind of world one day flipped on its head and everybody in the construction industry is going. What you know? What are we going to do? You know we physically have to be on job sites. We, you know we have to work close together. But if you, if you look back at it, within about a week contractors had figured out how to adapt, right, I mean, they were, you know, they were figuring out how to get on the job sites, how to do it and maintain distancing. But contractors always seemed to kind of rise to the occasion and solve the problems, and that always just kind of attracted me to the industry.
Speaker 2:That is. That is like wonderfully said, right? Because, as you're saying that, I'm thinking through conversations. I mean, I don't know, kevin and I had, and there are peer groups had about like how are you doing this? We did this and it didn't work. And then just the idea. The idea start generating and we're just solving problems. It is probably part and parcel to what we're doing generally. And so, throwing a curveball, it's a curveball, but we tend to hit it.
Speaker 1:Yeah, it's a curveball every day in this industry.
Speaker 2:Right.
Speaker 1:Right. It just amazes me how we just figure out how to persevere, you know, through grit, you know it's just to get it done. I can do get it done kind of industry.
Speaker 3:Yeah, One of your bullet points for what we're about to talk about is define operationally successful. What you said about smart, like defining smart, what beyond book smart IQ? Can you solve these problems? Can you troubleshoot with a group of people and get this thing built on a very tight schedule? That seems pretty darn smart to me if you can do that.
Speaker 1:Yeah.
Speaker 3:And what is that definition?
Speaker 1:I mean just look at some of the stuff we built the bridges and the highways and I mean it's just amazing to me that how do you get that done?
Speaker 2:right. Sometimes we see these scroll moment, but there's a building down in Austin. I forget what it is, but the concrete structure looks. It looks like the building's about to fall over.
Speaker 3:In where it's in Austin. Oh yeah, because you got that spiral Rolex building in Dallas too.
Speaker 2:Yes, that kind of just in this, these columns in there like dissimilarly situated, and it's just like when you drive by, you think that's going to fall down. It's not. Obviously, though, and the point is, somebody came up with this crazy idea, and then they sat around a conference room table and said how do we do it? How do we build it, which is probably not too different from when they sat around and tried to figure out how they're going to build the Parthenon. They're like how do we do this?
Speaker 1:I don't know, just get started.
Speaker 2:And they just get started and they just pencil it out on some tablet or something and it did something amazing.
Speaker 1:We'll let the design catch up. Yeah, it always does, right? Yeah, that's right.
Speaker 2:That's been the case for eons, yeah, yeah, well, one of the things I think we dig into there's a couple of things, big topics, but you've seen a lot of contractors over the years and so we'd like to mine your information as to what. What makes good ones, what makes them successful, what are some characteristics, tips, anything we can sort of mine your experience to share with our listeners about that. Now I'll kind of toss a softball at you there and we'll see where you hit it and we'll pick it up and go wherever it goes.
Speaker 1:Yeah, I think. I think, when you look at it again, labor intensive companies, the thing I always look at is their ability to consistently, on bid day, be able to kind of accurately or fairly accurately estimate, you know their labor costs to do a project. You know operationally successful companies Typically you know it starts way, way, way upstream in terms of even what projects they select in knowing their sweet spot, knowing which pitches to swing at, which jobs to chase. You know they're very selective. You know in a good economy most successful firms are turning down almost as many opportunities to bid as they take.
Speaker 1:And I always jokingly tell people the two most profitable jobs that you're going to have every year are the two crappy ones that you choose not to take. Right, and if you go back and look at most contractors that in any given year you know it's usually two jobs. And I don't care whether you're doing you know 500 million in revenue or you're doing you know 50 million in revenue, it's always two jobs. And you know. If you go back and took the revenue and the cost and you know if you did make any margin on it out of the mix, you know you'd probably be 80% the size but making, you know, 125% the profit that you would have. And so part of it is just that ability to be selective, you know, not to feel like you've got to go after everything.
Speaker 1:And you know, if you looked at a lot of my LinkedIn post, a lot of it is just kind of around, you know, mitigation, risk and up front making sure that you're not just taking something to grow the top line. So yeah, that's one of the things I see about operationally successful companies. The other is just kind of a passion around understanding that you know the only thing that your clients pay you for is when they install work in the field. And you know, sometimes we get that backwards and we kind of look at the org chart with the president and the CEO at the top and you've got a COO and you kind of get down to kind of the field level where you've got foremen and workers. But you know, in really operationally successful companies you know they really flip that org chart upside down and the people in the office that aren't installing widgets or building things really realize that our job, the only reason we're here. Clients don't pay you for what a project manager does. That's right.
Speaker 1:The clients don't pay you for you know the great job of leadership or the great invoices that your accounting department sends out. The only thing they pay you for is work installed right. So one of the things I've noticed is just kind of this you know really successful companies kind of glorify the field. They understand that, you know. You can kind of see it in how they treat the field. You don't feel the wall or the barrier between office and field that you know so many companies have. But I think you know that's almost a. I don't know if that's a cultural thing, I think it is, you know. And certainly if the business owner is somebody that came up through the field, they have a little bit better appreciation for that because they've lived in that environment a little bit. But I think that's a big part of it.
Speaker 1:There's no substitute for great people, you know. You asked me what makes operation success. Successful companies, you know, successful. I've always said that really really talented people can overcome average or crappy processes or even average and crappy strategy. You know great processes and great strategy can't overcome, you know, average or crappy people and so yeah, so I think you know good people and I mentioned we've got a compensation practice and then, generally speaking, you kind of get what you pay for in this business and you know if you try to go cheap and you know you're trying to save $10,000 on a hire of a project manager, you know good project manager or bad project manager can make or lose you $10,000 or $15,000. One, you know, bonehead decision right.
Speaker 2:Yeah, skin and afternoon. Yeah, yeah, exactly, yeah, that's right.
Speaker 1:So you know those are some of the characteristics. Successful companies have pretty consistent process. You know, over lunch we were talking, they don't, you know they don't have the three inch thick SOP manual that says here's how you dot every I and cross every T and fill out every form. But there's probably six or eight things in their company that they really strive hard and focus to create consistency around how they do them and those things really get down to how do they best put the field in a position to be successful and profitable and productive on the job.
Speaker 3:I want to lean on the shop and field one. You know the craft professionals, because you and I were talking about this off air a little bit and we have our work cut out for us to flip that script. If you're trying to do that as a company and you take one swing at it and it's not fruitful, keep trying. You have to consistently show that they're valued and they're everything, because without them you're nothing in an office position and you have to show it repeatedly because we've earned as an office, multi generational distrust because of how they've been treated for the most part, and sometimes it takes showing the same person generosity or caring several times before they find out they're. It's not a hoax, it's not fake, there's not a yeah, it's not selfish. That you actually care might take a while to nurture.
Speaker 1:Yeah, when I know Dallas and Texas in general isn't a heavily unionized area. But when you get into some of the areas up north or in areas where unions are very prevalent, it's even a bigger challenge. In those environments, right, We've got a union workforce and you know you're trying to bridge that gap between office and field, because a lot of those guys their loyalty lies with the union versus the employer in many cases, and so in that environment it's even it's even more challenging.
Speaker 2:It is interesting. I've never thought about the union. I think about unions a lot or more of these days than I used to, but I never thought about it. Creating that office field rip because of where the loyalties lie in the union. That's an interesting observation. Tell me, I want to. I'm going to go back to creating consistency. One of the things we talked about at launch was, as a lawyer, my instinct or my bent or my, frankly, preference is to have a giant stack of rules and this is how we do things and it's in the book. And you said at lunch what you said just then all we're trying to do is you need six or eight to create operational consistency, to which I thought, oh boy, that's feels like a laser beam into my soul there. But I was going to say more about that, right, because we talked a little bit about how you do it, the repetitive nature of needing to all this stuff. I want to lean into that idea.
Speaker 1:Yeah, if I had a dollar for every time I received a phone call from somebody says hey, we want you to come help us put together an SOP manual. And my response is well, why? Well, we need an SOP manual, right? Well, no, you really don't. What you need is a group of people doing a few things that really impact the outcome of a job consistently. That's really what you want, right, and an SOP manual isn't going to accomplish that. And so you know, our focus, kind of what we've learned, is there's, there's, I don't know. There's a handful of things. I jotted down some notes here on a few of these things, but there's a few things that we think any trade contract or anybody labor intensive really, really needs to have a little bit of consistency around. And if you guys want to dive into that, a little bit, we'll kind of go.
Speaker 1:We'll kind of go through those and you can kind of stop me along the way if you want we can talk about them. But it really starts upstream with, you know, some consistency around kind of go and no go. Which jobs are we going to pursue? What are the criteria or filters that we're going to run an opportunity through? And you know we're big advocates of trying to make fact based decisions, fact based, data driven decisions in this industry. You know, if you've lived in this industry for a while, you realize a lot of contractors are gunslingers. They make gut from the hip decisions.
Speaker 1:Oh yeah, but we found when you, you know, when you go back, when we're working with a company, one of the first things we do is go back and look at two or three years worth of completed projects and we kind of look at you know kind of, what was your bid day margin, what was your final margin, what was your labor estimate with all the change orders included, what did you actually spend on labor? You know every direct cost item. What was your? You know what was your anticipated spend, what was your actual spend. And when you go back and look at that, you got to be a little careful. Some contractors just look at margin gain erosion and you can kind of be right on your bid margins. But when you peel the onion back, what you often determine and this is pretty typical with most trade contractors, certainly with like mechanicals you know their margin comes in pretty close to what they thought at bid day. But when you kind of dig into it what you find out is they overran their labor budget by 15% but they saved 15% on material cost and you know that'll tell you a lot about.
Speaker 1:You know, one of the things we found is you've got to make sure that you know and estimate your direct cost as closely as you can on bid day and so you know the go-no-go decisions. There needs to be process around that. Estimate what I would call estimate reviews are having operational input, at least in the larger, higher risk jobs. Before an estimate goes out the door, somebody from operations ought to be involved in having some eyes look at that to make sure production rates look reasonable. Is there anything you know? Just an extra set of eyes as the filter before it goes out. We believe there needs to be some process around that and you probably don't need to do that on every project, but certainly your larger, more high-risk opportunities. You want that you know that also creates a little bit of operational buy-in so that if and when you land the project, you know Ops isn't pointing at estimating and blaming them for leaving something out. And vice-versa.
Speaker 3:Yeah, they will right.
Speaker 1:Right. And then you know where we really see. The big opportunity for most companies, for just about every company we work for, is kind of in that period of time between award and mobilization. But you know pre-job planning. You know how early is your field manager involved, how deeply is your field manager involved. You know how early does that superintendent or foreman or whatever you call the fellow that's running that job. You know in the field every day how much do they know before they hit the ground. You know setting up the budget. You know making sure that you've got a way to track production. You've got. You know you've got the right number of buckets, the right number of cost codes, not too many, too few, making sure the field understands hey, when I, you know when I work on this activity, this is where it gets charged. But you know getting budget set up. And you know one best practice that we see often is almost a I'll call it almost a re-budgeting process that when estimating hands over to the project management and team, the project manager and team kind of go through another pass of the budget and one of the most successful clients I have they have a 30-day rule that once that project gets handed over from estimating. The project manager and superintendent have 30 days to vet that. If something doesn't look right they can raise the flag and but at the end of 30 days we're going to have that budget set and we're all going to be in agreement that this is what Par and the golf course is going to be right and this is what we're going to measure against. So so, budgeting, pre-job planning you know some trades, depending on what you're in prefab. There's a big component into that and I don't know if you guys have had anybody in your on your podcast talk about prefab. But you know we're pretty convinced you're going to see a lot more manufacturing in the industry.
Speaker 1:Five years now, 10 years from now, then you do some of it's an answer to the labor shortage. You know producing in a controlled environment versus a field. Um, you know labor. You know labor tracking and productivity feedbacks another process. You know how are you going to make sure the guys your foreman or four women, to be politically correct, but the people running your labor or managing labor how do they know every day, how do they know every week, Are they winning or are they losing, are they ahead or behind? You know what's par on the golf course? Am I, you know? Am I too over? Am I, you know? Am I under par? But it's just amazing to me in a business where labor is managed by our foreman, how oftentimes our foremen are in the dark. They don't have the information, and then you know at the end of the project. When it goes bad, we kind of point to the field, blame the field, but we never gave them any information or the right information to manage their job.
Speaker 2:So I'm going to, let me jump, yeah, tell the story. We were talking at lunch where there was a I forget the job was, it was going wonky and the former comes in and the CFO says well, look at these reports. Yeah, so the story.
Speaker 1:Yeah, yeah, years ago I was working with a mechanical contractor up in Virginia and we were helping him implement some of this process stuff and happened to be up there and they were talking about this one project that was, you know, really going sideways. And you know, they they started to have some pretty significant write downs on it and so my suggestion was, hey, we got a couple hours this afternoon. Let's let's kind of bring the team and the project manager, the estimator, the superintendent, everybody involved in it and let's kind of put our heads together and figure out. You know, we still have, I don't know they had still quite a bit of work to do. You know, if you just kind of straight line the projected loss, it was going to be a pretty ugly situation. So you know, the objective was can we stop the bleeding or slow the bleeding down?
Speaker 1:But I remember bringing the foreman in and one of the first things that the CFO kind of threw up on the screen was kind of a graphic from their job cost report that showed them basically how much they run over on labor on these various activities. And the foreman looked like a deer in headlights and in his question I thought this was just this. This kind of brought it all to clarity. His question was guys, you know I'm nine months into this project. Why is this the first time I'm seeing this Right and he's out there working his butt off? You know, he's in the battle every day assuming no news is good news. And all of a sudden boom. And the ironic thing was they had data, they had information, but it wasn't getting down to the field level, to the guys that could control it or do something about it. But that's pretty typical.
Speaker 2:I mean, I don't have a lot of insight as to what it's like inside the walls of organizations that are labor intensive, but I would guess listeners some of our listeners just had a like aha moment. They were like, yeah, I've never showed him those reports, right, because you in in, so that when you said that today I was just like man, that is, if there's no other nuggets, there's a good one is, if you expect people to be held to some sort of standard, they need to be advised as to where, how, where par is on the golf course and how we're shooting.
Speaker 1:Yeah, yeah, I mean. Another story that comes to mind. I think our industry's come a long way since this. But early in my career I remember working for a big site contractor and I asked the question of hey, do you guys up front, you know, do you share with your your form and it's run this job out here? You know how much labor, how many man hours he has to get this job done? And they kind of looked at me and said, are you crazy? We'd never share that with him. And I said, well, what, why is that? And they said, well, if we share it with him, he'll use all of it. And I remember laughing because we had done some analysis on their company. My response was Well, he's already using 125% of it. So if he only used all of it we'd be in a lot better shape, sounds like so good bottom line games.
Speaker 2:Yeah, that's your concern. We should implement it immediately.
Speaker 1:Yeah, yeah, we've got so literally we trust people out there to manage millions of dollars of our labor, millions of dollars of you know, pretty sophisticated equipment, but yet we don't trust them with basic information to to manage the control of job. I think we've come a long way since that, but that I'm always reminded of that old story.
Speaker 3:Man, it's a defined smart thing, it's. It's a respect thing, it's it's a lot of things roped into that. Yeah, that's kind of built into a cultural distrust. Pulled a rug at the very end. Well, you failed Really. Yeah, the building looks great. What do you mean? I failed? It's not leaking. We're doing good.
Speaker 2:Yeah cost overruns buddy. Yeah, what, what costs?
Speaker 3:And who doesn't want to win in this world. Like, like, if you set a target, that's feasible, because that's another area where somebody will be like you just got to set 100 a day and we'll win. They're like, yeah, that's impossible, Like right, I'm going to disregard that. But set realistic goals from the beginning and celebrate them. If they had a good week, hey, great week. Let's capitalize on that.
Speaker 1:Yeah, that's, that's the other thing too you ask. I mentioned it briefly, but successful companies are pretty good at estimating and one of the things they rely a lot on is yeah, I can't tell you the number of times I've asked an experienced estimator hey, how do you, how do you actually come up with the amount of labor hours that you're going to put in that job? Right? And the response is well, look, son, I've been doing this 30 years. I know what it takes to do it right, always laugh at that, right. And and one of the things that we see successful companies doing is they're pretty good at collecting real production data on jobs and mining that and feeding that back to estimating so they have some idea of what their actual production is. Because I can guarantee you, with all the variables today, the world has changed, but production today doesn't equal production 10 years ago or five years ago or heck. I've got people that tell me, even post clove it, you know, production rates still aren't consistent with what they were before.
Speaker 2:So what's the? I'm going to ask a third or fourth year question here, but in terms of okay, that's, let me back up, miss, come out a different way. Managing that, monitoring, that measuring that is a characteristic but successfully, operationally successful contractor Got it. What's the blocking and tackling of doing that? I mean, we're only. I'll even come at it from a different angle. One of the things I've learned over the last 20 years is speed to blank kills, speed to cash kills, speed to information kills, etc. How do you go about practically gathering that data, storing it and then eventually mining it for this information? What's the, what's the way to do it?
Speaker 1:Yes, some of it. Some of it is kind of the ERP system they have. Okay, but most firms now have, or most ERP systems now have, some sort of you know ability to enter from the field. And the key, one of the big differentiators to me is that I always look for is when a person enters their time, first of all. Are they entering time daily or weekly? Right, and in some companies, if you see people at the end of the week during your time, I can guarantee you that's not going to be lined up it's wrong.
Speaker 1:Yeah, it's wrong right and so you got to do it. You know you got to do it daily. But the other thing is, along with that time there should be associated quantities or units that you've installed. Associated with time because, if you think about it, there's a lot of contractors that complain about productivity but they don't even measure productivity. Because you have to include installed units or widgets and and you know they'll enter their time and charge it to code, but they don't. They don't enter, you know they don't enter the units. So you know one of the ways around it and I'm just thinking of a. You know an example with a current client. But they, they entered their time they're forming, entered their time at the end of the day on a cell phone or a device. But their system, for them to be able to submit their time, they have to submit quantities with it and it won't take their time. So they don't get paid if they don't do it.
Speaker 2:Okay.
Speaker 1:But in that system you know I'm sure people pencil, whip it and you know people kind of you know either juice the numbers a little bit or they're off or they don't really know. But in a system like that I think it's always a project manager's responsibility that at least you know once a month, once every couple of weeks to kind of trust and verify and to physically go out and walk the job with the foreman and verify the quantities that have been reported or the work has been reported is actually installed, and so it's kind of a you know you try to get it reported by the field, but the PM should have some trust and verify responsibilities, apparently to go out and walk the job and really see what's in place. And if you rely on the old you know kind of eyeball of somebody looking at something and saying, hey, we're 50% complete, without tracking the units, I can tell you're going to be wrong most of the time.
Speaker 2:Yeah, you're. You're garnering or gathering or forcing people to enter data. That's garbage. Yeah, so you're getting. When you go to mine that data for helpful information, you're getting garbage.
Speaker 1:Or you know worse than that your project managers are doing their monthly cost projections, or cost to complete projections off of bad data, and so you're going to have really crappy projections. And you know, when you see contractors who have jobs that go bad at 80 or 90% complete, that's probably what's going on. Jobs don't go bad at 80 or 90% complete. They were going bad at 10 or 15. We just didn't know it. We didn't have the right controls, we didn't have the right tools, we didn't have the right processes in place.
Speaker 3:Yeah, so I was going to ask something specifically on that, but from a different angle, with I want to figure out how to solve why the last 10% of the job cost 25% of my budget. So we we actually have like installed everything per metrics and and then it gets to the punch list and then there's like 17 rounds of punch lists and then, for whatever, I'm in the glazing business. So we're there until certificate, certificate of occupancy.
Speaker 3:We're going to have at least one person there at the very end and technologies advancing to a level where everybody's got a tablet, entering punch walks as they go Like what's that? Is there any hot tip on how do you make the that costs drive down a little bit the very end?
Speaker 1:Well, I think, I think there's a couple of things going on right there. All right, you're. You're kind of a trade. You know, if you're a finished trade, that you know you're the last thing that people see before they accept the building. Right that that adds to some of it.
Speaker 3:But you know, congratulations.
Speaker 2:Yeah, yeah.
Speaker 1:But the other thing is is just emotionally, especially if it's a large, long-term project. You know, one of the things I think people that work in construction like about it is you know, there's always that next project to go to. And usually if you're in a contractor's office, I can always tell you when they land a new job they ring a bell, they have a celebration, you know, something goes on. But contractors get really excited to land a new one. I very rarely I don't think I've ever been in a contractor's office where I heard somebody come out of their office hooting and hollering hey, we finally finished one. Right, yeah, think about that, are you right? Right, you know we don't. And I think, but part of it is an emotional thing. If I've, if I'm a field guy and I've been out on a job for 12 months, 15 months or whatever, whatever long is for the kind of work that you do, emotionally, there's a point where I start kind of saying, hey, I'm kind of bored with this, I'm looking for the next one. So there's kind of an emotional, there's kind of this emotional slowdown of what goes on and then, if they don't see where their next opportunity is right, people kind of have this hey and I think it's human behavior just says, hey, I'm going to preserve what I've got as long as I can because I don't see the next opportunity and nobody's talking about it. And so you know, I think that's a function of it. And then you're. You know you're past. You're past all the high production work. You're doing odds and ends. You know you're not very productive on it. So there's a lot of things there that can cause that to happen.
Speaker 1:But one of the things you know from a process standpoint, I've got a number of clients that do what they'll call a job closeout or they'll call it a kick finish. You know, kind of you know, when we hit that flat point at 80, 90% complete and stuff starts to really slow down, they'll bring the team back. You know they'll kind of outline what are all the minutiae details of things that got to get done. And some of them are project management things like hey, there's a bunch of change orders hanging out there. Some of them are field things, some of them are warranty, you know, some of them are punch list kind of stuff.
Speaker 1:But they, you know, they kind of bring the team back together and do pre-job planning for the last 10 to 15% of the job, just to kind of re-energize people and, you know, try to reset the budget and say, hey, what's it really going to take to get over it? But they look at that last 10 or 15% like a little job in and of itself. Yeah, it kind of plan it. Otherwise, you know how many times have you heard hey, a couple more guys, a couple more weeks, a couple more guys, a couple more weeks.
Speaker 3:six months later, you know, a couple more guys, a couple more weeks, the cost to close has been the exact same amount for three to five months straight. That's a very real thing as a finishing contractor.
Speaker 2:The kick, kick, finish. What'd you call it Kick?
Speaker 1:finish. Yeah, I like that idea there. Yeah, get it over the finish line.
Speaker 2:Right, let's bring it back in. Energize us to finish strong. I like that idea. I like that idea.
Speaker 1:I've got a client that uses football analogies, you know, and on the front end it's kind of their, you know it's kind of their week of planning. You know their pre-planning is kind of before the game. You know they've got some timeouts throughout the game which is kind of their short of their weekly planning, but then they always have the Tom Brady two minute offense right when we get down to the last two minutes of the game. You know, how are we going to energize this thing? And that's kind of the same concept Kick finish. I get it over the finish line with as much energy and passion as we can.
Speaker 3:Yeah, and if you're proactively communicating, because some of that stuff is outside of our control, like if the GC owner and architect decide there's going to be 17 rounds of punch list, how can you cut that off before it starts? And say hey, we're going to do this one time collectively because X, Y and Z need to be present for this. Yeah, it's part of our QAQC program, Something proactively to just make one lap around the building rather than redundancy.
Speaker 1:I had a drywall contractor a few years ago out west that really did a good job, that they'd go out with their PM and form and they'd walk the job. They'd make a list of everything that they had to get finished to be like done, done, done. I mean it was down to detail. And then they put kind of a list of labor how many guys, how long to kind of get a labor budget. They called it their walk off budget. You know what, what, you know how many hours we have to complete all this. And they let the form and be really involved in it.
Speaker 1:But usually in that list there was also another list they create to say, you know, they go to the general contractor and say, hey, you know, we want to get off this job, here's everything we gotta do, right, and it was pretty thorough. But they said for us to do this, this and this, that mechanical contractor has to do this, this and this first. And they give them a list of things that the other contractors would need to do and they said it didn't help have help in all situations. But a lot of cases it help. The gcs go to the mechanical, to the other contractors on the job and say, hey, you know, here's some things you guys gotta get done and they get out ahead of it a little bit, but they were very proactive with it you effectively put a piece of paper in their file.
Speaker 2:that's going to cause some trouble down the road if they don't do that, as opposed to like the just lingering or mullingering ending I can't do anything until he buttons that up, and waiting on you Is effectively what's in that file now. Not to do it now because I don't have to deal with that at the end of the job now.
Speaker 2:That's interesting. I keep thinking whether or not there's a contractual mechanism to stop it from lingering like that too. We can take that offline, though. Is it like the idea of like programming into, like that close out that the two minute drill, like programming the two minute drill into it To keep the to prevent the six month long punch walk? Technology is an interesting overlay to write, because that what you don't have a six month long punch walk in nineteen, ninety, nine, because you don't have a tablet to take every picture every time you bump into something like oh dang it, we bumped into that big click and now it's on the list. Oh my gosh.
Speaker 3:You did it once. There's an opportunity, though and that's what I want to flush out to look in the mirror. You have more control than you think the easy button is just saying well, the gcs doing that. Yeah, well, what did you feed them? Have you fed them anything? What are they assuming that you're not communicating? There's a lot.
Speaker 1:I tell you the thing I see recently around that to that's this kind of exacerbating. That is, when they start adding change orders late in the project, right and and you know change. Or there's actually some couple Canadian guys that did some research on change orders. What the impact on productivity is all about, and one of the things that they learned in that is your productivity. The more change orders obviously have a job, the more your productivity, entire job is impacted and the closer those change orders are to the end of the job versus the front, even a magnifying effect. And so you're. You know, you're bidding all that change order work and trying to get it done at the end and you can never find the end right. It just you know there's no change tonight. I'm absolutely convinced that there's some General contractors and maybe even some owners that have figured out they can buy work through change orders cheaper than they could have bought it on bid day, right which sounds reverse, e that sounds like the exact opposite, but not understand what you're saying.
Speaker 1:Yeah, yeah, I mean how often you know how often does the trade contractor when the change order game and get paid fairly for what it's really worth. And you know all the, you know all the.
Speaker 2:the costs are hard to calculate but there's an estimating over to that to then I mean I'm thinking out loud, right. So this ends up in a spot where you're like, let's do sorry in advance, but Right, like because if you understand that the compressive nature of the product, of productivity impact of late change orders, yeah, but you're still pricing them straight up and down, yeah, you're losing, whereas if your S Any team almost needs to have a different approach to change orders as the job progresses, because you need to have a better understanding of the. That. That's research in that study and knowing that, well, this one that comes in we're only gonna At that point in the job. We only installed seven widgets per day, not fifteen like you normally do pricing that in at Ninety.
Speaker 2:nine percent of people who just heard me ramble through that thought it was stupid, but one percent of them thought, yeah, we never thought of that before yeah, no, that's, that's that's accurate yeah, I laughed out loud while he's talking, just closing the sentence, when he said Well, canadian researchers try to tackle change orders and they determine.
Speaker 3:in my head I was like change order stink that's what they did that's what they did.
Speaker 2:It's sermon.
Speaker 1:They determine terrible yet you know, it's funny cuz depending on which side the fence you sit on, general contractors and owners are convinced that trade contractors are absolutely getting just you know, making a ton of.
Speaker 2:We've all seen that boat. Right, it's like the, the, the, the boats name change order in the little D next to the contract. You see that picture Could be for the. There's one of those down. There was a really change order boat.
Speaker 1:But the unfortunately that was owned by general contractor though so there's the twist, the trade contractors got a little dingy, maybe on the back or something, but but yeah, that's, it's a, it's a huge issue.
Speaker 2:Yeah, we got ourselves in the district is that stuff. Thinking about how the Canadian research about change orders, they're pretty good.
Speaker 1:I'll be the headline in our magazine next week, or yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah.
Speaker 2:Let me, let me try to pull us out of the dish cuz I think we have a couple more bullets before we head on to the next topic. But one of the things here is what do operationally successful contractors measure?
Speaker 1:and in my little baby lawyer mind I think, well, we talked about it widgets and time but my guess is more complicated than that yeah, it is, and you know there's a handful things, but one of the things, conceptually, I mean think about it if, if you were trying to improve productivity. Think of a personal example like your weight. What would you measure if you were trying to improve your weight? Well, most people say, well, just jump on the scale every day and see if it's going down. Well, when you jump on the scale, you're looking at history, right, you're looking in the rear view mirror and yeah, there's that. There's the day to day things you gotta look at, like job cost reports, your production, your units in your widgets.
Speaker 1:But one of the things that we are big believers in is that you gotta get back up stream and measure compliance to the things that you know drive project results. So, those key processes we talked about, part of it is just measuring compliance to key processes. You know, hey, we started this big job. Did we really follow the pre job planning process as we kind of laid it out? And it's no different than diet and exercise, right, if you really want to lose weight, measure your, what you're putting in your pie hole and your exercise right.
Speaker 1:And so most people focused on yeah most people focus on the tail end and I tell people Productivities a result, it's a byproduct. If you're measuring productivity your way too far away, you gotta look at the things, and so Compliance to key processes is one of them. You know, obviously, your job cost, your actual versus budget direct costs for everything. You know your productivity. You know units per man, hour man hours per unit. No change orders. You know the clients that I see manage change orders relatively better than others. One of the things that they manage is is what they call total dollars, a margin at risk. So Think about this how often do you actually have a sign, an executed change order before you do the work? How can you do that?
Speaker 1:contractually every time yeah yeah, practically, but it also says that you have to proceed.
Speaker 2:Add direction, yeah, direction, yeah the attorney the attorney is coming out and now yeah, yeah. But I mean, I think for my experience in my last few months, sixteen months, the answer is never. Yeah, seems like never so.
Speaker 1:so what happens? Once you've done the work, you spent the cost, you've given up? What Leverage?
Speaker 1:you have no leverage right and so if you look at it, the you know that point. The general contractor has no incentive to get that off the table or to deal with it until as long as they can. Now you think they were, because their fees on top of that to write so Just kind of amazed me a little bit, because you know they're passing. If it's it's a change or it's gonna be passed on the client, they should be scooping that thing up early because they can put their margin on it right. But a lot of times it's not and so you know, give up that leverage.
Speaker 1:But I've got clients that every month one of things they measure is the dollars of cost that they spent On every project without a sign changer and they they post that by project manager. So you have, you know, your six project managers lined out. You have a graph that spans twelve months and it's just kind of a. You can kind of look at the trend over time and see is that mountain growing, is it falling off? And there's gonna be times where it goes up, where there's a big change order that hits and it takes a month or two to get resolved. But measuring we call it dollars, a margin at risk, because that's what it really is. You've chosen to do the work without a change, or and it's if you don't get it resolved its margin, that you're gonna lose, right? That makes sense a hundred percent.
Speaker 2:yeah, I was thinking through. Every once in a while I try to take the ideas we think are with you on the podcast and run them through my Add a law firm mind and I was thinking about how we used to do productivity reports, productivity and a law firms differently, but but you could see like that guy's not working yeah, and it became. It seems like a little. What's the word I'm looking for? The chastising someone else, but it In the right environment. It's not in the right environment.
Speaker 2:It's encouraging because he's a man, I see you gotta leave out, you gotta lagging. Whatever, there's some going on can help you with that. What's it? We need to get that off. Is a post like Brad's a moron you can't get his change or is executed? Look at that thing. You know it's, you can. It could go either way, but I don't necessarily see it as a negative.
Speaker 1:The other thing. This might sound subtle, but Don't, don't, don't try to teach people to manage margin. You can't manage margin. Margin is a byproduct. You manage cost and if you manage all your cost at, or better than budget, margin is what margin you put on it. Right, it's just a byproduct. And so I see a lot of contractors that kind of focus on manage the margin. Well, no manager, labor budget manager, material budget manager, equipment budget, because if you meet or beat those budgets, margins gonna be. Whatever you price a job to make in the beginning, right it. And quite frankly, usually the PM or the field people don't have anything to do with how much margins put on a job. So you know, I always tell people, reward and measure your project managers around their ability to consistently meet or be or get pretty close to budgeted cost on jobs.
Speaker 2:That's interesting yeah yeah, one of the go ahead go.
Speaker 3:No, it's just thinking my head that we try to get material buyout just offset how much we're gonna go over in the field. This is it. Is this like a known yeah? Unfortunately we don't allow that.
Speaker 1:We say don't allow that, don't, don't, don't allow a bunch of savings on material cost over to offset labor. Is what what? What you're really running into is if you look at it. I share this data with you guys a little bit earlier. But on average most people underestimate their labor cost. To do jobs right usually take some more labor than they estimated Material they usually save, except during kind of the material price escalation period time.
Speaker 1:But that's normalized a bit and in a lot of contractors kind of say well, you know that savings and material is gonna be used offset labor. But here's where the rub is is, if you think about it, you're underestimating labor, overestimating material. If you continue to do that, what kind of projects is it gonna steer you to picking up? Well, it's gonna steer you to picking up large labor intensive projects where you lose your butt, right. If you're underestimating labor, overestimating material, it's gonna keep you from getting material intensive products. Right, you know project that's got a little bit higher material component to it, and so we were big believers that labor has to stand on its own, material has to stand on, and we saw that real clearly. When you know when material prices start to escalate, we started getting a lot of calls hey, we no longer have that cushion to offset the labor. Now we really gotta manage this stuff right, and that that's been kind of a two year run for a lot of people.
Speaker 3:Oh yeah, and historically at least for us, shop Also crushes it. To your points earlier about controlled environment yeah, especially in manufacturing, when you have station to station, like when it leaves you have this prefab panel comes here, you have to install every opening in that panel. That day your metrics are Almost perfection because it needs to cure. To go to the next station the next day, yeah, my goodness it. But if you don't know that you can only set to per day and it's not a field metric of eight, if you bid it like eight, you don't understand the prefab process. You're gonna be in deep, deep trouble. Yeah, but yeah, they should all stand on their own. But yeah, I want, I want the heavy material type projects, low labor for sure yeah, like just insanely expensive glass that you can snap in, like that's where they all kind of just snap in.
Speaker 3:They say, if you're a glass guy you could break in any building.
Speaker 2:Really, oh yeah that's why you're always tinkering to see earlier.
Speaker 3:That's why you're always an entry strategy.
Speaker 2:yeah, how do I just snap these clips off and get daddy here?
Speaker 1:I'll show you on the way out of the chase is a lot of bank work, right? Yeah, that's right. Whoa, whoa.
Speaker 2:Before we move on from this segment, I feel like we might have missed something I want to come back to, because one of the things we're talking about earlier was the idea of how do you push this operational change and the you know the idea was will you I jokingly, I think I jokingly said will you say it once out loud and you yell at people when they don't do it right?
Speaker 2:yeah but there has to be a way to. If we're gonna go from us six inch thick s o p manual to know we're gonna really just manage to six or eight things, then you have a cultural overlay and a process management overlay and a change management overlay. That I think is important, maybe to discuss a little bit here. What are y'all experiences around Implementing those change management processes?
Speaker 1:yeah, great, great question. Contractors by nature just impatient people. Right, we want to snap our finger today and have it tomorrow. That's just kind of the nature way we're wired, and and one of the things that I've really learned over time is you can put, you know, a few smart people around the table and probably an hour to whip out a pretty good process. Right, you can get a map. Doubt, you can have the detail. Here's the, here's the tools, here's the templates that we use. You can do that really effectively.
Speaker 1:But changing behavior and getting people to use those processes consistently Takes a heck of a lot more time, and contractors really aren't good with just basic. I'm not talking about change orders, but change management. You know basics and so what they do is somebody puts out a memo and attaches the procedure of the process to it and says, hey, henceforth and forever more, here's how you need to do it, and in six months later they're like wonder why nobody's doing it. But there are. Change management is an art. You know there's, you know there's research around it. There's, you know there's a lot of. There's a lot been written about how do you implement change in a big organization and in one. It takes time and there's a lot of components to change management. One is, you know, just getting by and get you know who are to be helping you develop the processes of the people that you expect to be using right there to be involved in that. So you got some front end buy in.
Speaker 1:But the other big thing I found is when you start rolling out new ideas and concepts to people around process, you really have to spend an extraordinary amount of time around the why. Why are we doing this? You know otherwise they think, oh, it's another piece of paperwork or it's those accounting Nazis that are asking me to report more information because I can't, you know, or I won't get my paycheck. But I find sometimes we just miss the opportunity to clarify the why. And you know why are we doing this pre-job planning? Why are we asking you to track units and widgets? And you know, plug that in and turn it in every week. You know why are we asking you to sit down and put together a formal weekly plan on your job? If people don't understand the why, they're never going to kind of really fully buy into it, and so some of it's just around following concepts of good change management and change takes time right. People don't just change overnight, and the mistake contractors make is they want to snap their fingers and have it all done tomorrow.
Speaker 2:What's the best tie-in for why? This is, maybe we kick this around or maybe I cut it out. I don't know where it goes, but, like, do I tie in that why? Why are we implementing this change to cash? Or do I try to tie why to core value? Or do I tie why to operation? Like, where do you what's the best place to take why? And connect it to.
Speaker 1:Yeah, I'll tell you where I start is again, go back to the idea. Let's use some round numbers. Let's use a drywall contractor. They're pretty labor intensive For all intents and purposes. If you're doing 100 million in drywall revenue, you're spending about 50 cents of every dollar on field labor. So easy number 50 million bucks of field labor.
Speaker 1:The why, the why should be how is this going to impact that 50 million dollar your labor spend? Because if I can impact that by 1%, 2%, 3%, right, those little whys of tying it back to labor has earth shattering impact on the bottom line. So, 50 million in labor, let's say you can impact at 5%. What's that? 2.5 million bucks, I would tell you, in most contractors that's probably going to get close to doubling their bottom line. A 5% change in labor productivity for a drywall guy will typically double their bottom line.
Speaker 1:And then you have to kind of take it a step further of hey, that's how we fund raises, that's how we pay bonuses, that's how we invest in equipment, that's how we train. You've got to tie that back to the individual employee because they'll think, hey, that 2.5 million bucks of impact is going in the owner's pocket, which it's not. But that's how we fund growth, that's how we fund training, development tools, all those things. So that's kind of how I connect with dots is everything I'm doing is to try to figure out how do we produce that 100 million dollars of revenue? It a little bit less labor cost, right.
Speaker 2:And then return that value to the stakeholders, et cetera which don't necessarily mean owner, equity partner, esop. It means that's how you get your bonus, that's how you get a new widget tool that we've been sort of pining for for two years.
Speaker 1:Education training. That's how we invest in new markets and grow. That's how we train our people.
Speaker 3:There's so many wins right. You get to see your family more. You're happier, you're winning the contractor's not down your throat, you're mentally more stable. Because of all those things not happening. It's so profound.
Speaker 1:Yeah, if all these things just take a little bit of frustration and make jobs a little easier and produce a better economic result, just see impact on people's lives over time and just stress it's a hard enough business, right, but we can get there easier, that's worth something.
Speaker 2:The overtime idea is an interesting one too, because it could be a double-edged sword, because you may want the overtime, but in reality, what I'm doing to you is, if we can manage this more consistently and more regularly with the blah, blah, blah, you get to spend Saturday and Sunday at home. I'm not dragging you up here because we're always behind. We do these little things. We do 5% better in labor management. You don't have to be here on Saturday.
Speaker 3:How about that. Yeah, there's opportunity In the long run. There's opportunity Because if you're working 40s, there's most likely a happy client. A happy client wants you on more business. More business provides more opportunity. More opportunity provides promotions. There's a big picture, but if you're not explaining that to people and you're just saying go, go, go, I'm not doing it for you, I'm not trying to do it for the man.
Speaker 1:Yeah here's the other thing. We've been in a pretty good economy for a while. If you think about it. People that have come into this business probably since about 2012,. Probably the last 10 years all they've seen is nothing but good. It's improved, it's getting better, but I will tell you this the other reason behind why you want to be the most productive contractor in your market is whether it's a good economy or bad economy. If you're the lower cost producer in a good economy, you're going to make a lot of money. In a tough economy, you're going to survive and still get work and still be profitable.
Speaker 2:Yeah, there you go. Recession proof your business by being labor productive.
Speaker 1:We've been a little spoiled the last 10 years. Most people have seen nothing but good times. But if you've been in this business 30 something years, you've been through some ups and downs At least two or maybe three pretty hefty downs.
Speaker 2:I hope we don't have one like we recently I guess was it 08?, 08, 09, 010?. I hope it's not like that, but it does seem like winds are blowing a certain direction right now.
Speaker 3:That was a fun time to transition from the field to the office.
Speaker 2:Hey, welcome in here.
Speaker 3:Everything's on fire and it's like South Side of Chicago fire A lot more swearing Everything's on freaking fire.
Speaker 2:Yeah, something like that.
Speaker 1:Yeah, and I tell you, when you get in those areas like Chicago where it's union wages, every percent you change can impact on union wage. That's a big box, right Huge. It's even huge, significant, huge. And on a day a union carpenter in New York City cost the contractor right out a thousand bucks a day, and they only their contract, I think. I think they work a seven hour day is what I heard, but the cost is about $950 a day per carpenter in New York City.
Speaker 3:And that carpenter gets about half, and then union gets half.
Speaker 2:I want to get in the business of being the union. How do I do that? It's like the mafia.
Speaker 1:I know.
Speaker 2:Did you see ditch were instantly. Well, our ditch, not instant ditch, we get an hour. Yeah, what's that? There was a Netflix movie about Hoffa. Did you see it? It was really good. It was, you know, the union ties and it kind of feels like a mob movie and blah, blah, blah. It was really good. I don't know they find them To find out To watch it.
Speaker 3:I think it'd be big news if actually found it. I know, right, that was my attempt at a dad joke.
Speaker 1:And that's why, again, a lot of those union contractors, those guys are pretty productive, they're well trained or productive because they have to be you know when a guy's costing you $950 a day. He better be productive, right.
Speaker 3:Really good. There's a sense of urgency quickly. Yeah, that meter's spinning wildly. You got a crew of 20 out there.
Speaker 2:As we sort of switch over to a new topic, let me plug you Scott on LinkedIn, because you're constantly talking on there about some hot button issues that the contractors are facing. We're going to dovetail into talking about some of those, but if you guys aren't following Scott on LinkedIn, go find him Because, just like with Drew from a couple of episodes ago, scott's one of the follows that when you post something, I click, read more. Every time I'm like, oh, this is going to be good. So there's always hot button issues or tips or product. There's always great stuff on there. So go do that for the listeners. Talk us through as we sort of go into this next segment of hot button issues facing contractors today, like any of them to you that jump out of like this is something that every time I meet with somebody that they're facing or a challenge that they're wrestling with, it's really hot right now.
Speaker 1:Yeah, I think one of the things that we really need to have on the radar screen right now is just around cash flow cash management for a trade contractor and if you kind of look at where interest rates are going, they've been going up and up to this point, holding somebody's money, the interest rate's not been too lucrative, but the rates they are right now we've got to really be thinking about good cash management and one of the things that I've found I'm actually doing a fair amount of training on this right now, just kind of financial management 101 for project managers.
Speaker 1:And helping them understand why is cash flow important? That why right. And cash to a trade contractor is the lifeblood. Payroll comes due every week and I always kind of go through this example. Think about if you start a project on the first day of the month, right, and your crew shows up out there and there's probably some materials that they need to have on job, so you had to probably buy those a month or two earlier. So right about now you're starting to get an invoice for a material supplier At the end of that first week of work. What do your employees in the field expect? What are they waiting for?
Speaker 1:Paycheck, yeah, paycheck, right. So cash out, right. So you do that four weeks through the month. In the meantime, you're starting to get invoices from your equipment suppliers, rental equipment, your material suppliers that's coming in and finally, you know your four weeks cash out, cash out, cash out, cash out. You know, depending on the size of your company, you know that can be a, you know, pretty large amount when you put that across, a bunch of jobs. Well, if you're spending 50 million in labor a year, right, that's a million a week, and in the example used before. But then we get to the 30th day and we finally get the opportunity to do what we build a client right. And the next day they kind of back up to your front door with a brink's truck and they walk in with you know this cash, is that how it?
Speaker 3:works? Oh, of course, every time. That's why I'm in the business.
Speaker 1:Yeah, that has not been my experience as a lawyer, so that invoice that you sent out at 30 days when's that actually get paid? When's that get paid About?
Speaker 2:45 days. Yeah, 45, 60 days, it gets paid if it gets paid.
Speaker 1:So think about that. You've gone two and a half months making payroll every week, paying vendor or invoices. They come in, paying, you know, your equipment invoices they come in, and it's literally two and a half months before you see any cash come flowing back to you. On a project, right, and you know. That's why cash is so important for us. We're financing it. And when the interest rates are high, what do we have to do to do? Right, if we need cash, we'd go to the bank and they charge us interest on it. And I think you're going to see the next few years, you know, if the economy tightens a little bit, just operational impact. But if you go down below the line where you have other income and other expenses, right, you're going to have or interest in other expenses, you're going to have a higher interest expense if you're tapping into that. And on the other side, you know, savvy owners, savvy developers, savvy GCs are figuring out hey, if we can hang on to that cash a little bit longer and make seven, eight percent or whatever you're able to get, you know, even if it's five percent, that's a pretty significant amount of money. I mean, if you think of some of these big general contractors that run billions of dollars a year through their company. Hanging on to that cash for a couple of extra days is incredibly significant. I mean, it's huge.
Speaker 1:I can actually remember in the late 80s, when interest rates were pretty high, and looking at financial statements for general contractors and seeing them making a few bucks of money operationally, but then you go down below the line of other income and expenses, making more money on interest than they actually were operations of the business. They were kind of a bank right, and I think you know. To further complicate that back to our change order discussion. Again, there's going to be incentive to hang on to that money a little bit longer. It's going to be a little harder to get. The longer they keep it in their pocket, the better.
Speaker 1:And so you know, if we're not careful and I think you know one of the LinkedIn posts that I put out that probably had the most hits of anything was kind of just talking about the idea that trade contractors have become the cheapest form of financing for owners and developers right now. Right and it is. And to me there's going to have to be some legislation or something that evens a game up there and I don't quite understand that, because as trade contractors we have the one thing that everybody needs to get a project built, which is labor. But somehow we've given up that leverage. Somehow we've gotten here in the industry and I don't know how, and I think part of it goes back to, you know, just being too eager to say yes, I'll do it, signing up for bad contractual terms. But you know, I think any objective person would kind of look at just kind of how hash flows in this business and say, hey, there's something wrong with that, we got to fix that. But I think that's a systemic problem in the industry.
Speaker 2:There's a. I agree with all that. There is another piece that I think is within your control. As we talk through, like man, some of the stuff you can manage is I don't know that anyone's actually reading their contracts and I'm not going to get too deep on this idea but the fact of the matter is you've agreed to give a bunch of documents and sign a bunch of things and do a bunch of stuff before that they're contractually required to give that cash to you, and so I don't know that we're doing a great job from a compliance perspective, knowing that, in order to get that cash, I need to do on this job for this specific general contractor, these nine things.
Speaker 2:Well, we get sort of rope adoped into. Well, this is I do this and I send this form, and then they send me money, but no, because there's a missing form and you didn't do that. And then that one slides because there's six other easy ones. Well, they're just still waiting on you to sign up, fill out some form or checks on box and some online payment portal that you didn't even know yet. And so having a system, a project by project compliance system around that idea of processing pay apps and following up on that super important and I'm not sure we're doing a great job of it.
Speaker 1:No, I would agree. You know a lot of times when you and that's why I always say I think collecting cash should be the responsibility of a PM, not accounting, because nine times out of 10 when accounting calls, the response is well, why haven't gotten our cash? Well, your PM owes me this, this and this, and so it ends up being a project management problem. To begin with, there's actually a I don't know a lot about it, but there's a it's kind of a new software called Sightline.
Speaker 1:That's out there and the whole idea about it is, when you get a new contract, you basically go through and kind of set up all of the parameters. Hey, there's a special form or requirement that this contractor requires, but it kind of forces you to go through that contract. But on the front end it sets it up and then it kind of manages and prompts you through that process, so that you don't get surprised, because here's the other. Reality is, if you send them the invoice but you're missing one little thing, they're not going to pick up the phone and hey, hey, stuart, will you send this over? I really want to get you paid, right. That thing's going to sit as long as they can until somebody rings your bell and says, hey, this thing's 60 days over, 90 days over, and then you're going to call them and another month has gone by before any action's taken. So I think that's a great point.
Speaker 2:And then you have another SOP rate.
Speaker 2:We got an operational SOP, we need to be measuring this in the field and blah, blah, blah blah.
Speaker 2:There's a whole another set of SOPs in your accounting department. No, this happens on this day and this happens on this day and you're responsible to follow up with. You know that sort of thing, and as your operation grows, you're not necessarily doing all of the things that you need in a financial slash accounting SOP to make sure you're doing and checking all those boxes. And then the third overlay is all the while, while your PM is sitting on documents that they haven't signed and your accounting team isn't following up and checking all the boxes, your legal rights are going flying by as you're not perfecting your lien claims, and so that all those three things need to come together in some sort of maybe site line is a good opportunity to do that, but all those three things need to be coming together simultaneously to take down these barriers around getting paid timely. And we're not doing, at the trade level, a great job of it. We're just kind of being victim of our own sloppiness, I'll say, for lack of a better term.
Speaker 1:Yeah, and again, you can be very profitable in this industry, but if you're not collecting the cash, you know you just get choked out. That's right, you can be profitable and get choked out easily.
Speaker 3:Yeah, you've said it in a few different regards, and this one specifically with project management. The why Like rewind to whatever that was when you laid out the 101 of money moving in. One month In my career when I was a project manager, you had a round table of project managers for a project manager meeting and when it was around the 20th I always knew this one PM was going to get torched for not submitting his billings.
Speaker 3:But I just yeah, brad, let's call him Brad. I knew that they were due the 20th and I could just follow that command. But nobody ever explained how important it was and what it did to the business behind the scenes, because I think people were scared to open up cash. Open up talk about those things, because that's like the secret sauce or whatever.
Speaker 1:Yeah.
Speaker 3:If you would explain the why it's like oh man, we got to go fight for this. If it's just one of the million commands we have, we might miss it.
Speaker 1:Yeah, one of the things that you guys really bring to mind is when I got into this business in the late 80s or so, you know, I used to say I'm in the construction business with the C on construction being a capital C and the B being a little B. It was all about building and construction. I think today we're in the business with a big B on the front of business of construction, and construction is almost secondary to the business side. I mean, you can have the best building skills in the world and technical skills but, boy, if you can't manage and have the financial and business acumen, this is a tough business.
Speaker 3:I agree.
Speaker 2:I love the visualization of that too. Capital C turned into a capital B later. That is it. Did your squirrel brain go to the chart of elements? Like C is carbon and B is boron I don't think that they connect. Welcome to my lunatic brain, do those have a covalent bond when they go together? Here we go, here we go. Okay, we got in the ditch again. What are some of the other big issues?
Speaker 1:You know we talked about trying to grow too fast, one of the things that just again, enr's top list of top contractors always can kind of tell a lot about a company. When I go in their office They've got all the plaques of where they were on the ENR list every year. Again, if you look at it, we've always kind of had an argument with ENR that you really ought to run that list based on how profitable they are. It'd be a completely different list of characters Again getting too hung up over size. I think a company has to grow to provide opportunity for people and to be exciting for people at some pace.
Speaker 1:Some people get so focused on top line, lose sight of the operational side and just hey, we've got to execute this work and we've got to make money. That was kind of one of the other ones that I had a little bit of a note on here. And then I think, the other big one we haven't talked a lot about, but right now, just this whole war for talent. How do we become the contractor choice If somebody rolls into Dallas and says, hey, I've worked in construction all my life, I've got to go find a contractor to work for, who do they think of in terms of employers and places where they want to go.
Speaker 1:But I think it's as important now to kind of market your company to employees as it is to market your company to prospective clients, and some companies are good at that and they know how to live and breathe that and to bring it to life. Others, I think, it works a little harder for them. So, attracting and retaining talent attracting, retaining, developing, mentoring talent is, you know, five years ago we didn't see many HR professionals in this industry. We're seeing a lot of companies with HR professionals and I'm talking HR professionals, not a recruiter that tries to hire people, but I'm talking people from the corporate world that are 10 years ahead of us in terms of just good HR practice around attracting, developing, mentoring, compensation, benefits, administration all that I really believe. I really believe you're going to see them have a seed at the C-suite in large organizations or medium-sized organizations the next five years, because HR is as important as anything as we do.
Speaker 2:Well, that's consistent with the idea from earlier that it used to be capital C construction business and now it's capital B business of construction and that's consistent with the idea that we're bringing in other professionals to manage and organize and administrate our business practices of the construction business. Yeah, that's well said too.
Speaker 1:Yeah, I think it's just. You know, I look at my time and I will say this industry is a lot more professional today than when I got into it, but we still have a long way to go. When you look at what we invest in developing people compared to other industries, it's still laughable.
Speaker 2:Yeah, and some of us are doing better than others and, like you said, there is, I think, as Kevin says it time and time again we've made some ground, but there's a long way to go. Yep, still work to do. Well, let me, let me spend us into, like, maybe some actionable steps and big takeaways. I don't want to like make it too big here, but I know, over your, you know, years of spending time in the industry, there's, there's something you could say like these are, these are things that you can, you need to be doing, or steps we can be taking to get better, or something. Is we kind of wrap up?
Speaker 1:Yeah, these are kind of high level. But you know, first and foremost, I think one and I think we're probably all guilty of this Is it's easy for us to point to things that impact our business that we don't have control or influence over. It's easy to talk about the crappy general contract we're working for, the lousy new good owner or whatever. But you know, what I would tell you is there's plenty within our own four walls that that we can really improve. And one of the things I've really learned is spend 100% of your time, effort and energy focusing on working on improving the things that you can control and influence. I think that's fundamental and I think a lot of people just get so hung up and trying to say, hey, you know, all of our problems are the result of things that are outside of control. There's just tons of opportunity in every company that I go through to just, you know, to make to make incremental improvement internally. So just focusing on stuff we can control or influence.
Speaker 1:You know we talked about measurement, but I've always said, hey, find what you want to improve and figure out a way to measure it and keep that measurement in front of people. That measurement alone will change people's behavior. There's a lot of research around that. You know, if you go back to the, the old school, roger banister was the first guy to break a four minute mile back in the. I want to say it was late fifties or sixties, but there was An interesting story I read about that. That just has to do with. You know, measuring and sharing with people changes performance significantly, right?
Speaker 3:How many.
Speaker 1:How many people go to professional sporting event if they didn't keep score and measure stuff?
Speaker 3:right thing about that just gonna cheer for three and a half hours and then leave.
Speaker 1:Yeah, let's put a couple seven foot giants out there and let them entertain the crowd and you know, call it an NBA game and charge people 150 bucks, right. And so you know, measuring things, getting people focused on the measurements. I think the other thing is just kind of a leadership culture around. It's never good enough, even my highest performing clients. You go in their business and you'd swear, you know, you swear the business was, you know, in trouble. They're making a boatload of money, but they just have this mindset. That it's. You know, no matter how good it is, we can always be better, kind of continuous improvement. But If you look at really successful companies and really successful leaders, I think that's just a characteristic they're just never satisfied, no matter how well they're doing. All right. And you look at great athletes, same way, right, they're just, you know they're at the top of their game, but they're just, they continue to out practice, they continue to out dedicate themselves to, you know, to the craft there's.
Speaker 2:That's a dangerous double edged sword that I don't necessarily disagree with, but, like that, becomes toxic without the right culture. Right? Brad is no matter what we do. Brad is never happy, right? That's different than oh yeah, no matter what we do, we're always trying to get better, and Brad is leading the charge. Yeah, it's the same issue, but the culture dictates the way everybody feels about it. So I agree with it, but like I just want to throw that word caution out there is like be careful, man. Could you make everybody hate?
Speaker 1:you Can't ever win the last point I kind of jotted down here too is I think this is this is a hard working industry. I challenge anybody find a group of people that works harder than people in construction. I mean, I look at the hours they work. You know the conditions that they work in. But one of the things I found, if you want to improve and get better as you have to commit and discipline yourself To spend time working on the business periodically as opposed to in the business, and you know, by that I mean kind of getting out of the day to day, whether it's, you know, planning sessions, whether it's a business plan with a strategic plan, whether it's getting your leadership team together, but you have to carve out time to work on the business, otherwise working in the business will consume. You know there's always something to do.
Speaker 2:Yeah, there is there's always something to do. We talked about this earlier is like if you're, kevin, I thought, if you, if you're trying to get better and you're waiting for margin to do it, it's never going to show up. You have to make it. You have to find the margin now to work on the business. Yep, other was good to consume by it, yep. Anyway, we usually close with like one big giant closing nugget. I don't know if you have one or not, but given we've thrown so many out on the table there, there's a lot of good ones. You have another big, big closer.
Speaker 1:I've got one just to kind of sweet, just kind of make you think a little bit but you know the idea is labor is the largest controllable cost and especially contractors, business, focus on it mean.
Speaker 1:You know I see people obsessing over overhead. You know, if you're obsessing over overhead you're walking over dollars of labor to pick up pennies of overhead. And again, if you go back and look at your financial statements It'll kind of it'll kind of highlight that. But if people put the same effort in the managing and improving their labor and productivity as they did overhead, we'd be a much more successful business.
Speaker 3:Jokes on you, scott, because we're not even recording a podcast. We just wanted a free FMI session.
Speaker 2:Oh man, this is awesome, scott. Lots of great, great tips along the way. I appreciate you coming in hanging out with us just sharing your nuggets and then, if you guys aren't following Scott on LinkedIn, do it, and I suspect that that is a place where, if they want to get in touch with you I know you're active on there they'll be able to connect with you follow it said you'll do that, anything else go now, this has been awesome.
Speaker 3:I took like three pages of notes.
Speaker 1:Yeah, enjoyed it guys. This was a lot of fun.