Some would argue that overhead is a fairly controllable spend pool in a construction bid when other specialty trade subcontractors are external and less governable. With this workable cost group covering a good portion of the project’s budget, there is a large opportunity to be more competitive than the next guy—but how? The Balance offers some helpful tips on how to reduce construction overhead and bump up profitability to stay ahead of the curve. I’ve taken their ideas I thought were most prominent and expanded here and there. Enjoy:
1. Job Site Vehicle/Equipment Demands
It’s important to determine the number of vehicles that are essential to daily operation, and be cautious not to exceed this. Contractually, escalation clauses can be helpful to account for fluctuations in gas (or any commodity’s) prices that could cause an initial bid total to shift. To keep these levels competitive, price escalations should only be involved over an extremely long-term project where there is likely to be a price variation.
It’s helpful to take a look at any assets that are unused and consider the benefit from selling or replacing items with a more efficient, cost-effective version. Whether you are equipment-centric or an occasional rental proponent, it’s important to weigh alternatives for the sake of pursuing the best value. If you aren’t being awarded work and bidding frequently, these choices can be a turning point.
2. Incentivize Cost Savings
Within a time crunch, it’s not easy for estimators to assess multiple overhead alternatives, but when employees are able to meet timelines and provide drastic steps toward savings, this should be rewarded. Stemming from that recognition, whichever form it takes, employee empowerment is a massive reducer of overhead expenses.
3. Change-Up the Change Orders
Change orders don’t always strike the most positive chord, but they are a necessary evil that can be handled with ease. If there is proper notice given and circumstances are reasonable for a slight tweak of initial budget, clients are going to be more appreciate of a smooth, structured process than they will be disappointed in the change. When adjustments must take place, it’s a good plan to inform all trades of the change, just so any unforeseen impact can be prepared for.
4. Contract Negotiation: Seek a Collaborative Angle Over an “Upper Hand”
Contractor/client collaboration is a huge asset to business partnership. I once covered this concept for a procurement blog, and the same concepts hold true. In the piece, I outlined:
Aside from smooth communication between two parties, true collaboration can open a door for both organizations to leverage the other team’s competencies and skills and have the best information available for the most efficient supply chain operation. Organizations that see the value of strategic involvement are often the companies that then choose to implement relationship management programs that nurture these relations.
From this attention toward relationships comes several other benefits resulting from the visibility into contractor/supplier activity. For instance, there is a high likelihood of cost savings from reduction of quality issues with the increased vision into operations. Also, collaboration via a relationship management program allows a procedure for risk and control that prevents business disruption, especially if the ties directly affect core practices.
Even without a formal program in place, many businesses recognize the advantages of not “being a bully” to suppliers while negotiating contract terms. With the mutual benefit collaborative groups have seen from positive relations, the topic of relationship management is becoming increasingly popular.
Whichever area your overhead is in need of some cutting, these reductions are a brief glimpse at ways to easily take control of your expenses. It’s no secret that in construction proposals, every penny counts. With these pointers, even the most well-versed construction expert can refine their spend pools and potentially rise above other competitive bidders.