How to Make the Most of the Preconstruction Phase

Eisenhower once said, “In preparing for battle I have always found that plans are useless but planning is indispensable.”

We know in construction that the design plans that a team has labored over for months or even years are essential, but just as important is how those static lines and figures on a page will manifest in the real world in the hands of the construction team. Preconstruction (AKA “Precon”) is the planning phase where the “what” and “why” of design get paired with the “how” of constructability and the “when” and “how much” of the schedule and budget. Your attention and efficiency in this phase could be the key difference maker for a profitable job for you and a successful project for your client. Neglect could mean a frustrating project for all project stakeholders and a lot of red in your general ledger.

So how do you get the most out of the preconstruction phase?

In this article, we’ll walk through three main areas you can address to make sure what happens in preconstruction doesn’t come back to bite you.

Get Your Bidding Down to a Science

Your bidding process should feel like a science, with standardized workflows that produce predictable and attainable outcomes. Instead, many general contractors bid jobs using their best guesses. Inevitably, something gets off track somewhere in the project lifecycle and they’re left with a razor-thin margin and a real struggle to keep their cash flow positive.

So how do we improve the bidding process?

The core of accurate estimate costs on construction projects is making sure you have a system in place to not only estimate the cost at the beginning of a job, but also accurately and consistently “job cost” or, tie all your expenses back to the project budget they came from and then evaluate the project’s success from a financial perspective. Using cost codes consistently and preconstruction planning is key here.

Job costing of course includes direct labor and material costs — the time your subcontractors or project managers spent on the job site and the materials put in place — but it should also include any general conditions and overhead costs that can be associated with that specific job.

When you can consistently and accurately job cost, you can start to prove out the accuracy of your cost estimates post-construction and shore up the areas where you may be underbidding or tighten up spots where you’re overbidding. This not only makes you more competitive on price, it opens up a path to healthy growth for your construction company because your costs become more predictable and reliable.

When it comes to bidding or estimating a job, ask yourself these questions:

1. Do you have an organized index of historical costs that you can compare to your estimates?
2. Are you tracking the costs on your current jobs with a sufficient level of detail to inform your next opportunity?
3. Are your costs tracked in a way that allows you to uncover the source of inefficiencies and bloat?
4. Are there opportunities for cost savings in your process that would make your bids more competitive?

👉🏼 Read Construction Bidding: The Emerging Contractor’s Guide

Tighten Up Your Costs

Once your bidding process is under control, take a look at your costs during the construction phase. There are three big categories your costs can be divided into: direct costs, indirect costs, and overhead.

Direct Costs

Direct costs are the labor, material, equipment, subcontractors, and other costs that are used to construct a specific component within the construction project, like a concrete slab, mechanical, electrical, and plumbing systems — basically anything that will stay at the construction site. Whether the labor is self-performed or subcontracted and regardless of who is paying for the materials, these costs should be the most straightforward and easiest to track during project delivery.

For the portions of work that are self-performed, it’s essential to track your labor costs and productivity because it shows how efficiently a team can put work in place. This gives you the information you need to improve productivity and capture cost data for future cost estimates.

Subcontracted work is no different. When you accurately track those costs back to the job, you uncover areas where you can reduce the amount of time that is wasted by poor process and coordination all of which impact your scope, construction schedule and budget.

Success here largely depends on your efforts in the preconstruction process to properly plan the sequence of the work and to coordinate the logistics in a way that makes the work feel seamless. Success also demands having a clear and consistent communication plan in place with team members and tracking of any changes in the plan.

To uncover areas where you can tighten up your direct costs, ask yourself these questions:

• Are you looking for trends in your labor costs to find and eliminate waste?
• Are you cultivating healthy business relationships with qualified subcontractors and other vendors in the supply chain that are collaborative?
• Could you communicate with your project team and coordinate trades more effectively?
• Are you tracking changes in the work with change orders so you don’t lose money to items outside the scope of the project? Can you streamline the change order process to create more consistency?

Indirect Costs

Indirect costs are those costs that might not be clearly tied to a specific piece of work on the project, but support the project as a whole. These include both the general conditions (supervision, and project management costs that are part of every job) as well as general requirements (more specific to a project like procurement and logistics planning). While lower costs are generally better, you shouldn’t be afraid to spend on things like an experienced PM or regular on-site cleanings to protect installed work. Experience and good maintenance protect your costs in the long run and result in better quality work. Better quality work equals a better reputation which will open you up to more work in the future.

Using the same criteria for categorizing these costs on every project will help you find the sweet spot to not only project your profit, but also keep the work progressing on schedule with assured quality.

To tighten up your indirect costs, ask yourself these questions:

• Are you balancing the level of experience you really need in supervisory roles against their cost?
• Are you investing in things like regular job site cleaning and other protective measures for installed work to avoid costly mistakes or rework later?

Overhead Costs

When you bid on a project, you’re generally pricing based on the cost of the work + overhead + profit.

If you’re already able to accurately estimate the costs associated with the work, the second biggest way you can impact your bottom line is to properly account for your overhead costs. Low overhead costs are keys to both staying competitive in your market and staying profitable as a construction business.

Most often, overhead costs are tracked as a flat percentage spread across all projects and then factored into the markup when quoting or bidding a job.

Not every job takes the same amount of resources and many of those resources will fall into the “overhead category”. If you are going to understand the full cost of a job (and the risk associated with it), it’s super helpful to be able to attribute certain overhead costs to specific jobs. This enables you to identify which projects require more overhead resources than others and better protect your profit margins.

To uncover areas where you can improve overhead costs and tracking, ask yourself these questions:

• Are you able to easily monitor overhead costs for any unhealthy trends?
• Does your accounting system allow you to easily break down company overhead costs for specific projects?
• Is your tech stack made up of helpful tools that work together, or are there redundancies and bloat that could be more efficient?

💥 Want to build more profitable jobs? Learn from a pro in our guide: Foundations of Construction Management for SMBs 

Find the Right Project, With the Right Team for the Right Client

Forget the race to the bottom on pricing. In preconstruction, your aim isn’t to be the cheapest— it’s to be the best fit. Treat it like a two-way job interview where both you and the client vet each other and collectively define the work to be done.

Once your bids are accurate and your costs are tight, the next step is to implement a solid vetting process. This is your strategy to ensure each project is profitable, fits your team’s skill set, and comes from a client that’s actually good for your business.

To do that, you need to define three things: the right project, the right team, and the right client.

The Right Project

The more you do a specific type of project the better and more efficient your teams will be at doing them which means more money in everyone’s pockets at the end of the day. Perhaps more importantly, it reduces the risk of those projects because you’ve refined your processes around the unique needs of that type of project. When you’re screening projects for the “right ones”, ask yourself these questions:

• Is the job in your wheelhouse?
• Is the project schedule attainable?
• Are there any job risks that you’re not sure you can mitigate?
• Is the design or plan defined well enough for you to assess it?

The Right Team

Something can be the right type of project for your firm but if you don’t have the right team or the right team isn’t available, it might cause more pain than it’s worth. Things to consider here are:

• Does your team pair well with the design team?
• Do the folks you have available have the right experience and temperament for the job?
• Does the team have experience on similar projects?

The Right Client

While perfect clients might not exist (still holding on to hope they appear one day), there is a difference between good and bad clients for your firm. Things to think through here are:

• Do they communicate clearly and timely?
• Is the financing clear and will they pay on time?
• Do you already have a relationship with them from past jobs?
• Are the performance expectations clear and fair?

Trust the Data

Most contractors I’ve met have a gut feeling on most of the things I’ve walked through in this article, but really, healthy growth comes when you can gather real data that helps you answer all the questions above.

Make sure that you have a process in place for gathering the data you need and translating it into reports you’ll actually look at — the more real-time the reports, the better. With all the variables in the construction industry, this is the only way to keep growing without taking on unnecessary risk and it’ll make the preconstruction phase a whole lot easier and more efficient.