Simple Tips to Derisk Civil Construction

Make Your Civil Construction Business Recession Proof

At the best of times, running a civil construction business is complex and challenging, with many risks. As we get deeper into 2023, the risk of recession is coming into this mix.

It’s now more important than ever to have good foundations of risk management in your civil construction business. The good news is that there is still plenty of work out there, and the businesses who manage risk well can continue to thrive.

In this blog we will share with you some simple tips to reduce risk in your civil construction business.

In a nutshell:

• Choose your customer wisely. Bad customers greatly increase your cost management risks
• Reduce risk in tendering. Avoid tendering for work that poses a high risk and de-risk the jobs you tender for with accurate cost data
• Use a reliable cost management system to track whether your jobs are within budget
• Ensure you’re following contract management best practices to get paid fairly and promptly

CHOOSE YOUR CUSTOMERS WISELY

In the scramble to get more work in the door, many civil contractors neglect this simple step. Your choice of customer to work for can have a huge impact on your profitability.

Good customers work with their contractors for mutually beneficial outcomes, allocate project risk appropriately and assess progress claims and variation requests quickly and fairly and pay on time. Bad customers treat their relationship with contractors as a battle with a “winner” and a “loser”, are unnecessarily punitive with contract management and do not involve their contractors in the planning process at all.

There is typically more work available than you can tender on – choose to respond to customers with a track record of working well with their contractors.

REDUCE RISK IN TENDERING

In terms of construction cost management, the highest risk activity for civil contractors is tendering. Often civil contractors have to work on tight margins to be in the running to win work. This means a few miscalculations can put you into the red.

If you are doing fixed price work, a civil construction specific cost management system can allow you to assess how much previous jobs actually cost you to deliver. You can use this data to get more accurate with your pricing and reduce risk that you can’t deliver within budget.

TRACK YOUR COSTS FROM THE START

While there is a lot you can do to reduce risk at the pre-construction stage, you’re not out of the woods yet. Plenty of stuff will change after you commence construction works that can easily blow your budget.

To minimise this risk, set a budget at the start of your project to track your actual costs against. Many civil contractors use cost codes (also called cost centres, activity codes or other names) as an easy way for field crews to track their costs. Depending on the size and complexity of a project you might run between 1 and 10 cost codes for your project.

Implementing this discipline early on provides multiple benefits:

• Inefficiencies can be identified and addressed early on
• Any miscalculations in the pre-tender phase can be forecasted so the business can expect a hit to profit margins
• Out of scope work becomes easy to identify so you can claim additional revenue

PRACTISE GOOD CONTRACT MANAGEMENT

Delivering work on budget is great, and most of the battle won. The next bit is ensuring you get paid fairly and promptly for the work that you’ve done.

Good progress claim and variation claim management processes can improve this significantly. By ensuring that your claims are consistent, free from errors and including any information your customer needs to validate your claim, you make it much easier for them to approve quickly and for you to be paid promptly.

WHERE TO FROM HERE

This may sound like a lot of work, especially if your team is already overloaded like most civil contractors. The most common tool for managing civil construction costs and claims is still Microsoft Excel.

Varicon exists to eliminate the many limitations of Excel-based systems – manual data entry, duplication of data entry, lack of visibility across your organisation and errors.

If you want to make cost management easy in your civil construction business get in touch here for a no obligation introductory assessment.