RESIDENTIAL CONSTRUCTION – INDUSTRY CHALLENGES

1. YOUR MONEY AND CREDIT MAY BE AT RISK

• Commingling Funds. Contractors often commingle funds between projects. This puts your money at risk because builders have a conflict of interest in handling your money to pay others.

• Incomplete Documentation. Incomplete Contractor’s Sworn Statements may indicate that a builder is in the red, or does not yet know their costs, or does not keep up with paperwork.

• Contractors Lack Resources. Builders are often small to mid-size businesses. They may lack staff and processes needed to keep up with draw documentation and job costing, particularly where financing is involved.

• Partial Payouts Result in Over-Payments. Builders ask for payments for partially completed work phases. For example, a contractor may ask for a partial payment for half of the framing. It is difficult to ascertain percentage of completion, often resulting in overpayment, adding risk and reducing incentive to complete.

• Mechanic’s Lien Act Creates Liability and Affects Credit. The Illinois Mechanic’s Lien Act allows vendors who provided labor or materials for your home to file liens and lawsuits. Contractors who do not pay subs create liability for you. Liens or lawsuits by unpaid or underpaid subcontractors may affect your credit.

SOLUTIONS:

• Escrow Account. All project funds are handled only through a title company segregated escrow account. All costs, including design, construction management and accounting are paid for through the escrow account. This ensures that our Client’s money is used only for their home’s project.

• Third-Party Accountant. All project accounting, invoicing, payouts, financial reporting and draw administration are handled by independent Third-party CPAs. This provides added transparency, checks and balances, and risk reduction. Regular reporting is provided to the Client and to Chicago Workshop.

• Complete Documentation. Incomplete Contractor’s Sworn Statements or Partial Lien Waivers are not permitted by a Third-Party Accountants. Payouts are allowed only for completed phases, subject to Final Lien Waivers and Purchase Orders. This helps keep tabs on the financial health of the project.

 

2. POOR COMMUNICATION AND LACK OF TRANSPARENCY

• Itemization. Lack of detail and itemization in proposals, contracts, specs, and billing plagues the residential construction industry. As a result, consumers lack the tools to understand the complete picture and all suffer from the lack of transparency.

• Communication. Poor communication results from a lack of transparency and poorly administered processes. No builder or client should undertake a project without a well-defined communication policy.

• Unexpected Schedule Changes. Unexpected delays are clear indicator that a communication process is not up to par, and may also be a sign of greater issues.

• Unexpected Change Orders. Ambiguities result in risk, mistakes and change orders.

SOLUTIONS:

• Managing Expectations by Managing the Detail. Our proposal, contract, schedule and any project documentation are itemized for complete transparency. This takes upfront effort, but makes the job much easier in the end.

• Communication Platform. We use a custom, cloud-based communication platform designed to facilitate email and blog communication by the all project participants, including subs. Conversation and meeting notes, as well as any other documentation is stored and is readily available to a Client, the architect, designer, the construction manager, and all participants.

 

3. LACK OF TEAMWORK BETWEEN PROJECT PARTICIPANTS

• Interests of Architect, Designer and Builder May Not Be Aligned. Without a process involving all three disciplines at the same time, risk increases, work gets duplicated, and items fall through the cracks. Moreover, consumers end up in a “project manager” role, coordinating between their architect, designer and contractor.

• Construction Plans Lack Detail. Construction plans often lack critical detail as to the mechanicals, built-ins, trim, cabinetry, flooring, and other important items. For example, HVAC ductwork placement may be left for an HVAC contractor to figure out in the field. This is a recipe for inefficiency, mistakes, and mismanaged expectations.

• Lacking Alignment Between Project Participants. Unfortunately subs and other vendors are often not expected to work as a team. Moreover, different vendors may have agreements with one another, but not with the builder, (such as plumber with a plumbing supplier). Also, vendors often propose their own agreements, so a builder signs different contracts with different participants, resulting in conflicting goals, specs, schedules, warranties.

• Dependency on the Project Manager. When the processes are lacking and the interests of the project participants are not aligned, the entire project lacks the checks-and-balances. This leaves one at the mercy of the project manager.

SOLUTION:

• Master Contract. All Project Participants follow the same rules and rely on the same process. A single version Master Contract is applied to all. The entire Team works together and shares common standards and goals: same quality, same warranty, same schedule; same shared responsibilities; same communication requirements. Chicago Workshop project managers perform at a high level consistently, because they have the tools to exceed expectations.

• Design + Build Team. Architects, Construction Managers and Designers stay together as one Design + Build Team throughout the entire project. Together, they review all budgetary, construction, design, communication and process issues. Architects take an active role in construction management, while Designers have extensive knowledge of construction processes. Project managers provide budgetary and other feedback. Client meetings, from design to the final walk through are attended by all three Team members.

• Comprehensive Construction and Design Plans. Complete plans include every detail, such as the exact placement of registers and returns and down to every minutia, including every countertop overhang. Clients have an opportunity to view their project in 3-D. Comprehensive plans enable comprehensive pricing as well. This is where the Master Contract, teamwork, and even the Third-Party CPA come together for one complete checks-and-balances process.