These days, contractors of every size and capability are being drawn to a host of opportunities outside their respective marketplaces. Fueling this desire to pursue out-of-town work are the efficiencies created by the advancements in technology, integrating project management, accounting, and financial information that are typically generated and managed at the home office by a seasoned staff. In today’s global, national, and regional economies, however, data exchanged electronically is no longer the way of the future — because the future has arrived.
A whole new world
Over the last decade or so, the speed at which large files of data are transmitted has evolved dramatically, prompting new generations of internal and outsourced managed LANs and WANs throughout companies and multinational organizations. As the knowledge and use of communication and data networks become more commonplace, most of us realize that the first generation of LANs and WANs, which relied consistently on twisted-pair copper wire for the transmission of voice and data over networks, has given way to more reliable transmission mediums, such as fiber, coax, microwave, and satellites — all driven by the growing demand for access to all forms of media that take advantage of high-bandwidth properties of the higher frequency bands.
The T-1 transmission medium, which originally incorporated the use of copper wire, is currently the most commonly used digital transmission service in the United States, Canada, and Japan; however, as advancements in technology and economic feasibility became more sustainable, second, third, and fourth generation network systems within organizations have evolved into expanding wireless communication and data exchange as their new transmission medium of choice for both business and personal use.
Most contractors today employ some form of internal or outsourced managed network to support their operational voice/data/video (V/D/V) needs. So for these companies, establishing project management, financial, and accounting systems using a standard checklist approach is virtually the same as new projects come under contract, regardless of the project’s physical location. Important items on the checklist include:
Network interface: Contractors who typically work out of town have national and regional agreements in place with carriers, but they may have additional infrastructure requirements (i.e., costs) to meet the needs of the location of the project. It’s a good idea to have IT departments investigate the possibility of other carriers in the new project’s area who can also meet the required needs of the network interface. Chances are they already have the infrastructure in place, and their pricing turns out to be very competitive and affordable.
Correspondent banking: A correspondent bank is a financial institution that provides services on behalf of another equal or unequal financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and gather documents on behalf of another financial institution. Depending on the duration of the new project, in conjunction with the frequency and types of transactions that will take place over the course of the contract, having a correspondent bank in the area to facilitate transactions with a contractor’s own local bank can prove essential, especially when employees go to cash or deposit their paychecks.
Payroll: Posting weekly time sheets accurately and timely is critical to any contractor. Instead of faxing or calling this information into the home office, expanded networks that provide remote access to the payroll process are becoming commonplace for projects located in the general area of the home office, and they’re an absolute advantage to contractors pursuing out-of-town work.
Hiring remotely can be an awkward process at first, especially if a contractor has never performed the task from a remote location. What typically works best for most contractors when hiring remotely is to have a standard hiring package developed by their accounting department that is reviewed with the on-site manager responsible for performing the hiring procedures. It’s also a good idea to have a checklist attached to the hiring package to ensure all required documentation is attached when it’s transmitted to the home office for an employee’s initial setup and file.
Signatory contractors typically have to abide by local collective bargaining agreements that govern wage and benefit structures for the particular area where the project is located. Accounting departments for signatory contractors are already set up for these types of wage and benefit structures; however, it’s important that they are also in possession of each local agreement where the work is to be performed to ensure there are no delays or missteps when initially setting up the payroll of the new project. It is also vital — whether a signatory or a merit shop contractor — that accounting departments be aware of the state’s withholding requirements when creating employee payroll structures. Most states have different amounts or percentages to be withheld, so make sure this information is obtained as early as possible from the respective state’s revenue department during the initial setup.
Trade payables: Regardless of the size of a contract, contractors don’t want employees standing around waiting for material, tools, and equipment to show up so they can perform their required tasks. Therefore, it’s a good idea to have local trade payable accounts with vendors established ahead of time to supplement those already in place at the home office. As with the payroll system, trade payable accounts can also be created and administered on a day-to-day basis remotely though an expanded network system.
Subcontracting work: As new projects unfold, and depending on the size and complexity of the project, subcontracting various scopes of work may be a critical component of preserving an anticipated level of profit once the project has been completed. Although determining whether or not subcontractors will be used should be a part of a contractor’s risk assessment process, the need to subcontract additional work may come later as the project continues to progress. Somewhat different than setting up a new vendor who only provides material and equipment to a project, processing subcontracts tends to be more cumbersome for contractors as labor requirements are introduced into the scopes of work. In addition to the subcontract itself, managing additional supporting documentation, such as current certificates of insurance with the required limits, schedule of values, payment applications, and lien waivers, is vital and must be maintained by the accounting and project management staff.
Remote check processing: Primarily used for paying employees on a weekly basis, processing checks remotely for vendor and subcontractor payables can also be performed securely and cost effectively through an expanded network system. Having to process weekly payroll and express ship payments to the remote project location is no longer a necessary cost for doing business. In addition, by processing trade payable checks at the project’s location, the inherent delays incurred when checks are held until the proper documentation (i.e., lien waivers) is received are eliminated. Local vendors and/or subcontractors can conveniently and expeditiously exchange the proper documentation for payment on-site and save a lot of time.
Project management functions: Through an expanded network system, all project management functions — including engineering and design — can be performed remotely. Similar to all financial and accounting functions, project management correspondence and documentation can be generated remotely and through the expanded network and simultaneously stored for safe keeping on whichever server at the home office the IT manager designates.
BIZHUBs (there are similar systems by different designations on the market), which (in effect) are document processing centers, can be linked directly through an expanded network system. Printing, scanning, faxing, emailing, and copying can now be generated from one unit on-site and interfaced with any IT department server through an IP address.
Weighing the risks
There’s no question that the allure of pursuing out-of-town work can be appealing for contractors anxious to find ways to increase their annual cash flow, especially if the work has the potential of an above-average return on investment. With the advancement of network integration, contractors are finding it more palatable to pursue this type of work, particularly when they understand how additional securities can be installed to better control the flow of information and data exchange.
Projects at the smaller, less complicated end of the spectrum typically don’t pose that great a risk to a contractor’s profit and loss (P&L) statement; however, as the project size and complexity increases along the spectrum, so does the inherent risk a contractor must assess before developing a cost structure and agreeing to move forward with a cost proposal to the customer. Knowing how to price out-of-town work is just as important as identifying all the potential risks ahead of time. As mentioned earlier, all successful contractors who perform out-of-town work first go through an extensive formal and/or informal risk analysis before committing the resources to pursue the project. Of all the risk metrics at play, the following four are the most important to a contractor:
1. Potential impacts to a company’s cash-flow: The larger, more complex an out-of-town project becomes, the greater the risk. The convenience and ability to react quickly to ongoing concerns that crop up from time to time with in-town work for contractors no longer exists when a contractor pursues out-of-town work. Although the terms and conditions of a contract are typically the same for in town work vs. out-of-town work, the reaction time to issues that arise for out-of-town work requires a more in-depth thought process and a long-term view at problem-solving. Most successful contractors who pursue out-of-town work typically find a local partner who understands the local market. The partnership can take many forms, but the most important aspects for a contractor pursuing out-of-town work to consider are protecting against margin erosion and overcoming any barriers to sustaining anticipated levels of cash flow.
2. Relationship of the customer chain: There is absolutely no substitute for having a strong relationship with a customer when performing out-of-town work. Good customers have a vested interest in making sure good subcontractors will travel to succeed. Likewise, it’s extremely important for contractors to support a customer’s relationship with its client or customer. Contracting is a trickle-down environment, especially when specific contract language between a contractor’s customer and their client is passed on to the subcontractors performing work on the project. Typically, if the relationship is strong between the customer and its client, subcontractors won’t need to worry about being treated unfairly contractually as the project unfolds. However, the converse applies when the relationship between a contractor’s customer and its client sours.
3. Availability of a strong management team: More than 85% of the potential costs relating to a construction project are encompassed by material, labor, logistics, and tools and equipment. Every dollar of these potential costs is in some way influenced by the management team in charge of the project. Most successful contractors understand the importance of creating standards of responsibility for each member of the management team responsible for any project, whether in town or out of town. As projects increase in size and complexity, it’s critical to note that a strong management team is not isolated to just the personnel on-site. Home office support, where most customer relationships are generated and maintained, must be present on an ongoing basis — especially when dispute resolution is part of the contractual relationship. Obviously, it’s the responsibility of the on-site management team to interpret the contract language as fairly as possible; however, the potential exists for a dispute to arise that can’t be resolved at the project level with the customer’s project management team. At that point, in the interest of the relationship, senior-level staff members at each of the home offices must get involved in order to create a mutually beneficial resolution.
4. Relationship with the local labor market: Developing a relationship with local labor market can take the form of a number of scenarios. Some contractors may determine that it would be more cost effective for them to send their own management team to a remote location and hire from the local labor pool without any additional support. Others may determine that the nature and risk of the project is such that it requires a local partnership to be developed in order to better assess and manage the local labor pool. In either case, it cannot be overstressed that the management of the local labor pool is an essential requirement for having a successful project.
A successful project is usually measured in financial terms. The level of profitability for any venture is generally a function of how well a contractor manages the anticipated costs and controls the risk/loss prevention policies/procedures. As mentioned previously, most successful contractors who perform out-of-town work factor into their cost structure all relative expenses, including certain amounts of contingencies for unknowns, prior to presenting their final proposal to a customer.
Wrapping it up
Thanks to today’s advancements in network capabilities, contractors are enjoying a higher level of confidence for success when pursuing out-of-town work. By knowing they have the ability to expand and integrate their network capabilities, monitoring any portion of a project, in town or out of town, from any device that has access to the Internet, contractors are less likely to add anymore contingency amounts than necessary to their cost structure, making them that much more competitive in a given marketplace.
Schulz is contract manager for Cleveland Electric in Atlanta. He can be reached at [email protected].
