On
Mike Waller’s second visit to our class we discussed what is entailed in the
job of a project manager.
As the project manager you are singly
responsible for the project.
This
states it pretty simply to me. The
project manager is responsible for the project as a whole.
This does mean that the project manager is given
‘total control’ in most cases to make the job go as scheduled.
It also means that the schedule that was set needs to be right.
For this reason the project manager needs to set many checks into the
system, which will be seen later in the discussion.
The project starts from a set of specs and
plans.
While
this is common sense as a statement is something that as a graduate student we
are not given the experience of taking a project from the plans and specs
through the construction process.
A day lost on the front end cannot be made
up.
This
was given in the context that the project manager needs to get on the stick form
the word go. This means that the
critical path needs to be determined and a basic schedule of events needs to be
formulated and put into place. This
will include such things as deciding on which subs to send the job to for bid
and lining up fabrication houses for the needed material.
If everything has been handled correctly then when the owner gives the
Notice to Proceed buy out can start right away.
Ask for evidence of financing
This point was one that was really driven home to me. I worked on a project as an electrical sub-contractor where the funding for the project was delayed for two weeks because of a lapse in funding. With this experience in mind the relevance of asking for evidence of financing is a must. Asking for this sort of evidence will only be an impediment to owners that don’t have the proper funding or paper work in place. These are projects that you are better off passing on any way, and as Mike Waller said the delivery or delay of delivery of this documentation should be the first warning sign of a projects viability.
Buy Out
Buy out should happen as soon as the notice to proceed is given. At this point all the estimates should be rolled over into the accounting system. This makes sure that sub-contracts are made while the quotes are still good. It also allows for long lead items, such as rebar or hollow metal doors, to be written up as purchase orders so they can be set into action.
Sub-Contracts
During buy out one of the most critical phases is writing the sub-contract for the subs. These contracts must reflect the master contract that the contractor signs with the owner so that the subs are liable to do everything that the contractor has agreed to do for the owner. In light of this Mike Waller said that sub contracts should be all inclusive of the plans and specs. This is done by making the sub-contract as ‘definitive as possible, by saying as much as possible, while being as ambiguous as possible. Use such statements as including, but not limited to.’ Mike was sure to add that you are not trying to pigeon hole the sub-contractors but to make sure that they are liable for everything that is included in the plans and specs. Another key point in subcontracts is that the sub will try to limit what he has to do by submitting amended contracts. Sub-contracts should be read very carefully so as to make sure that the sub has not circumvented his obligations as stated in the specs and plans. A key component of this is making sure that all warranties cover the full amount of time agreed to in the general contract.
Bring the architect in when you are ready to
begin
This is a great way to avoid missing what the architect finds important in a job. It lets you know what issues he is going to be intractable on and which are negotiable. The example of the ‘no cut tile’ would be a great example of how brining an architect out early could have been fortuitous.
Fire Stopping
Mike Waller used fire stopping as an example of how certain things are left out of the plans and specs, but they must be addressed because of building codes. This is one example where experience is king. As young project managers we will have to know to ask more experience people for help in spotting these types of issues.
Chinese Fire Drill
The last three months of the job can be very hectic, but it is how the job is finished that will leave a lasting impression on the owner. One can easily see that when doing negotiated work that servicing the client by keeping the project on track through the last phase of construction is imperative. This is when delegation is a must because at this point all issues will be critical and one person cannot oversee all of them directly.
In conclusion Mike Waller painted a very realistic over view of how a project manager has to perform to get the job done correctly. Pre-planning, paying attention to the minutia, delegating and having contingencies seem to be the key lessons to being a good project manager.
Jerry Coleman
Director
of Commercial Lending
SunTrust Bank in Columbus,
Georgia
Jerry Coleman talked to our class on commercial loans from the lender’s perspective. John Teeples familiarized me with the lending process in his discussion, but Jerry Coleman brought forward some issues that I was not concrete on. These issues are that cash is king in almost all instances, the utter importance of a business plan, the importance of pre-selling units as a developer, the line of credit for a contractor, and the role the bonding agent plays in the banking aspects.
Cash is King
The idea that cash is king was a reoccurring motif in Mr. Coleman’s presentation. I thought that you would get a loan of equal value to your house, but when a bank is as conservative as Sun Trust it appeared that the only thing close to cash was liquid fixed rate bonds. He reiterated this point on more than one occasion. The reasoning behind it made sense. I was not aware of the risk that the bank had with loans. I thought that the collateral they made you sign over covered the liability inherent in the loan. He also stated that while cash is king and liquid debt instruments are good also that there was still risk when the loan was covered 100% by these types of collateral. These seemed to be far fetched cases, but if you are making only about 4-5% on a loan after fed funds rate is taken away then the unlikely case is pertinent to everyday business. A few of these instances were death and divorce. For this reason it is protocol to have the wife sign also.
Third Party Consultant
Another point the Jerry Coleman made that opened my eyes was that banks often require a third party to come in on deals over a certain size, in Sun Trust’s case this would be loans over $750,000.00. This third party is another area in which a construction professional can form a niche market operating as a construction manager for the bank. The construction manager is hired first to do a feasibility study. This determines if the project can be built with the information given. The construction manager would then stay on the project as the bank’s representative in the construction process doing monthly site inspections on pay request.
Who is the contractor and what is his
reputation?
This question threw up a red flag when I took it in respect to what Waller said about requesting evidence of financing from the owner. Mr. Coleman later explained that this may be as simple as noting what contractors were going to be on the bid list, so it is not essential to have the contractors in place before the bank would approve the project on a contingency basis.
Credit Risk Evaluation
Sun Trust has an extensive credit risk evaluation. It includes the applicants history of getting paid, the applicants capacity, the applicants history with similar projects, the whole picture (similar projects in area, market conditions, etceteras), applicants tax returns for the past three years, personal financial statements, rent roles (if applicable), projections, applicants experience, and applicants credentials. This list is just what he could pull off the top of his head there would undoubtedly be more specific ones to each loan that were applied for. This underlined the importance of a quality accounting process and retaining a CPA to make sure that the accounting is done right from the inception of any business. It also showed me that I am at least four years out from starting any business.
Mechanics Liens
The bank protects itself in many ways, paying attention that the mechanics liens are turned in for each pay period is one that caught my attention. This is something that didn’t happen on the smaller jobs that I had worked on as an electrical sub. It was written into the contract, but I can see that that would leave a loophole for a lawsuit to still be filed. Having a separate mechanic lien sign off for each of the pay periods would clearly invalidate any erroneous claims proffered by any subs.
Listening to Mr. Coleman gave me a completely new perspective on the construction financing process as a whole. While he dealt more with developers in this process he did give insight as to what sort of liquidity will be needed to start and maintain a construction company. He highlighted the fact that the line of credit is just a fall back for extraordinary circumstances and is not to be a crutch that is used often. He also mentioned the important role a good relationship with a bonding company can play when applying for a loan or line of credit.
John Teeples
President
DE/TE Builders
John Teeples spoke to our class on what issues he covered in starting his own construction company.
Experience
John Teeples highlighted the experience that what brought by he and his initial partner in DE/ TE. I can clearly see that experience is the key to a new construction company succeeding. This experience not only pays off in the day to day functions of the company but gives the owners of a company different the different perspectives of their previous employers when approaching problems. The main choice is whether to start with a smaller company and to wear many hats or to join a larger company, and learn the tried and true processes that they have in place. John Teeples suggested the former.
Business Plan
The need for a business plan is something that John Teeples and Mr. Coleman emphasized. The business plan is needed when seeking funding from a bank. It also serves to help you clearly describe the market that you will be targeting. John Teeples said that it was something that he hardly ever used again, but I think that the initial defining of your business helps you get the crucial first steps in the right direction.
Start-Up
When DE/TE decided on Columbus they then went about getting their team into place. This team consisted of the construction personnel but also the accountant, the lawyer, the banker, the bonding agent and the insurance company. With starting my own business I realize the importance of these key individuals or firms.
The lawyer is the first of these people that I would try to put into place. I would try to get a quality local lawyer to help me with setting the company up. A lawyer who is knowledgeable with the ramifications of how the company is set up can be invaluable. The type of entity that the company is set up as can have long term ramifications on the business. It can also affect the longevity of the company. If DE/TE had decided to go with a partnership then John Teeples would have had to start his business all over again on a historical basis when he bought out his partner. A Corporation allows a business to be its own entity. The type of corporation that is chosen for the company to be set up as can have great tax ramifications on the company. The differences between an S-Corp and a C-Corp can be hard to discern in the beginning, but this is where the choice of a competent lawyer comes into play. John Teeples also brought up the fact that he had two lawyers that he used a general business needs lawyer and a construction-specific lawyer. I thought it was a great way to have a local presence and to cover the construction specific risk.
When a company is started it should be determined what type of accounting processes are going to be used. This is where a good accountant can help in setting up these practices to get the most out of the tax laws.
John Teeples stressed the importance of getting a bonding company. No matter whom you have to start out with and how small it has to be. Without a bonding agent you can’t bid on a major percentage of the jobs available. I was impressed with how he said you could work up your bond limit, and how the bonding agent would work with you. The process for getting a higher bond limit seemed to be one where solid documentation will help. This is another reason for a good accounting system.
The choice of the insurance company is important, but without a track record you just need to take the best offer. I was aware that there was an assigned risk pool for new companies, but I didn’t know it was double that of companies with good records. This was also the case for workers compensation insurance. I am always amazed with how much money has to be spent on all the types of insurance that must be carried in order to operate a construction company.
John Teeples also covered how he set up DE/TE’s banking accounts. I was not aware of the zero balance checking accounts. When I had the electrical subcontracting company I had to transfer money two days before payroll was paid. While this wasn’t a huge deal it did take time. With the having the bank roll the money from the money market to cover the checking account on a daily basis it gives you the ability to write checks when they are needed. This can help a great deal when you have to replace tools the same day in stead of waiting to transfer the balance and hoping the check you wrote doesn’t post too soon. This highlighted one of Teeple’s sayings; ”you have to know to ask… they won’t offer to save you money.” If you remember to always ask this can save you a ton of money and time.