Contract documents

May 22, 2024

For contractors, efficiency is one of the most critical pieces of their operation. There’s a direct correlation between the efficiency of a contractor’s operation, and their financial health. Research shows that profit margins for construction projects typically hover between 8-15%, with the average project yielding a 6% profit margin. These numbers can easily slide in a negative direction when a contractor ignores or doesn’t understand the importance of operational efficiency.

Make no mistake about it: finances matter, but aside from dollars and cents, there are several other reasons why a contractor should focus on becoming more efficient. For starters, efficiency conveys respect and sends a clear message to the market of what they can expect from a contractor. When a contractor is efficient, it can also set the tone for a relationship. For example, if a subcontractor or client comes to the table and sees a contractor who is thorough, prepared, and efficient in every phase of their interaction, it challenges them to do the same. When this happens, the potential for success increases exponentially.

Ways to Improve Operational Efficiency

 For contractors who are serious about taking their business, and operational efficiency metrics, to the next level, here are five critical steps to follow.

1. Embrace technology: Construction is one of the last bastions of pencil, pen, and paper, but all that is changing as slowly but surely, contractors are embracing technology and the difference it makes in their business. From software that helps contractors plan and track, to the broad array of contract template solutions offered by AIA Contract Documents, technology can dramatically improve efficiency and help a contractor responsibly grow their business.
2. Emphasize planning and preparation: Contractors who fail to plan may as well plan to fail. Planning is a core element of operational efficiency, but contractors often overlook this stage without giving it the due diligence it warrants. Constantly revisiting the planning phase of the operations model helps contractors remain ahead of the competition, drive stellar customer service, and protect efficiencies and their bottom lines.
3. Focus on building a team: Construction is a transient industry with skilled labor often moving from job to job. Ideally, a contractor likes to send out a crew with history and familiarity with one another, with synergies throughout, which is why it’s important to focus on building a team. Successful contractors are adept at building strong teams and understand that having a roster of professionals who are familiar with one another leads to better on-site operational efficiencies. Aside from becoming more efficient, the quality of work improves, and resources are managed responsibly, ultimately resulting in cost savings across the board.
4. Maintenance: Expensive machinery is always a part of the construction dynamic. From tractors that transport materials to bulldozers that dig, push, and excavate to cement trucks that mix and pour, a construction site is filled with expensive machinery. If any of these or any other piece of heavy equipment becomes damaged, the impact could be disastrous, which is why machine maintenance is such an integral part of operational efficiency. Contractors should create a plan to perform routine inspections and maintenance duties to ensure each remains in working order. Maintenance doesn’t just apply to machines. Contractors should also pay close attention to maintaining the mental health of their employees, as depression, anxiety, and suicide are more prevalent than ever in the construction industry.

Conclusion

Operational efficiency is a critical part of any successful contractor’s construction journey. Efficiency impacts every phase of their operation, and contractors must understand that decisions made on or off a construction worksite can directly affect their operational efficiency levels. Technology can lessen the chances of mistakes that cause efficiency levels to decline, and so can effectively plan the work. Teamwork and collaboration while leveraging the available technology is another avenue that contractors must explore when it comes to improving their overall efficiency. Finally, maintaining the resources, including machinery and the people who operate them, is a must, as all play a pivotal role in improving operational efficiency.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.