Contract documents

November 18, 2022

One of the most beneficial and meaningful activities a construction company or design firm can perform is construction benchmarking.  Benchmarking is “a standard or point of reference against which things may be compared or assessed.” A company can improve processes, expand profits and increase productivity by assessing their key metrics in comparison to those of direct competitors, the overall market, and even of their own past performance.

The process of benchmarking provides detailed information about a firm’s commitment to industry best practices and a contract’s performance at the time of assessment. Construction and design companies can benchmark performance across their activities, as well as conduct competitor and strategic benchmarking to stay current and identify any gaps in services or procedures.

To set higher standards in projects and performance, consider conducting the following three types of construction benchmarking:

Internal Benchmarking

Design and construction companies don’t have to look far to improve their performance.  An analysis of past projects will provide vital information which will assist in creating internal best practices. Review your past projects and (without bias) ask yourself:

• What worked well and what didn’t?
• What were key performance indicators (KPIs)?
• Were all actions timely and hand-offs seamless?
• Were there an excessive number of changes? What was the source of the changes?
• Did contract documents effectively lay out project roles, responsibilities, and obligations?
• What could be improved? How can these improvements be made and who needs to implement the improvements?

The promise of internal benchmarking is that by looking closely at your company’s strengths and weaknesses, you can identify steps to implement more effective policies and procedures in the future.  The challenge is internal benchmarking must be done without bias to be impactful.  This is not easily achieved.

External Benchmarking

External benchmarking is how a construction company’s customers measure their performance.  Like it or not, we are all compared to our market competition. Benchmarking your own performance to the overall market is a powerful tool that can provide insights, increase innovation and productivity and identify gaps in your products, services, and processes.  This method helps your company remain competitive and ensures that you meet the dynamic industry standards for excellence. External benchmarking answers the questions –

• Where do I stand in comparison to the overall construction market?
• Where do I stand in comparison to my project types and size within my specific market region?
• What is the project duration for different types of projects and is my portfolio of projects within this range?
• How many change orders are acceptable for a defined project profile?
• What is the market range of impacts (cost and time) for change orders for my project types? What is the average impact (cost and time) of these ranges?
• How do I compare to a project profile of my peers – companies doing similar work in the same geographic locations?

Both internal and external benchmarking require the collection and compiling of project data over time for an accurate view of your business.    Internal benchmarking is a time-consuming task and external benchmarking can be near impossible because data collection by a single company will always be hindered by the breadth and depth of an individual companies reach. Precision of the data will also be affected by the company’s own internal knowledge of the industry at any one moment. This is why companies typically rely on survey data collected by industry consulting firms or purchase data insights for external benchmarking.

Strategic Benchmarking

Strategic benchmarking involves comparing your business strategy to other high-performing construction companies in order to identify key trends, differences you can leverage, opportunities for your business, and strategic goals for the future. First choose the strategic area(s) you want to focus on such as financial, safety, environmental impact, marketing and sales, or overall business strategy to name a few.  In specific strategic areas the assistance of professional specialty consultants are a valuable investment if you do not have access to in-house expertise.

For overall business strategy benchmarking, a great way to start is to combine the results of your internal and external benchmarking and then research the correlations and common themes.  Add to this your company’s long-term vision and goals in comparison to the highest-performing companies in your segment.  Using the narrow focus of your internal and external benchmarking studies, take a topic and research what other companies are doing to advance a specific area.  With this research, analyze the following:

• Why is a particular solution working for them?
• How did they come to this solution?
• Will it work for you?
• How can you adapt it to your strategy?

As you go through each discovery you may need to recalibrate your company’s vision and goals.  Reassessing your strategy is a natural part of the strategic benchmarking process.  You will discover benefits and flaws on both sides of the strategic comparison—your own strategy and the strategic position of the highest-performing companies in your segment.  Through this research you will gain a better understanding of how the high-performing companies work.  More automated and technological companies will lean towards technology solutions and companies which are more hands on and traditional will lean towards more manual solutions.  This is the greatest advantage of a well-done strategic benchmark—you will learn what advantages you have, what gaps you need to fill, and what advantages—and flaws—are in the strategy of your highest performing competition—their marketing, management process, leadership approach, and vision of the future industry. From this you can create your own unique strategy.

For your construction company the key value in all three types of benchmarking is to implement the results of the benchmarking research.  Don’t let the valuable time you spend benchmarking and the value of your benchmarking insights be wasted by not creating an action plan and implementing your deeper knowledge.

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.