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Society of American Military EngineersJoint Engineer Training Conference

St. Louis, MissouriMay 24, 2012

Small Business ‐ How to Become and Stay a Successful Construction 

Contractorwww.frisbygroup.org

©Tom N. Frisby 2012Power Point Presentation by: Mendi Arnold

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Opening The Door Is Not Enough

• Small Business Set Aside

• HUB Zone

• Minority

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Opening The Door Is Not Enough

Being a small / minority contractor only opens the door of opportunity to be a success…or a failure

Being a large contractor mentoring or joint venturing with a small minority / HUB zone contractor only opens the door of opportunity to be a success…or a failure

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Inside The RoomOnce inside the room, success or failure is now a function of HOW:

You are equippedequipped to perform

You actuallyactually perform

Continue to improveimprove performance

Identify and manage risksrisks

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Terra TerrabiliusTe

rra

Terr

abili

usTer ra T e rr ab il iu s

Terra Terrabilius

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It is indeed, survival of the fittest! Of 850,000 non residential

construction companies in 2004 only 649,600 were still in business in 2006. ( 23% failure rate )

Owners are demanding

The bar of performance is being raised

Only the most qualified will be selected

The economy is not friendly

Owners are shifting the risk to the contractors.

Contractor Failure Rates

14.6%24.6%1541 Industrial

17.5%25.0%1542 Non‐residential buildings

21.6%27.4%1600 Heavy Highway

24.4%29.0%1700 Trade Contractors

2004‐062002‐04SIC 

Source: BizMiner

The Age of DarwinMost ContractorMost Contractor’’s performance is not adequate for sustainabilitys performance is not adequate for sustainability

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The Role of Today’s Contractor: Contractors must be more than

just builders. They must be excellent business managers

Marketing (acquisitions) is no longer just reading the Dodge report. It is now a function of the entire spectrum of activities in the company.

Marketing is a function of better performance than the competition, by each and all, from the president to the clean up laborer.

This is where some form of quality performance and continuous improvement programs should be evaluated, formed to fit your company, and implemented.

As they say, it’s a race without a race without a finish line!finish line!

So So –– It is a good time to evaluate It is a good time to evaluate your companyyour company’’s performances performance

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This is a Football!

In life how often do we need to go over things again and again. Whether it is training for a position at work or memorizing information for a school exam, we

all review the basics over and over and over and over again.

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The FundamentalsThe Three Components of Fielding a Winning Team

“Field a Winning Team”“Field a Winning Team”

$UCCE$$$UCCE$$

Industry ImmersionIndustry Immersion

Inter CompanyInter Company

Intra CompanyIntra Company

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Intra CompanyOrganize to Kick TailOrganize to Kick Tail

“Winning is not a sometime thing; it’s an all the time thing. You don’t win once in a while, you don’t do things right once in a while, you do them right all the

time. Winning is a habit. Unfortunately, so is losing.” Lombardi

Self Evaluation…Self Evaluation…

…IS:…IS: …WHEN…WHEN

Objective Before the game

Honest After the game

Hallmark of all great coaches After each play

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SWOT

Strengths

Weakness

Opportunities

Threats

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The Seven Pillars of GraniteHow to play the game

Integrity

LeadershipPeople

Processes

How to protect myself

Financial ManagementDrucker: Identify the needs of the customer. Organize to fulfill those needs:

•Be Competitive

•Have “Edges”

•Get Better

•Make a Profit

•Be Your Customer’s Preferential Contractor

Intra Company

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How to Play the Game

Intra Company

Joint Venture or Partnering?

Website www.frisbygroup.org

Click Doing Business with the Federal Government

Stay Involved with SAME

Stemple Plan (Mentor/Protégée Plan)

Federal Government Construction Contracts by Smith, Currie and Hancock

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Integrity

Intra Company

Driving Force Behind Every Activity in a CompanySafetyContract ComplianceChange Order PricingHow you treat your peopleHow subcontractors are treatedAccountability

Roy Disney said: Once you have your values in place, you never have to make a decision again.

This is the central driving force behind every multi-generational company we have studied.

See website “The Construction Industry’s Ethical Dilemma” http://ecmweb.com/mag/electric_construction_industries_ethical/

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Integrity                             Standards of Conduct                                            Federal Procurement                                             

Do Not Pass Go – Go to Jail

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Procurement Integrity

Contractors need to appreciate that government contractors are held to a high

standards of ethics and conduct.

The following references are not complete – only illustrative of key FAR and statutory requirements.

TAKE THESE SERIOUSLY!!!

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Requires contractor to certify entitlement and cost appeals of proposal for equitable adjustment

FAR 15.406‐2Certificate of Current Cost or Pricing Data

Agents engaged to solicit award prohibitedFAR 52.203‐5Covenant Against Contingent Fees

Certifications as to validity of claims in excess of $100,000

FAR 52.233‐1Disputes

Amounts requested are only for performance in accordance with specifications, terms, and conditions of contract; payments to subcontractors have been made from previous payments; timely payments to subcontractors will be made; and payment request includes no amount that prime contractor intends to withhold (retain) from a subcontractor or supplier.

FAR 52.232‐5Payments Under Fixed‐Price Construction Contracts

Affirmative Action Program StatusFAR 52.222‐25Affirmative Action Compliance

Certification that Davis Bacon wages fully paid and payroll records form are accurate and complete.

FAR 52.222‐8Payrolls and Basic Records

Basic Subject MatterFAR ReferenceTitle of Provision

Federal Government Illustrations

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Applies to any request related the payment of money by the United States, directly or indirectly

31 USC 3729‐3733False Claims Act

Includes statements, false entries, oral and unsworn statements.

18 USC 1001

Cost or pricing data on negotiated contracts or subcontracts; modifications of contract in excess of $650,000; necessity for certification

10 USC 2306a

41 USC 254

Truth in Negotiations

Civil Statutes

False Statement Act

Applies to any request related the payment of money by the United States, directly or indirectly

18 USC 287False Claims Act, Criminal Liabilities

Prohibits payments by subcontractors at any tier to prime contractors or subcontractors to obtain a government contract

41 USC 51‐58Anti‐Kickback Act

Subject Matter / NotesStatutory ReferenceTitle

Criminal Statutes

Federal Government Illustrations

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Fundamentals                        Leadership

CII says their leadership eclipses all other elements of Total Quality Management (TQM)

Our studies show that an unmistakable characteristic of the continuously successful

company is leadership blended with managementship.

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Leadership & ManagementshipLeadership & ManagementshipLeadershipLeadership

Discovering right market nichesDiscovering right market niches How to be ahead of competitionHow to be ahead of competition Company values, visionCompany values, vision Meeting new challengesMeeting new challenges How to improveHow to improve Bringing technology into companyBringing technology into company Community involvementCommunity involvement Work place environmentWork place environment

Managementship Policies & procedures in place 

(project management tools) Implemented (performance) 

people development, training, effective use of technology systems & conflict management

Continuous improvement programs

Communication Evaluation mechanisms

It takes both, plus EXECUTION! It takes both, plus EXECUTION! PLEXPLEX

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The Role of the PresidentManagement Approaches

Top Line Management Empower others (enable first) Ideas from anywhere Get the best people, develop them, & 

reward them (see “Good to Great”) Customer driven: internal & external (see 

“NUTS”) Profit driven (grow capability before 

revenue) Team oriented Continual improvement Accountability committed Process driven Strategic planner Priority manager Liquidity manager Strong principles (see Roy Disney) Risk Manager

Bottom Line Management

Command & control

Ideas from the top

People are expendable

Financial driven

Revenue driven

Company focus

Status Quo

Do what it takes

Get it done

Tactical planner

Risk Taker

BUT ONE SIZE DOES NOT FIT ALL!

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The Role of the PresidentHe is the “Head Coach” Knows how to play the game Develops game plans which will win using:

Excellent players who have a play book  Processes

Real team players that give input on how to win A great recruiter

People want to come and stay at his/her company Has excellent assistant coaches Constant evaluation of game plan and players Can take a loss and still come back for the next game Innovative – a student of his profession Prepares for a muddy field

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FundamentalsPeople

From Good to Great by Jim Collins

Load your bus with the best people, in the right seats.

You improve through emphasis on the WHO and not the WHAT.

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Company Organization and Procedures

enablement empowerm

ent

High Standards

X Technical

X Values (Character)

X Process

X Accountability

X Interpersonal Relations

Command & Control Do Manage Lead

Martin K. Eby Sr. felt his number one job as President was to develop his people through a coaching and experience matrix.

This is the reason for succession plans – to develop (or enable) a subordinate into a greater management position. This is the reason for career development programs, continuous improvement programs, seminars, in-house training, and lifetime training

to enable individuals to perform (and this organization) to perform better.

Without “enablement” there is not quality organization: empowerment will fail.

The importance of hiring right

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Continuous Training

Hiring 

App

roach

Interns

Expect

ations &

 

Evalua

tions

In‐house training  Conference room, on the 

job, Webinar

Coaching / Mentor 

Programs “Slettenizing”

Pre‐mortems 

(lessons learned)Priority 

Identification

Best Practices Teams

During 

Mortem

sPost 

Mortems

Succe

ssor 

Develop

ment

Industry 

Advances

Cross Training

Continuous Training

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Processes“Best Practices” to Perform Each Function

Everyone on common approach

Basis for evaluating what works

Basis for evaluating what doesn’t

Basis for measurement KPI’s

Basis for kaizen (improvement)

Processes are not just papers in three ring binders

Processes are not just papers in three ring binders

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Ask yourself:

Are you better today than in May 2011?

Is your Company?

Get Work Do it Better

Get WorkDo it Better

Deming’s Circle

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SCHEDULEAS

PROCESS

BEST PLAN FOR MANAGING PROJECT

BASIS OF SERIES OF PROMISES

MANAGES VARIABLES

MEASU

REMEN

T TOOL

20-20

FORESIG

HT

BEST PL

AN FOR

PRODUCTIVITY

(WORK FL

OW)

PARTICIPATORY (OWNERSHIP)

COMMUNICATION TOOL

Processes:

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Field Documentation As a Process

Daily Report Shows Equipment Delivery

Management asks”WHY”

Give Owner & Supplier Written

Notices

Works to Mitigate Damages

Updates Schedule to Show New Data

Record Effect

Update Labor Report Shows

Negative Trend

Field Documentation As a Process

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Pareto – The Frisby learning curve“We have learned to repeat our mistakes.”

Companies fail because early detection of cancer is not spotted and excised.  (The Law of Chaos)

CANCER

Inspect and correct philosophy

Inadequate field documentation

Failing to update schedule and coordinate

METASTASIZE

Delays close out, increases labor costRisk not being pre‐qualified on next jobLack of early warning and timely notice barsPotential claimProject goes southWrecks production flowBuild claims instead of projects

Cancers which can MetastasizeCancers which can Metastasize

Processes – The Management of Waste

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Productivity PAC Men

RE-W

ORK

EXCESSIVE WARRANTY

JOB CONDITIONS

EXCESSIVE OVERTIME

UNTIMELY DELIVERIES

UNTIMELY SUBMITTALS

UNTIMELY DECISIONS

INEFFCIENTMATERIALHANDLING

INEFFECTIVE

PLANNINGAND USES

OF SCHEDULE

UNQUALIFIEDPERSONNEL

CRAFTSMAN TURNOVER

SUPERVISORYTURNOVER

•DISRUPTIONS•OUT OF SEQUENCE•CROWING•ACCESS•DENIAL/OBSTRUCTION•CHANGED CONDITIONS•ACCELERATION

COLLABORATIVE APPROACH

WITH OWNER-DESIGNER-SUBS

Productivity Factors

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CASH FLOW MANAGEMENT

INVESTMENT

RIGHT JOB

GOOD ESTIMATE

MOBILIZATION

BILLING

CHANGE ORDER BILLING

WORKMANSHIP (BIQ)

LEARN G & AWORK FLOW

SAFETY

BACKCHARGE

MANAGEMENT

TIMLE

Y PROCESS

Keep the cash running through the company. Some of it is going to stick.

FINANCIAL MANAGEMENTCASH FLOW MANAGEMENT

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How to Protect Myself

Remember the Rooster?

Know the rules of the game!

Play by the rules of the game.  Like the Saints, infractions can include being tossed out of the 

league, or at least, loss of the game.

Read the contract (RTC bumper sticker)

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Follow the Quads

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(1) Contracting officer’s decision becomes final and conclusive.

(2) Contracting officer’s decision becomes final and conclusive.

(1) Yes‐Notice of Appeal

(2) Yes‐Filing of complaint

(1) Boards of Contract Appeals‐90 days from receipt of contracting officer’s final decision.

(2) US Court of Federal Claims‐1 year from receipt of contracting officer’s final decision.

Appeal of any final decision final decision byby the contracting officer.

Disputes

FAR 52.233‐1

Contractor may be held responsible for delay (LD’s erg.)

Yes10 days from the beginning of any delay.Causes of delay beyond contractor’s control.

Time ExtensionsFAR 52.249‐10

(1) Costs incurred more than 20 days prior notification cannot be recovered.

(2) Claim not allowed, but claim may be considered until final payment.  Don’t count on it!

Yes(1) Within 20 days from the act or failure to act by contracting officer (not including a suspension order).

(2) “As soon as practicable” after termination of the suspension, delay or interruption.

(1) Of “the act or failure to act involved,”

Suspension of Work

FAR 52.242‐14

Claim not allowed unless constructive notice is sent to the government.

YesFrom the time conditions are identified, notice to be furnished ““promptlypromptly”” and before such before such conditions are disturbedconditions are disturbed

Existence of different conditions affecting contractor’s work.

Differing Site Conditions FAR 52.236‐2

Costs incurred more than 20 days prior to giving notice cannot be recovered.  Does not apply to defective specifications.

YesWithin 20 days of incurring any additional costs due to the constructive change fully protects the contractor’s rights.

Date, circumstances, and source of the order and that contractor regards the government’s order as a contract change.

Constructive Changes 

FAR 52.243‐4

Disallowance of claims but may be waived until final payment.  Don’t count on it!

Yes30 days from receipt of a written change order from the government or written notification of a constructive change by the contractor

Proposal for adjustmentChanges FAR 52.243‐4

Potential Consequences of Lack of Notice

Writing RequiredTime RequirementsNature of NoticeClause Reference

Illustrations of Written Notice Requirements in Federal Construction Contracts

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INTERFACE MANAGEMENT

SUPPLY CHAIN

FINANCIAL RELATIONSHIPS SUBCONTRACTORS

TECHNOLOGICAL TRENDS

INDUSTRY TRENDS / RESOURCES

CUSTOMEROWNER/GENERAL

CONTRACTOR

Inter Company

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INTERFACE MANAGEMENT

TRADE ASSOCIATIONS

SAME, PMI, CSI, SBA

COMMUNITYUNIVERSITIES(Purdue, e.g.)

PEER GROUP

INTERFACE MANAGEMENT

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TECHNOLOGY MEANS & METHODS

ELECTRONIC TOOLSBIM

PM SYSTEMSCLOUD COMPUTING

ROBOTIC

DELIVERY SYSTEMSDESIGN BUILDINTEGRATED

PROJECT DELIVERY(IPD’s)

PROJECT MANAGEMENTBIM 25/10 CONCEPTLEAN MANAGEMENT

NO PUNCH LIST (P-I –F)BEST PRACTICESCOLLABORATION

SPEEDPRE-ASSEMBLY

MODULARMATERIALS (FRP, e.g.)

CHINESE 16 DAY BUILDINGNANO TECHNOLOGY

Industry Immersion

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National Research Council (NRC) Recommendations Opportunities for Breakthrough Improvements

1. Widespread deployment and use of interoperable technology applications, also called Building Information Modeling (BIM)

2. Improved job-site efficiency through more effective interfacing of people, processes, materials, equipment, and information

3. Greater use of prefabrication, preassembly, modularization, and off-site fabrication techniques and processes

4. Innovative, widespread use of demonstration installations

5. Effective performance measurement to drive efficiency and support innovations

TQM – The Industry

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SummaryIt is not size which will provide platform for

success

It is PERFORMANCE!

It is staying on top of your game and ahead of the competition.

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1. How have YOU improved over the last year as a person?

2. List how your COMPANY has improved over the last year?

3. If you sold your company for just book value, how long would it take, based on the last three years financial history of your company, for the purchaser to earn back his investment (assuming the same revenue and generally  the same market conditions)

4. Give a letter grade to each of your  management and supervisory personnel in your company.  What is the average?  What is their potential?

5. How many claims have you had against your customers over the last three years?

6. How many claims (liquidated damages, other) have your customers had against your company over the last three years?     

7.  Is your current ratio above or below 1.5?

8. Is your EMR above or below .85?

9. How many key management and supervisory personnel have you lost in the last three to five years?

10. Is your net profit above or below 2.5%.

11.  Would you rate your permenent field non‐supervisory personnel at above or below an average grade of  a "C"?

12. Do you have a benchmark or earned value reporting system in  your company?

13. Do you have a successorship plan in your company?

14. Do you have continuous training programs in your company for all levels of personnel?

15.  Is your company pretty well doing business now as it did five or ten years ago?

16. Over the last five years, you have listened to many MCA programs.  List three things that immediately come to your mind that you have learned and actually implemented from  these programs.  Do not take more than one minute to answer this question.

17. What is the strongest attribute of your company?

18. What is your company's greatest weakness?    How long has that weakness existed?

19. How often do you and your key people meet to discuss the future of your company (markets, personnel development, processes, delivery systems, financial et al?)  

20.  Bottom line:  Are you satisfied that your company is "best of its class" and if not, what do you intend to do about it?  On the other hand, are you satisfied with where your company is, making the money you need to make, and have no plans for any changes?

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1.  Constancy of Purpose for continual improvement of services and allocation of resources to achieve this purpose.

2. A New Philosophy which finds unacceptable unnecessry waste, delays, defective products and workmanship.

3. Cease the concept of inspect and correct through built in quality.

4. Procure through value oriented, instead of lowest cost, contracts.

5. Improve every process.

6. On the job training of all levels in the company.

7. Leadership aimed at programs to improve productivity.

8. Replace fear with participation.

9. Replace slogans with effective methods and training.

10. Develop a culture of pride in workmanship.

11. Encourage education and training.

12. Leadership's commitment and action to achieve its goals.

13.  Open communication by breaking down barriers.

14. Replace arbitrary goals (such as quotas) through training and processes.

Dr. Demings 14 Point Total Quality Management Program