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Construction business survey reveals areas of opportunity

Small construction companies can improve their profitability by implementing procedures to document change orders, aconstruction survey by Grassi & Co., CPAs, reveals. The survey showed that 52% of respondents have had disputes leading to litigation. The cost of these disputes affects profitability.

According to Louis C. Grassi, CPA, CFE, and managing partner , this result is most telling and indicative of a growing trend on the part of owners and developers, both public and private, to implement better project planning procedures and more complete construction documents as ways to reduce the number of project change orders.

Using technology can improve project management, according to Pat DiFilippo, executive vice president at Turner Construction and his firm’s lead professional on Building Information Modeling (BIM), “Technologies such as … integrated project delivery programs are likely to have a significant effect on reducing changes throughout a project and increasing overall profitability—for both the owner and the contractor.”

The bi-annual construction-industry survey queried construction companies in seven different information areas: organizational structure, contract types, training and technology, profitability and access to capital, financial tools, business development and future vision. The results uncovered the need for implementing best business practices that increase reliance on sophisticated business planning tools and programs that focus on ways in which to grow the business over time and rely on financial techniques to increase profitability.

“Construction contractors should key into business planning for both growth and profitability,” advises Grassi.

Survey highlights

The survey also showed:

• Succession planning. Many of the firms (60%) who responded to the survey reported that they did not have a business succession plan in place. The importance of succession plans—especially in the construction industry which has followed a father-to-son/daughter business model—cannot be underestimated says Grassi. “For many companies, second generation professionals are in place; however for many others, a new generation of leadership has not been formalized, leaving business growth on an uncertain path,” he says.

• Improved marketing. Although 57% of respondents said they have a business plan, only 40% noted they have a marketing plan.

• Web sites. Going along with marketing is the use of Web sites. Only 76% of respondents have a Web site, despite the fact that the construction industry is increasing relying on Web-based documents, forms and communications.

• Fraud control.  Slightly over half (57%) of respondents said they use fraud-control plans. Data from the Association of Certified Fraud Examiners (CFE) indicates that companies lose an average of 7% of their revenue to fraud, a figure that suggests more control in construction is needed.

Source: Grassi & Co.,

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