How our client increased margin by 71%.

A client recently used Chalkstring to inflate their final margin significantly – from 10.9% at tender to 18.6% at completion – on a large multi-million-pound construction project.

Delivered by a small, efficient team, our client benefited from the powerful profit-enhancing features in Chalkstring, our project cost management software.

This article, written by Barry Chapman from Chalkstring, explores five simple ways in which they were able to squeeze additional profit:

1.   A ruthless post-tender review once the contract was secured

2.   Maximising their margins on instructed variations

3.   Maintaining a tighter control over their supply chain

4.   More informed & strategic decision making

5.   Improved efficiency, productivity and automation

Before we get started, I just want to address the fact our client will remain anonymous. As a specialist subcontractor working directly for Tier 1 main contractors, I’d imagine that you too probably wouldn’t want me shouting from the rooftops that you’re making such high profit margins – after all, your clients might read this and think they pay you too much.

For that reason, my client and I have agreed that I’m not going to mention their name or the project by name but – and you’ll have to trust me here – this is genuinely based on a real project and here’s how it was done.

The project

Alex (*not her real name), the project QS, was given a £7.8m drylining, firestopping and screeding project for a 1,380-bed residential apartment development. The works comprised 11 simultaneous work packages, across several phases, priced on a re-measure contract lasting 18 months on site. The project team was very small considering the project value, and comprised the following roles:

For a number of reasons, our client was particularly keen to win this contract and so, confident from past experiences that Chalkstring would help them increase their margins post-contract, their estimator used Chalkstring to prepare a very keen tender a forecast project margin of 10.9%. Other subcontractors couldn’t come close to this price and so the job was theirs. Now Alex and her team needed to not only deliver the project but significantly increase the overall final margin, something that was achieved with Chalkstring by doing the following:

1. Performing a ruthless post-tender review

Using Chalkstring, our client was able to easily re-cost the job to maximise buying gains. Extra margin was generated by swapping to cheaper brands and products within spec, all of which are contained within Chalkstring’s extensive database of materials and prices. They were also able to generate supplier quote requests and directly compare alternative supplier’s like-for-like quotes, resulting in significant margin increases from a powerful but simple value engineering exercise.

2. Ensuring margin was maximised on variations

In total, the project ended up with more than £1.5m of agreed variations. Put simply – Chalkstring ensured that every change to the project scope was captured and charged by the commercial team as a substantiated variation. Nothing slipped through the cracks, and the ability to log issues onsite enabled them to provide photos as evidence to substantiate claims where needed. Using Chalkstring’s unique pricing functionality (a range of current supplier prices at Alex’s fingertips enabling her to ‘price high and buy low’ within Chalkstring) she was able to yield a substantially higher margin on the variations, which contributed to lifting the average margin across the whole project.

3. Maintaining tighter control over the supply chain

With over 200 incoming monthly subcontract labour applications to process during the project lifecycle, Chalkstring made light work of enabling these claims to be electronically checked and approved, as well as automatically cross-checked against recorded site progress to highlight any overbooking. The result was a saving of 5% against projected labour costs, equating to a whopping £389k.

Using Chalkstring, our client was also able to reduce material costs by 1.3% simply by eliminating over ordering, using accurate waste allowances and highlighting invoice errors. This saved the project a further £107k.

3. Enabling more informed & strategic decision making

Because Chalkstring continually displays easy-to-understand live job cost reports that track progress in real-time, the management team was able to scrutinise project performance at granular level in terms of progress, costs, revenues and projections. Having this amount of information so visible at progress review meetings enabled the team to identify potential issues early on and mitigate against them, as well as make critical decisions confidently.

5. Improving efficiency across the project

On a contract of this size, the sheer volume of financial admin could easily have swamped such a small project team. However, because they were using an integrated system that enabled access to all financial information onsite and offsite, plus some serious productivity tools, each member of the team was able to work efficiently with the latest up-to-date project information, as well automating purchase orders, valuations, applications, CVRs etc.

Risk of human error was greatly reduced, and hours of admin time was saved by everyone having the same data at their fingertips – such as order costs, delivered quantities and invoiced values, thereby reducing the number of queries to and from site. Chalkstring’s efficiencies made it possible for our client to manage a project of this magnitude with a visiting commercial manager, rather than needing a resident surveyor.

Summary

For many contracting businesses, ensuring good margins can typically be a challenge, let alone increasing margin by over 7% from tendered figures. In the real-world it’s often hard to keep on top of the day-to-day changes in project scope and the associated impact on materials, labour, variation claims and admin.

Every day we see first-hand how subcontractors struggle to know exactly what materials they need for their ever-changing project scope, resulting in over-ordering, invoices being paid “on a wing and a prayer” (as they don’t know what’s been delivered), labour costs spiralling due to over-booking and limited visibility of final projections and other key metrics. CVRs are fine in principle but are only created once a month, are out-of-date the next day and take a lot of wasted time to produce.

Many subcontractors we speak to admit that their core issues come down to a lack of adequate systems, and over reliance on personalised and disjointed spreadsheets that can’t begin to give this level of power, control and intelligence.

Our client’s lean project team has demonstrated in this case study how it’s possible to streamline projects and impact margins by using an integrated project cost management system, like Chalkstring. There’s no reason why you too couldn’t gain more control, reduce admin burden, drive margins up and deliver more projects, more confidently, with less resource. If you’re not harnessing this technology, you can be certain your competitors are.

How to eliminate risk by adopting a project management framework

How to eliminate risk by adopting a project management framework

Discover how harnessing technology enables subcontractors to control spend, reduce errors, increase efficiency and deliver profitable growth.

Controlling costs and running projects efficiently, whilst simultaneously ensuring you make a decent profit, is something every specialist subcontractor strives for daily. We all know it’s challenging – tight margins, an ever-changing project scope and pressure to deliver everything yesterday.

Having worked in construction software for two decades, I’ve seen the good, the bad and the ugly in how projects are run, with the majority of subcontractors struggling with a lack of standardised processes, multiple systems that don’t talk to each other, and no reliable data on which to make critical decisions. All these factors combined make it difficult to deliver optimal profitability and de-risk contracts.

More recently I’m seeing a shift, with subcontractors investing in and leveraging technology to give a structured framework to manage projects. Forward-thinking subcontractors are no longer willing to use one software for take-off, another for estimating, a different one for procurement and spreadsheets for the bits in between.

Instead, they’re opting for all-in-one platforms to manage costs. In doing so they’re eliminating over-ordering and over-paying, standardising business-wide processes and reducing the inevitable errors that arise when duplicating data across multiple systems; all of which has led to increased efficiency and reduced risk. Let’s explore why.

Standardise systems & processes

The construction industry is notorious for running highly complex projects using disjointed systems and spreadsheets. As a result, key project data is held in silos, making it difficult for stakeholders to share information in real-time and collaborate effectively.

There’s also plenty of error-prone duplication and rekeying of data, plus a lack of transparency often leads individuals to develop their own uncontrolled documents and processes in Excel. With personalised worksheets it can be difficult to transition staff between projects, as it’s time-consuming to decipher the information and there’s no real-time data help you making informed decisions.

Then let’s throw into the equation the Forbes’ statistic – citing that 88% of spreadsheets contain errors – and it’s abundantly clear that using Excel for project processes and systems can expose a business to risk.

By standardising on a single cloud-based platform for project financials, subcontractors adopt a framework for creating, sharing & managing cost information at every stage of a construction contract, from tender to final account. Everyone works in a consistent way, using the same software, standardised documentation and processes. Handovers from pre-construction to production teams are seamless, with project data being presented in a consistent and familiar way.

And because all the cost information is available in one central, accessible location, the project team can view and edit real-time data regardless of whether they’re onsite or in the office. There’s no waiting to see the status of an order, or for spreadsheets to be updated with site progress; all project information is always up-to-date and available.

Reduce risk

Using a single platform also reduces risk considerably. As an example, one of our client’s core drivers for adopting technology was to eradicate information silos and in doing so, prevent the recurrence of a very costly mistake. A well-meaning employee had returned from furlough and, in good faith, placed an order for a bespoke item. However, because the business used many different systems for purchasing, he was oblivious to the fact it had been already ordered. Without realising, they placed the exact same £60k order again, destroying their profit margin on that contract. Had they been using a single system this mistake would have been avoided as it would have been clear it had been ordered.

“Lack of systems cost a client £60k”

The right time

So, when should you consider adopting a structured project management framework? PWC recommends being proactive rather reactive, regardless of business size. Indicators that it’s the right time include:

  • If your existing methods have failed
  • You recognise you need better processes as you struggle to retain control
  • Increased risk or complexity is emerging e.g. Covid and the associated challenges
  • There are looming internal processes changes within your business
  • You want to scale the business or pursue a new direction

If any of these indicators ring true for your business, act now, as there is a solution. Those subcontractors who use a structured project management framework ultimately run their business with reduced risk and improved productivity, which leads to increased profits and scalability.