Staff in the construction and finance departments of a company could often work more closely together – but how can this be achieved? What benefits will it bring to your company to change the way you work this year?
Construction personnel and accounts staff often appear to speak different languages.
I come across construction staff who consider the accounts team to be ‘number-oriented’ without understanding the nuances of life on a building site. Conversely, finance personnel may consider that the construction guys are solely focused on getting the job done, whatever the cost.
Too many firms think that a tender is just an estimate to win a contract, but it should be much more – eventual performance should be judged against it. With design-and-build tender periods seemingly getting shorter, a well-structured estimating function is essential.
Submitting a tender based on a fully resourced bill of quantities provides confidence and a basis for cost control during the construction phase – the construction people prepare it and the accounts team measure them against it.
Avoid pressure from above to get tenders out too quickly; instead, focus on which bids to go after, rather than adopting a scattergun approach.
“Anecdotal evidence suggests that the estimating team simply assume that the finance team will find the funds for a project”
Anecdotal evidence suggests that the estimating team simply assume that the finance team will find the funds for a project. However, management may not understand the cashflow implications of a tender and probably don’t use a cashflow forecast to predict working capital needs.
If they were presented with clear projections, it may help them negotiate a better payment schedule at the start of a contract.
Good to talk
The construction team may want subsequent deliveries at keener prices, which is possible if they’re paying bills sooner. There are benefits of good supplier relationships which can only be achieved if there is good communication with finance and they are allowed to manage cash effectively.
To quote that BT advert from years ago, “It’s good to talk”. In my experience, cashflow on a contract is often good early on and then gets difficult when problems arise and site staff don’t tell finance what’s going on.
“Any construction company only has a certain credit limit from the bank – they can’t take on a never-ending series of contracts”
Any construction company only has a certain credit limit from the bank – they can’t take on a never-ending series of contracts. They may have to cherry-pick the best contracts, which is easier to do if the two teams discuss which to bid for.
A work programme and cost estimates are key components of a tender submission, helping understanding of risks, measuring costs and negotiating the contract sum and terms. Usually a work programme details the activities and when they are planned to start and end, and each activity will have an estimated cost.
No project goes exactly to plan and without regular communication, finance will be making decisions based on out-of-date and inaccurate information.
Be aware of early warning signs. A phased budget essentially splits up a project into a series of mini-projects, on which over- and under-spends could flag issues earlier.
If issues are due to a subcontractor’s poor performance, it may be possible to mitigate the effect by a contra against their work on other projects.
Aim for better management information, which brings better decision-making and greater creditability with stakeholders – banks, supplier, and bond providers - if forecasts are being met.
Finally, consider the motivational improvements from your construction and finance teams speaking to each other.
We would all like to deliver on time and on budget in 2015, which is more likely if there’s contact between teams.
Robert Hernandez is a client finance director at FD Solutions and heads its construction sector team