When you’re hit with project delays, it’s important to mitigate your costs so that your profits are protected.
By Ron Coleman
There are so many reasons why projects get delayed in starting or completing; it has become more the norm than the exception. However, I am not going to go into the reasons behind the delays. Instead, we will focus on how to mitigate costs and protect profits when hit by these delays. The first thing to know is what remedy is best suited for the various types of delays.
Next, I would review the labour and material bonds that are in place. As a sub-trade, you aren’t party to those bonds, but you are often protected by them. However, sub-trades to the sub-trades are less likely to be protected.
Quantifying the financial impact of delays is not simple. There are many elements to it. Direct costs may increase, overhead will definitely increase, and opportunity costs will be lost.
Spelling out the terms for which you expect to be compensated for delays in your quotation is the first step. The second step is to ensure your quotation becomes part of the contract. That is not automatic. Often the contract is a stand-alone document. It is up to you to ensure that the clauses you want included in a contract are included.
Once a delay notice has been issued by the contractor, you should spring into action and send them the details of the repercussions that they will face. Even when anticipating a delay, it might be prudent to let your client know so that they have an opportunity to minimize the fallout.
Direct costs
Labour, materials, equipment, rental equipment and subcontracts are the main elements of direct costs. Labour costs tend to increase at least annually (sometimes every six months). If your contract runs over a pay increase period that is beyond the original timeframe ofthe contract, you should be entitled to claim that increase, including any payroll burden, overhead and profit.
Materials and equipment that need to be ordered for the job are subject to price increases if the orders are not placed in accordance with the terms of the suppliers’ quotes. Any delays on the job that oblige you to either be late in ordering materials and equipment, or require you to take delivery, should be compensated for in a timely manner. If you have ordered these items, you should get paid for them when you pay your supplier. It is not our fault that the project has been delayed.
If you get a revised quote from your suppliers, you need to pass along that price increase plus the markup on those items. If you store the materials, get paid for that cost.
Subcontractors
Business owners are likely to incur additional costs from subcontractors that must be passed on to their clients. This runs the risk of the subcontractor not being available for the revised schedule. Make sure your client is aware of this exposure. What if you have that subcontractor earmarked for a job that actually starts on time, and he isn’t available? The same applies to your labour. Overhead costs can be a real can of worms.
