The Construction Contractor's Digest

This article concerns itself with rework and its cost. Cost consulting groups have performed studies and there are formulas to explain the cost impacts of re-installing work. We certainly respect the tedious work of accounting and then formulating a numerical explanation.

Any contractor knows that this can cause several cost impacts, all of them negative. Here are several:

Cost of Demolition of previous work.

o Different Tools (unless firm is a demolition company)
o Hauling Vehicles
o Cleaning of work area

Cost of New Material

o Reordering smaller than project quantities.
o Labor to off load
o Office staff time to process delivery ticket, purchase order and invoice

Impact on Critical Path of Project.

o Will have at least some acceleration on rest of schedule.

Opportunity Cost of Work Not Able to Install (and to bill)

o Slower cash flow

Crew Morale (enthusiasm for putting in same work again)

o Conflict with office staff if miscommunication

Client relations

o Conflict with client if they gave wrong information.
o Loss of client respect for craftsmen.

Engineering a new connection to reworked installation. (if needed)

o Inspection and field dimensions by engineer.

Let us use an example to further explain the cost of reword. For our scenario, we are building a three story building and we are installing 3 days of work.

1. We installed the work on the first floor and it takes a day.

2. Then, we have to tear out the work. It takes a day. Where could we be? Answer: on the second floor.

3. We re-install the right work on the first floor and it takes another day. Where could we be? Answer: on the third floor.

4. What is the morale of the crew during this time? What is the cost of ordering, receiving and installing new material?

Depending on the situation, rework can cost a construction firm 3 to 5 times of the original cost of the installation.

So a $10,000 wall that will have to torn-out and reinstalled becomes a $30,000 to $50,000 cost to a company.

For an additional perspective, see our Loss Revenue chart.

Cash flow and profit margin largely determines a return on investment. Rework adversely impacts both. We are slower in billing our schedule of values and certainly we eat up any profit we had in the job.

Rework is one of the many losses contractors experience every day. We are bleeding from a thousand cuts. There is no one answer. However, a detailed and thoughtful process on major areas of your business does eliminate most mistakes. Training of your people in these processes is a must. Needless to say great craftspeople will keep rework lower than the industry average.

There is no argument that the construction business is difficult. It has an unforgiving nature. The risk associated with the industry can be terminal to a contractor.

In the end, your business will not experience these problems and thus, be ahead of most of your competition in speed, costs and quality of work.

Matt Stevens is a management advisor who works only with construction contractors. He has been practicing since 1994. His new book, Managing a Construction Firm on Just 24 Hours a Day, is available from McGraw Hill and his firm’s website. Stevens Construction Institute is located at www.stevensci.com. Matt may be reached at mstevens@stevensci.com.

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