Speaker 1 00:00:00 Hi all Jacob Austin here from QS.zone. And welcome to episode 81 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about big project versus small project, and how you might think about adjusting your commercial strategies to suit different scales of projects, how they differ, and how to decide which segment best suits your company. And as ever, if you are new to the show, remember to subscribe for more user friendly advice on all things subcontracting. So we'll have no doubt all seen those big glass clad commercial builds. The glamorous high rise skyline of big cities. And why wouldn't you want to be involved in projects like that? Winning a job like that can mean months worth of turnover and significant profit margins, but the quick turnaround of smaller builds can be equally enticing. So what's the right path for you? Let's start by thinking about how those large scale builds differ in scope and complexity. Obviously, you're talking much bigger budget, but you're also talking a lot more trade interfaces and usually quite strict compliance requirements with multiple layers of contract documents that refer to different standards, perhaps even different government specs.
Speaker 1 00:01:42 And you're bound to find a big formal contract such as your JCT, NEC, or for particularly big projects using foreign money, which can be quite a common find. Now these contracts are there to protect all the parties involved, but the bigger and the more educated your client is, the more likely they are to try and tilt that contract in their favour. And this is why regularly, as part of my podcast episodes, I'm recommending that you take the time to read your subcontract because you need to know, before you get involved, how much risk you're expected to take on, and to consider that before you put pen to paper. Of course, on the flip side of this, your smaller contracts often have lower contract values. Surprise, surprise. There are usually fewer parties involved, but often they are with simpler and more ad hoc contracts. You might find yourself with a better relationship with your end client or a small builder who's completing the work. But while the complexity is lower, you can find yourself with less of those contractual safeguards.
Speaker 1 00:02:49 You're also potentially working for clients or contractors who might be less financially sound. Or perhaps they don't have a thorough understanding at all of the typical contractual arrangements that we find ourselves with in the construction industry. So before you get involved in these kind of projects, you need to do your due diligence not just on the contract that you're appointed under, but on the client themselves that's going to pay the bills. Timescales can differ significantly. You might be talking months or even years on a big project to see the job from start to finish. And in those years, minor delays can get magnified and days hold ups here and there can run into thousands of pounds worth of damages and potential contra charges from your contractor for lost time. And when you compare that to a smaller job with less complexity, you might be able to get in and out within a few weeks. This means your cost certainty is better. It means delays potentially have less cost impact for you, but of course they can still hurt you if your profit margin on the job is thin.
Speaker 1 00:03:54 Quick turnaround mean you have to manage your cash flow carefully and it means that you're constantly on the bidding treadmill trying to keep your order book full and keep your lads employed. Now, whilst I'm saying you might be in and out within a few weeks, sometimes small jobs are small because they're just using one particular niche. So I've done a hell of a lot of small work early in my career, across some very different sectors of the market, and some of the small jobs that I took on weren't necessarily small, because this is just a small footprint that we're working on, but they were small because they only utilize one trade. But a lot of it, such as the cladding of a large multi-story office block, the replacement of a large boiler system, and all the associated plant that goes with that for a leisure centre and repair and resurface works to a multi-storey car park. They were all pretty small jobs in the grand scheme of things, but they involved one large order to one particular contractor and when you're in that situation, the risk profile is different again Because you're now in a situation where your particular trade could hold up the whole project, and it's easier for you to cause the critical path delay that then starts causing everybody additional cost.
Speaker 1 00:05:10 So you have to think about that when you're bidding for the work, is the job that you're tendering for exposing you to a lot of risk. And is it a risk that you can manage? Certain large buildings can be fantastic marketing, especially if it's a landmark structure, and being able to list that structure on your portfolio can really boost your credibility. And I've even heard of particular suppliers wanting to cheapen their product to make sure it gets specified on a particular job so that they get the bragging rights. And also of some big name organizations being willing to sponsor a particular room or section of a building so that their name can be associated with it, and they can use it for much wanted social value. And you don't get that same prestige out of smaller projects. but they might actually pay the bills more consistently and earn you better margins. And you might think of them as your bread and butter jobs that give you steady cash flow and a quicker path to get your invoice in. But what are the differences when it gets down to pricing the work? When you're looking at a small project, you're likely to have less formalities and less requirements from your contractor for things like supervising your work or distributing materials.
Speaker 1 00:06:25 But you're not going to achieve the same economies of scale. So program is equally important on a small job when you're pricing it as it is on a big one, because you need to know what the flow of work is going to be and how regular that work is to be able to factor in your unseen overheads. These are things like the multiple visits that you have to make to a particular site. If on each visit, you're only getting half a day's work or three quarters of a day's work, but you still need to pay your man for turning up, then the price per square meter obviously needs to be increased to reflect that. You also got the travelling time, which can be worse if you've got to take materials and plant to a particular site that you then can't leave there if the site is too small to take it. You've also got to consider things like how are you going to resource the job? It might be a job for a single man, and that means he's travelling to and from site on his own in a single van, whereas that van sent to a bigger site might be taking 4 or 5 six fellows to it at once.
Speaker 1 00:07:27 And the same thing for deliveries. These might be smaller and more frequent, incurring you more cost. So it's really important that you understand the parameters that you're working with, because it can really push up your price. And if you haven't allowed for it, that's going to hurt you in your pocket. Contrast that to working on a bigger scheme. You might be able to set up your own storage on site and take bulk deliveries of materials that not only save you in delivery time might also qualify you for volume discounts, but bigger jobs need more supervision. You might have more lads working on a single job at the same time, and quite often main contractors will need you to supervise and co-ordinate your own men. So you might be talking of dedicated site managers, contracts managers, visiting for coordination, meetings, admin staff to ensure you've got your paperwork in place and you're producing the right documents for things like O&M manuals and possibly visits from your health and safety advisor. If you're a smaller subcontractor, some of those requirements might be daunting, and you need to check that you've got the management, bandwidth and structure to be able to handle it.
Speaker 1 00:08:37 As I mentioned earlier, there is more likelihood of there being one of the major contracts in place on a big contract. So we're talking rigid variation processes, notice processes for extensions of time and additional cost. And of course, the lovely retention clauses that go hand in hand with these big jobs. Whilst there is a clear legal framework working under one of the big standard contracts, it does mean more red tape and more time spent dotting the i's and crossing the t's to secure your entitlements. The financial risks are also larger. You will likely be asked to fix your price for a long period of time, and if you're not able to pass that fixed period onto your supply chain, then you might find yourself holding an angry baby with its hand out for more money. There's likely to be more interfaces with other trades working around you, and that means that if you cause a delay, the domino effect of that delay can be much wider reaching. And this is where you need your supervisor to be somebody that you can trust, somebody that's going to be vigilant and spot things as they're going wrong, and act quickly to get them on the right track.
Speaker 1 00:09:46 And most importantly, somebody that's going to communicate these issues to you clearly so that you can use your subcontract to protect yourself. Smaller projects might have less absolute risks. There's less people to impact if things go wrong, and that means less greedy mouths to feed when it comes to things like contra charges. And again, as I was saying earlier, you might find that there's less likelihood of a proper subcontract being put in place on a small contract. I've heard of people getting orders that are little more than a single piece of paper, and whilst that might sound fine to you, if it's got the right price and payment terms on it, this can bring you issues because the scope might be ill defined, the contractor might be expecting something more from you, and you might find that harder to defend without the more structured information consisting of drawings, NBS specifications, and programs that define what you've got to do and when you've got to do it by. And for that reason, disputes might become all the more personal or all the more messy without that solid contract in place.
Speaker 1 00:10:53 So if you find yourself in that position of receiving that one page order, then think about how are you going to protect yourself from that risk? You might want to send them an acknowledgement of the order and reiterate exactly what you've priced, the scope that's involved in that, and the timescale that you're going to deliver it in, or consider shying away altogether. If there isn't a proper contract in place to protect both of the parties involved. So we've spoken about some of the risks and issues of big jobs versus little jobs. So how do you decide which part of the market suits your company the best? Well, this is where you want to look internally. Consider the staff and capacity that your company has. Do you have project managers that are comfortable with bigger budget controls and reading and managing a complex program for smaller work? Have you got a reliable contracts manager that can manage your labor? That might need to be in different places on different days of the week, and factor in the logistics of making that happen Alongside getting the materials delivered on the right day.
Speaker 1 00:11:59 Consider also your financial health. Have you got sufficient funds to be able to front quite large outlays in materials and labor costs before you're going to get your money back in? If you're committing large numbers of your workforce to one particular job. Have you got the credit facilities in place? So our supplier is going to offer you the payment terms that you need. Asked the main contractor holds onto your money, and does that stretch to cover the inevitable payment delays that happen from time to time? Cash flow is really important to your business, so consider before you commit to doing a job that you can see it through to the end and remain financially stable. How does your reputation and track record suit both big and small projects? Have you got quite niche skills that are few and far between when it comes to small scale work? Or have you got more general builder type men on the books that can turn their hand to more than one trade and come into their own when it comes to the smaller jobs. How good is your estimating facility? Are you able to price complex schemes and analyze the risk involved? Given the potential for design creep and gray areas of the scope, which could impact you in a big way if there's lots of it? And how realistic can you make a price for small work? There might be small bills or quantities involved, so fewer lines in your estimate.
Speaker 1 00:13:20 But remember those unseen overhead items we mentioned earlier? You need to be able to factor all of these in and remain competitive enough to secure the job. In both of these situations, monitoring your costs and reporting on them properly is your friend being able to learn from your past projects to inform your bids for future schemes is what's going to keep you in the black, and keep you successfully bidding for more work. Ultimately, you might consider all of this and think that both ways of working suit your business. And actually, that might be no bad thing because by taking on a few big jobs that cover off most of your overhead, or perhaps all of it could leave you in a financially sound position to then go on and add in some small contracts that you can deliver, either in between or even in and around the major projects. Borrowing ad hoc days of man time here and there to get them delivered. And once your overheads are covered, you're actually doing those small projects just for then pure profit. And so that hybrid position could see you really succeed.
Speaker 1 00:14:26 Either way you decide to work. Here's some thoughts on how to make it a success for big projects. Partner with suppliers who can handle big volume orders and hopefully offer you decent volume discounts for placing those orders with them. Try and build relationships with the other suppliers that are working on the same site as you. Working together, communicating about who's going to be working in which room and when, and finding solutions that work for both of you is a critical factor for success and could do away with some of the program risk and some of the interface challenges that can often be observed. Next, you must, must, must read and understand your subcontract. That means not just the standard forms, but read the amendments that the main contractor and perhaps the client are making on them. Try and identify where clauses are shifting additional risk to you and negotiate on them. If you can think hard about cash flow, particularly if you've got to achieve milestones prior to being paid, think about how you need to achieve those milestones in order to get your hands on the cash that you need to run your business.
Speaker 1 00:15:36 And if that means prioritizing something to get it over the line, then be prepared for your site managers to do that. You also need enough working capital so that you're not relying on the main contractor's good grace to keep paying you promptly. There will inevitably be a time where they don't, so stress testing your cash flow and understanding what happens if a payment lands two weeks late. We'll give you the information that you need to set up contingency plans should that inevitable happen. For smaller projects, it's all about how you can complete these efficiently, and that goes from efficient quoting, because you may well have to turn out quite a volume of quotes to keep your order book full to systems for managing labor. And who are you going to have on what job on what day? Also, working for small clients, they will often value customer service and communication and responsiveness over a rock bottom price. At the end of the day, they might have small windows for you to come in and do your key piece of work before somebody else needs to pick up theirs, and it might be your only interface with the job.
Speaker 1 00:16:43 So being able to talk in a clear fashion and make sure you're getting booked in and being reliable when you are, could see you to securing repeat business and enable you to get your hands on premium rates for it. But the biggest and most important thing for you to do here is solidify your contract. You can't just rely on a handshake and a piece of paper with a number on it, even if it's just a few pages. Ensure that you've got clear terms and conditions, that your payment terms are known and the scope is well enough defined so that you can refer back to it and rely on it if you need to. In both situations, monitor your costs. See what's making you more profit and see where your losses are coming from. Use this information wisely to factor it into your next bid, or to help you to focus on picking the right jobs to tender for that work for your business. So what's your choice going to be? Don't be afraid to carve out a niche in one area if that's where you particularly excel, or perhaps maintain a smart blend.
Speaker 1 00:17:48 Just make sure you manage each project on its own terms with appropriate resources and commercial strategies in place. I hope this episode helps you reflect on your business model, and consider whether you might pivot into bigger projects for more visibility or chase those small, fast paced projects for quick turnaround. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to somebody else who'd benefit from hearing it. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.QS.Zone. Or you can also reach out to us on all your favourite socials again at QS.Zone. Thanks again. I've been Jacob Austin and you've been awesome!
