Bottom-line Opportunities in Productivity Gains

IVE SUSPECTED FOR years that several utilities and consolidators got into the mechanical contracting business for some of the same factors revealed in FMIs 2004-2005 Contractor Productivity Results. The consulting firms research discovered that most mechanical contractors dont pay enough attention to systems and training that would make their employees more productive. As a result, these companies

I’VE SUSPECTED FOR years that several utilities and consolidators got into the mechanical contracting business for some of the same factors revealed in FMI’s “2004-2005 Contractor Productivity Results.”

The consulting firm’s research discovered that most mechanical contractors don’t pay enough attention to systems and training that would make their employees more productive. As a result, these companies don’t manage their workforce as effectively as they should, and they see eroding profit margins as a result.

Some consolidators and utilities have recognized these shortcomings over the years and presumed that they could do a better job of running contracting companies than contractors themselves. All they would have to do is institute the necessary processes that would improve a contracting firm’s operations, and their profits would increase exponentially.

As we’ve seen over and over, these presumptions haven’t always translated into reality. Most recently, utilities in the Northeast and Midwest have realized that operating a successful mechanical contracting company is not as easy as it might appear from the outside. And, they wind up selling their contracting divisions off — usually back to contractors.

KeySpan’s decision to sell its contracting companies is a good example. As Hugh Kelleher of the PHCC of Greater Boston points out, “A lot of mechanical businesses have been built on the intelligence and character of one or two or three key people within the company, and when you lose that, often the company suffers, and when you try to impose an outside structure from a utility company, a lot of times it’s not going to work very well.”

No one can undervalue the importance of the entrepreneurial spirit that has made many contractors so successful. Yet gains in productivity can take a contracting company to the next level of success, according to FMI’s research. More than 80% of the contractors surveyed believe that they could save 5% or more of their annual field labor costs through better management practices.

Part of the problem is that productivity is not as easy to measure as, say, safety is with established industry metrics such as incident rates. Also, most of your customers do not demand productivity statistics as they do with safety records.

Consequently, many contractors don’t see the connection to the bottom line quite as urgently or as clearly. They do not invest as much money in trying to improve their productivity rates as they do their safety performance. In fact, FMI surmises that most contractors spend more on the boss’s new company car than they do on productivity improvements.

More than half the contractors surveyed by FMI experienced flat or declining productivity in their firms in the last five years. Rather than invest in training and systems that would make their company more efficient, many contractors try to “save their way to prosperity,” according to FMI. Contractors who try to do too much work with too few people frequently encounter eroding margins and labor overruns. Overworked project managers or field managers spend less time on planning and communication.

Nowhere is this more glaring than in the field itself. Just one in four field managers communicates a quantifiable production goal to the crew before starting work each day, the survey says. FMI compares this to playing a football game without first down markers, yard markers or a goal line.

Only about a quarter of the contractors responding to the survey think that their project managers are doing a great job. Still, it’s tough to lay all the blame — or even most of it — on the field managers or PMs here.

Commitment to improving productivity starts at the top, just as it did with safety. Of the contractors who report productivity gains in the last five years, 30% had invested more than $50,000 to get there.

So, while not inexpensive, productivity improvements can be achieved. As we’ve seen with too many contracting firms that haven’t invested in making their operations better, the failure to improve can be even more costly.