Close-Out Profit Leaks Part 2

July 19, 2004

How to Stop the Project Close-Out Profit Leaks!

By: John Zink

The PHCC Educational Foundation conducted its third “Essentials of PHC Project Management” course in Fort Worth, Texas a few weeks ago. The attendees included project managers, estimators and owners from p-h-c firms; ranging in volume size from 3 to 30 million per year. Below is a sampling of the information that was covered by instructor Kirk Alter during the last “Essentials” class. Read on to get a feel for the kinds of great tips and tools you can pick up at one of the Foundation’s courses.

Punchlist Management

Some clever contractors have had success with taking a more proactive approach to punchlists.

Does this ever happen to you?
You receive a final punchlist from the G.C. 72 hours or more after they did their walkthrough. That list then gets buried for a day or so on your desk. When you get the brushfires dealt with, you pull out the list. Seeing an extraordinarily long list from the G.C., you react by pulling a couple guys off another job to send over to your foreman so they can help get all these things finished up. A few days later another “final” punchlist comes to you from the G.C. and you spend the entire afternoon comparing lists and talking with the foreman to see “just how long it is going to take to get all this stuff done?”

So What Went Wrong?
1. The G.C.’s punchlist was old to start with and became even more out-of-date while on your desk. By that time, your crews have probably resolved quite a number of those items.

2. Reacting by sending additional workers to the jobsite to “deal with it” wasted a huge amount of money. From work studies in the construction industry, we know that moving workers from a planned to an unplanned activity causes an enormous amount of lost productivity as the workers get settled into the new location and work. The foreman in this example also loses time with the extra people to manage (who were probably not needed in the first place).

3. All of the time and productivity lost dealing with the second punchlist was unnecessary, simply because there should never be a second punchlist. That is to say, there should never be a second or third “final” punchlist that you are contractually obligated to complete, if you manage things a little differently.

What Could be Done Differently?
1. To eliminate the mystery involved with what is going to be on the G.C.’s punchlist and when it might show up, do your own punchlist at 80% completion. Share this information with the project foreman so that you are both clear on exactly what needs to get done and how long it is going to take.

2. Send your punchlist to the G.C. Quite often the punchlist you will receive back will look exactly like the one you compiled. In the meantime, your crews will have already finished with most of the items listed.

3. As soon as the G.C.’s list comes, using a template that you develop for this purpose, send a letter back to the G.C. (registered, return receipt) saying that you have received their punchlist. State in the letter that “Resolution of the items on this list will constitute 100% completion and acceptance of our contracted services. At that time, 100% of contracted payments are due, including all retainage.” (Double check the wording with your legal counsel to make sure your bases are covered.)

You have just given the G.C. written legal notice that as soon as you have completed the work on that punchlist, your work is done and they owe you ALL of your money.

4. Once the items on the punchlist are complete, get your crews off the jobsite and send another letter (registered, return receipt) to the G.C. confirming that you are complete with your work. Be sure to take photos or a video of the work your crews have done as of the time you are complete. If you have a service shop and offer maintenance on the buildings you install in, be sure to include a copy of your maintenance agreement in this letter.

5. If you receive another “final” punchlist from the G.C. two weeks later, you now have the option of ignoring it. Often these punchlists will include line items describing chipped or broken fixtures or other imperfections that were not present when your crews completed their work (which you can prove with your photos). If your crews were not on the jobsite, why should your company be responsible for repairing a newly damaged item? If another trade drops a hammer into a sink, you will be happy to repair it, but for the full price of a maintenance/repair call. Use this as an opportunity to sell the maintenance plan.

6. Remember, do not accept any punchlists from someone you are not in contract with. Read your contract carefully to see if there are any Links between you and the architect and engineer. If not and the architect or engineer gives you a punchlist, you again legally have the option of throwing it in the trash. If you are not in contract with them, they cannot force you to do any work!

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