The Dollars and Sense of Contractor Selection Criteria: Experience, Culture, and Financial Strength Add Value
By Todd Miller, CFO
You’re in the process of grow- ing your business. It’s time to hire a construction company to help make your vision a reality. Your architect has made recommendations, you have friends in the construction business. But, have you given any consideration to what’s on your own balance sheet of criteria for hiring this firm once the numbers start hitting your desk? How do you make sense of it all?
From a CFO’s perspective with over 25 years of experience and $1 billion of construction put in place without a failed delivery, there are a couple of other, as equal, if not more important aspects to consider than just a proposed fee or initial cost of what your project will be.
My top three items to consider would be:
- Financial Stability. Choose a contractor with the necessary working capital, bonding capacity, and equity to support not just your project—but, EVERY project they are working on. A handy and free tool for evaluating financial strength is as simple as a letter from their bonding company. If the bonding company is an A-rated carrier, it’s a good indicator of the contractor’s strength. (Poor financial results or high debt often means the contractor has higher premiums from the carrier. Higher premiums may indicate a risk of failure.) Even if you decide the contractor doesn’t need to purchase a bond, the fact that a professional risk credit analyst evaluated and issued a rating can save a tremendous amount of money. If the contractor is unable to obtain a bond from an A-rated carrier, you’ll have to employ other methods for mitigating the risk of failure during the course of construction.
- Relationships. Find out if the contractor has a good reputation with the trades and suppliers. These relationships might be necessary for favors, if needed, during construction without incurring additional costs to your project. There is tremendous, intangible value from past working relation- ships. Quite often, these teams operate at a higher capacity and demonstrate a greater initiative toward collaboration and coor- dination—it ensures everyone is well-informed and as efficient and safe as possible throughout the entire project.
- Company Culture. If this is a core element to running your business, take the time to research and evaluate whether your mission and values align with the firm you’re hiring. Social media is another free and transparent tool for ensuring whether there is value align- ment. If their standards step up to your standards, then you have a good match.
Financial experience takes on a unique meaning when taken in the context of more than just a balance sheet. It’s helpful for identifying potential problems and allows time for developing a proactive approach in navigating around any issues. Conversely, lack of experience or failing to act can also have a negative financial impact on your project. A financially strong contractor may be able to employ trade contractors with less than stellar balance sheets, but they have the means for managing that risk and helping those weaker team members get across the finish line successfully on your project.