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Failure Rates: Source: BizMiner Building, heavy/highway, and specialty trade contractors In BusinessSurvivorsFailure Rate 853,372 (2002) 610,357 (2004) 28.5% 850,029 (2004) 649,602 (2006) 23.6% 1,155,245 (2006) 919,848 (2008) 20.4% 897,602 (2009) 702,618 (2011) 21.7% 918,483 (2010) 696,441 (2012) 24.2%
Financial Strength CharacterExperience Equipment Credit History Banking Relationships Prequalification
RISK High Materials prices Unreasonable owners Onerous contracts Shortage of qualified, skilled workers Contractor Failure Risks Insufficient Capital Slow collections Low profit margins
RISK Materials Shortages Over Expansion New Owner Inclement Weather Contractor Failure Risks Sub Failure Change in Scope of Work Inadequate Management
Reasons for Contractor Failure Accounting Problems Change in Leadership Scope of Business Material/ Equipment Shortages Unrealistic Growth Failure Labor Difficulties Lack of Experience
Accounting Issues Inadequate cost tracking systems Estimating or procurement problems Underinsured Improper accounting practices
Management Issues Leadership changes No continuity plan when key person dies or becomes disabled
Personnel Issues Key staff leave company Character issues
Performance Issues Unrealistic growth Change in type or scope of work Poor project selection Onerous owners Unsettled claims & change orders
Unrealistic Growth Unrealistic Growth Increase in Backlog Work Shorter Lead Time
Factors Beyond Control Materials Shortages Site Conditions Inflation Labor Difficulties Weather Delays Economic Downturn Failure
Ineffective Financial Management System Tight cash flow Slow receivables Past due bills Vendors demanding cash
Bank Lines of Credit Constantly Borrowed to Limit All credit fully secured Lines not renewed
Poor Project Management Inadequate supervision Not getting best prices Projects behind schedule Claims Litigation
No Comprehensive Business Plan No contingency plans No “ road map ” No goals No objectives
Poor Estimating & Job Cost Reporting Revenue & margins decrease Continued operating losses Loss of bonding capacity Bid jobs too low
Communication Problems Disputes between contractor and owner Poor communication from field to management
Loss of Loyal Customers Decreasing reputation for company ’ s ability to perform contracts on time & within budget
Tips for Contractors to Avoid Default Rights & responsibilities Capabilities Growth & overhead Causes & warning signs Communication Contractors
Tips for Contractors to Avoid Default Contract Bond forms Qualify surety Qualify owner Surety Relationship Contractors
Tips for Contractors to Avoid Default Construction-oriented CPA Adjust overhead Bank credit Conserve capital Bond subcontractors Contractors
Claims RightsObligations Resolution Completion Expectations
Understand bond Cooperate Comply with contract Don’t overpay Lien waivers Timely default Termination Tips for Owners – Navigating a Claim Owners
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