Job Rescue: Best Practices when Playing the Hero

by David M. Wolfenden, CPA, CVA, MS, Managing Director

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A funny thing has happened on the way to today’s improved economic environment for construction. Many developers and contractors have leapt unprepared into big projects and found themselves unable to complete the work. These misfortunes create opportunities for other construction companies to step in and “play hero.” But before you don the red cape, be sure to consider some best practices.

Know What You’re Getting Into
First determine how the project became troubled. Was the original contractor unqualified? Did he or she run into financial difficulty? Were the owners or subcontractors part of the problem? To get a feel for the situation:

  • Visit the site,
  • Review meeting minutes and other key project documents, and
  • Speak to the owner, subcontractors, architects and engineers.

Also, if possible, meet with the original contractor’s representatives to get their insights into what went wrong. This information will help you decide whether to take the job and, if you do, to avoid similar problems. For example, make sure you know the owner’s and surety’s teams that you’ll be working with to complete the job.

If possible, document the original contractor’s work. Create a record of the job’s status – using photographs or video – before you begin your work. Doing so will help protect you against any claims for defective work attributable to your predecessor.

One particular word of caution: Given the inherent perils of taking over a troubled project, don’t increase your vulnerability by stepping out of your comfort zone. Be sure the job is within your construction company’s core competencies.

Consider the Contract
Although the owner may expect you to “step into the shoes” of the original construction company, your contract to complete the project may require some adjustments. Review its language to, again, identify any changes in the scope of work or other disputed issues that must be addressed in the new agreement.

Given the circumstances, it’s likely that the project has been delayed. If the original contract’s completion date is no longer realistic, determine a reasonable completion date and negotiate appropriate changes. Also, determine the extent to which completion of the job depends on work performed or materials and equipment supplied by the owner, subcontractors, suppliers or other third parties. Confirm the status of these parties and build appropriate lead times into your schedule.

Additionally, make sure you understand the change order procedures and that you obtain proper authorizations from the owner, the surety or both, if necessary, before you proceed. This is particularly important if the original contractor was bonded and the surety has taken over the project.

Check on funding, too. Be sure that the lender is willing to sign off on a new contract. Because the cost to complete the project may be more than originally anticipated, confirm that there’s sufficient funding to cover monthly draws.

Build your Rebid Carefully
Partially completed projects often necessitate a rebid of the work based on current site conditions, a new scope of work in light of what’s been done as well as what’s left to be done, and the current status of materials and equipment. So you may need to obtain bids from existing or new subcontractors, and possibly replace any subcontractors that contributed to the job’s troubles.

Keep in mind that, because the project is troubled, it’s likely to require a higher degree of management oversight and documentation than an ordinary job. Be sure to provide ample workers and assign a project manager who’s adept at handling difficult jobs and reacting quickly to problems. It’s also a good idea to incorporate contingency funds to cover uncertainties, such as additional work to correct latent defects left by your predecessor.

Take a Well-calculated Risk
As the saying goes, “Nothing ventured, nothing gained.” Stepping into a troubled project is a risk. But, if you make it a well-calculated risk, the revenue gained can make your bottom line a little more … heroic.

We welcome the opportunity to put our construction industry expertise to work for you. To learn more about how WW&D can help advance your success, please contact Dave Wolfenden at (302) 254-8240.

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