Monday, January 28, 2013

What To Do If A Client Won't Pay

It seems fairly simple, straightforward and fair: If the client doesn’t pay, stop work on the project. This can be a very effective way of focusing a client’s attention on your need to be paid. However you have to write this very carefully in your contracts.

• Have you contracted for extensions in such items as due dates, or will you be forced to meet original due dates even though work was halted for a period of time?

• How will third parties be affected? The project may have tenants who have an expected move-in date, or financial commitments from lenders. How will a delay affect them, or will you have to take the blame?

In other words, a step this drastic has to be considered from many angles, and the contract needs to protect you against all actions for stopping work to be effective. There are other, less drastic actions you can incorporate into your contracts.

• Do not stamp or seal drawings or reports. If your contract gives you this right, this step can render the drawings and specs (or reports) unusable with third parties without stopping your work on the project.

• Hold up on contractor submittals, such as approvals of shop drawings, pay requests, or RFIs.

• Hold up on preparing or filing any permits, or other government approval items.

While these steps are less drastic, they will serve to get the clients attention towards paying overdue invoices. Be sure to have these provisions reviewed so you don’t have any unexpected surprises if you try to exercise them.

Negotiating these clauses with clients should not be extremely difficult. After all, these clauses will not be used if the client keeps their payments on invoices current. Strong client objections to including clauses of this nature may be an indicator the client does not expect to pay on time, which may be a warning to you.

Monday, January 21, 2013

6 Tips for Managing Stealth Change

Scope creep, the seemingly inevitable series of minor, but sometimes costly, changes in a project are a common cause of project budget failure and misunderstanding between designer and client. Let's examine a hypothetical scenario and outline some tactics for managing these changes.

Assume that you are managing the design of a new county animal shelter. The project consists of a building with kennels, cages, veterinary facilities, and administrative offices with an animal adoption room. One end of the building has an open-sided shed roof to provide a covered area for the delivery and unloading of animals from the animal control vehicles – a sally port.

As the project continues through Design Development, the client requests that the open end of this area be covered to provide a wind block. No problem. It's a minor change with little or no increase in design cost.

After further design, the client returns and requests that the remaining two sides be provided with roll up doors, again, to provide protection from the elements. This change then triggers structural and architectural changes, more lighting, additional electrical to operate the doors, extension of the fire sprinkler system, and possibly the addition of plumbing and floor drains. And so, an initial minor request – add a windbreak – morphs into a major project addition.

The fact is that scope creep is, too often, a budget-busting fact of life in the delivery of projects. Here are six simple tips for managing this:

1. Develop a shared project vision with the client. Understand the client's critical success factors and understand what is driving the project.

2. Develop an appropriate detailed work breakdown structure (WBS) at the outset of the project. Share this with your client. In the best of cases, jointly develop the WBS with the client.

3. Establish and maintain continuous project communications with the client. The most effective strategy is the one-page, seven-paragraph project status report outlined in PSMJ's Project Management Bootcamp. When scope creep occurs, document this in "Other issues and concerns." This provides notification to the client and documentation of the issue.

4. Recognize the primary causes of change and scope creep. These include changes requested by the client and changes triggered by condition issues, such as underground "surprises" or code.

5. Understand the change management culture and processes of your client. If your client has a "no change, no way" culture, you have an education effort in front of you. Most clients, particularly those with a modicum of sophistication, recognize project changes are inevitable, particularly during the design phase.

6. Conduct a project post-mortem including an analysis of project changes. Consider how and why they occurred and how they were handled. While this will not help with the current project, the post-mortem can increase awareness of the issue for future projects.

Wednesday, January 16, 2013

Latest ABI Reflects Strongest Growth in Nearly Five Years

November saw the fourth straight monthly increase in the AIA’s Architecture Billings Index, with the pace of growth accelerating each month. At 53.2, the ABI is reflecting the strongest growth in billings at architecture firms since the end of 2007, just before the recession in design revenue began. 

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-12 month lag time between architecture billings, and actual construction spending. The monthly ABI scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline.

Improvement has also been seen in various regions and sectors. Firms in the Northeast and Midwest are reporting a reasonably sharp upturn in business conditions. Firms in the South are reporting a modest increase, and firms in the West a very modest decline. However, regional revenue trends at architecture firms have been quite variable in recent months, and are likely to continue to vary in the months ahead. Firms specializing in residential construction have seen another substantial month of growth, with an index level of 55.9 for November – the fourth straight month with a value above 55. This represents a level of growth that hasn’t been seen since the end of the housing boom in late 2005. The commercial/industrial index moved back into growth territory, and the institutional index remained barely in growth territory, with an index reading just above the 50 threshold. Both of these sectors are currently fragile enough that they are more vulnerable to the fluctuations of the broader economy, particularly the federal budget and debt negotiations. 

Housing strong, but rest of economy teetering 

In a long-awaited turnaround, the housing market has turned into one of the strongest sectors in the economy. Housing starts in the second and third quarters have been more than 25% above the same period in 2011. However, the rest of the economy has been relatively disappointing. Payrolls increased by a modest 146,000 in November, similar to the gains in September and October. Though the national unemployment rate declined from 8.3% in July to 7.7%, much of this resulted from a decline in the labor force rather than an increase in employment.

Concern over the federal fiscal situation continues to make consumers and businesses nervous. The Consumer Sentiment index declined eight points (approximately 10%) with the preliminary December numbers from the University of Michigan, while their Consumer Expectations index declined thirteen points. Small-business optimism declined even more sharply in November. The National Federation of Independent Business Small Business Optimism Index saw its largest one-month drop in the 25 years it has been conducting this survey. 

One relatively positive development of a sluggish economy is low rates of inflation. Consumer prices have been increasing at a pace below 2% per year in recent months, with producer (wholesale) prices growing less than 1.5%. Some of this is the result of falling energy prices, and recent developments point to more stable energy costs for years to come. Domestic production levels of both natural gas and oil are slated to dramatically increase in the United States over the next several years due to increased production from fracking (hydraulic fracturing). A recent report by the International Energy Agency predicts that by 2020 the United States will be the largest international oil producer, surpassing Saudi Arabia. While this is welcome news for consumers and businesses—and should boost growth in the domestic economy—it has serious consequences for strategies to deal with climate change issues.


By region, the ABI breaks down as follows from July to August: Midwest is up 54.4 from 50.8, South is down 51.1 from 52.8, West is down 49.6 from 51.8, and the Northeast is up 56.3 from 52.6.

By market sector: Residential is down 55.9 from 59.6, Institutional is down 50.5 from 51.4 and Commercial/Industrial is up 52.0 from 48.0.

This month, Work-On-the-Boards participants are saying: 

        People believe that the corner has been turned, and that 2013 will be a growth/recovery year.
—2-person firm in the Northeast, institutional specialization

        Businesses and individuals are reluctant to commit to significant spending due to the uncertainty surrounding the fiscal cliff.
—15-person firm in the West, residential specialization

        There has been a dramatic slowdown in healthcare this year, waiting for the election. We received several new potential projects once the election was over. We feel that 2013 will be a good year.
—5-person firm in the South, institutional specialization

        Conditions are about the same despite many new apartment high-rise starts that were shelved from previous years. No new market rate for-sale product coming online at the moment.
—16-person firm in the Midwest, mixed specialization

Monday, January 14, 2013

8 Ways to Treat Networking as a Business

Networking must be treated as a business if you expect it to be effective. Whether following up with prospective client phone calls or rubbing elbows with colleagues at a conference, follow these pointers to keep the business-focus of your networking efforts in mind.

1. Remember that networking is just another method of prospecting; it has its own set of costs associated with it. Plan for them.

2. Success or failure of the networking process depends on setting specific goals, a budget, and a time horizon.

3. Networking also depends on knowing the market, adding value to buyers, understanding profitability, and being aware of the competition, just like any business.

4. Be open and outgoing in networking situations; don’t be shy.

5. Understand that you must give something in a networking situation before you can receive benefits from networking.

6. Learn to position yourself through giving of your time, your talents and your energy.

7. Make an inventory of the best, most desirable clients/ skills/abilities. Update this list periodically.

8. Review all of your current affiliations. Consider the ROI on each of them.

Monday, January 7, 2013

Top 8 Time Wasters for PMs

1. Confused Responsibility or Authority. Prepare a list of responsibilities for approval. Identify areas where jobs overlap. Insist on a level of authority parallel to your level of responsibility.
2. Drop-in Visitors. Recognize that "open door" does not mean physically open, but open to those who need assistance. Meet others outside your office. Stand up when someone enters and keep standing.  
3. Inability to Say No and Taking on Too Much. Refuse to spread yourself too thin. Concentrate your efforts. Count to ten before saying yes. When saying no, give reasons, and suggest alternatives. Say no by showing a list of agreed-upon priorities. 

4. Inadequate Planning. Recognize that every hour in effective planning saves four in execution and gets better results. Most managers tend to waste time in the same ways every day.

5. Ineffective Delegation. Lower your standards to what is acceptable, not to your own level of performance. Avoid perfectionism. Relax. Emphasize goal achievement, not methods. Measure results, not activities. Remember that the job of a manager is managing, not doing.

6. Meetings. Don't meet without a purpose or an agenda. Only those needed should attend. Test the need for regular meetings. Occasionally eliminate a meeting and see what happens. Summarize conclusions to ensure agreement.

7. Paperwork and Email. Read it once and handle it. Eighty percent of daily intake can be disposed of on first handling. Don't hoard it. Answer on the original when a copy is not essential. Standardize forms, file selectively, and alphabetically control your record retention.

8. Telephone Interruptions Solution. Develop a plan to screen, delegate, and consolidate. Set hours for taking calls. Preset a time limit ("Yes, I can talk for a few minutes"). Foreshadow ending ("Jim, before we hang up..."). Be candid ("Sorry, got to go now"). Refer calls to delegates. Plan calls, and list points to be discussed.

Wednesday, January 2, 2013

Six M&A Rules You MUST Follow

1. Have a clear vision. Having a clear vision of what you are trying to achieve through M&A is especially crucial for potential buyers because opportunities for acquisitions are plentiful – just because you can buy another firm doesn't mean that you should. For potential sellers, it can be flattering to be approached by a firm you have always looked up to but are you sure that becoming part of them will help you achieve your strategic goals? Selling your firm may very well be one way to reach your goals but it shouldn't be a goal in itself.

Bottom line – It is okay to be an opportunistic buyer or seller as long as the opportunity fits within your strategic or personal plan.

2. Be patient. It takes time. Active buyers are starting to report a shortage of "good" firms to buy in certain geographic areas and many sellers are facing extended searches for buyers due to internal and external marketability issues. Buying or selling an A/E firm is a big investment of time. Buyers should expect that they will approach many sellers and initiate deals that may go nowhere. Sellers need to understand that even if you have found the "perfect" firm, reaching an agreement with the first qualified buyer you meet is rare. Also, both parties need to realize that the time investment only increases after closing and it could be a year or two before the newly acquired firm has achieved optimum performance levels.

Bottom line – Buyers should start looking to make an acquisition 18 to 24 months before your strategic plans requires measurable results and sellers should keep in mind that it usually takes longer than expected to find the right buyer.

3. Get all of your financial and legal ducks in a row. Buyers and sellers both realize that some degree of legal and financial due diligence is necessary in any deal. Good buyers try to conduct their due diligence in a sensitive, non-disruptive manner and well-prepared sellers put their legal and financial affairs in order prior to seeking a buyer. Project due diligence however is still a big blind spot in many acquisitions that are otherwise well-conceived. In times of strong growth and profits, firms can bury the recognition of project budget problems under good cash flow. But remember, if you have just sold a long list of active projects that are upside down budget-wise, you will eventually have to answer for the resulting lack of profits.

Bottom line – Use earned value analysis to track project budgets and to conduct project due diligence. Small sellers with budget problems usually aren't trying to trick a buyer into buying their future losses, they simply don't know the true budget status. Buyers, don't try to avoid doing project due diligence by asking sellers to "guarantee" future profits – they can't. Take the time to truly discover the condition of the projects you are buying. You'll be glad you did.

4. Set up your Letter of Intent early. Too many firms are conceiving of a "term sheet" and the letter of intent as equivalent documents. This almost invariably leads to misunderstandings later in the acquisition process. Some buyers take the approach of sending a letter of intent to a seller based on relatively little information to see if there is any chance of reaching an agreement. Sellers rarely take these "pseudo-offers" seriously and the emotional commitment to the deal on both sides is small.  Even if the initial terms are acceptable enough to spur further discussions, there are still many issues that need to be addressed and included in a "high-quality" LOI. Leaving these issues to be resolved during development of the Definitive Agreement nearly always results in needless frustration and waste of time on the part of both firms.

Bottom line – The execution of a letter of intent should be a major event in the M&A process and while still non-binding, the LOI should be documented in enough detail (4-5 pages) that once it is signed, both firms are confident that the deal is going to happen. Once a high-quality LOI is in place, the commitment of time and effort in due diligence and integration planning can be made with confidence.

5. Don't forget about taxes. We are not advocates of paying taxes that shouldn't have to be paid, but if tax considerations begin to replace strategic motives for a sale or an acquisition, then your advisors have taken it too far. There is a thin line between tax management and tax avoidance and you must be careful to not cross it. If not managed properly, taxes can take a significant bite out of the proceeds of a sale or substantially change a buyer's financial pro-forma. But like many other issues in an acquisition, a compromise between the buyer and seller where neither has attempted to maximize tax savings is usually necessary for the deal to move forward.

Bottom line – Focus on after tax cash. Budget for taxes when planning for a sale or acquisition and establish reasonable expectations of after tax cash flow given "normal" deal parameters. If there are opportunities to pay less in taxes that benefit both buyer and seller, take them. But making 'unilateral maximum tax savings' a condition of the deal will most likely prevent any deal from getting done.

6. Culture is King! Many people who are experienced in M&A believe that the success of an acquisition hinges on the effective integration of the two firms, yet we still see many buyers and sellers ignoring or waiting too long to address cultural incompatibilities. All too often, buyers and sellers focus primarily on the "deal" and once an agreement is reached, they then go back and look for cultural alignment. This can be problematic because cultural alignment, not the financial deal, will have the greatest impact on the success of an acquisition.

Bottom line – Even if a deal makes strategic and financial sense, keep a critical eye toward the early identification of cultural differences and begin addressing them immediately after signing a letter of intent.
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