A Case for the “Last 10%” Being the Hardest 30%
By Gregg Schoppman
An interesting phenomenon occurs on just about every project in the built world. The line between substantial completion (a legal term used to define the moment a project is sufficiently complete according to the contract documents) and final acceptance (the actual moment a project is truly complete in the customer’s eyes) gets blurred. For many trade and general contractors, this block of time represents a source of margin erosion for a myriad of reasons:
- Personnel Swaps – Supervision and managers are often “pulled” at the end of a project to focus on new endeavors.
- Punch List/Deficiency List Misestimation – The punch list process garners little respect on the CPM schedule leaving miniscule time for a herculean phase.
- Paperwork – The as-built documents, operations/maintenance manuals, training, and more become a distraction, even with the specter of held retention hovering over the process.
The common linkage in each of the elements is the impact to the customer’s business and/or the perception of the contractor. The farcical paradox that is created by pulling personnel too quickly creates poor punch list completion and a deluge of paperwork that remains incomplete all to satisfy the new client/project and leaves the current client to suffer. The close-out portion of the project is arguably the most important phase of the project simply because it represents so many milestones including the final financial reconciliation, the release of surety obligations, and the recognition of the customer’s acknowledgment of completion. Failure to observe the sanctity of close-out damages relationships and extends a firm’s risk profile. Exhibit 1 is an illustration that explains the asymptotic appearance that an ending project tends to have:
Best in Class firms have become proactive in attacking close-out with the same fervor that they exhibited at the commencement. However, even with the increased importance, most of the industry – both contractor and customer – see this as one of the weakest areas of a project’s execution. Three critical elements describe an effective firm-wide close-out strategy:
- Metrics – Defined key performance indicators (KPIs) related to close-out
- Process/Tool – Consistent and standardized approach to the final executable phase
- Customer Involvement – Achievement of the customer’s version of done
Firms continue the migration towards data-driven strategies, but they fail to use the data to drive decisions and behaviors. For instance, the proliferation of software tools that capture close-out data such as documentation and even punch lists are ubiquitous. The first step to understanding the impact of close-out on the firm is to mine the data and show the correlation of time and activities. For instance, Exhibit 2 links the duration of the close-out phase (substantial completion to final acceptance) and the number of punch list items examined from a macro-level.
This is a simple illustration that can be broadcasted within the firm. Furthermore, a firm can measure other critical aspects of close-out including the following:
- Punch List/Deficiency List Dollars – All work associated with close-out is captured in one budget code and separate work packages.
- Close-out Compliance – Whether it is the close-out strategy meeting or simply the gathering of documents, project personnel are recognized globally to drive behaviors internally (see Exhibit 3).
- Change Order Activity – Often a reckoning for many firms, the close-out phase forces – in many cases to the detriment of the project budget – change order closure. The illustration below is one “dashboard KPI” consideration:
The most important aspect of any KPI is the connection back to the firm and its strategic relevance. For instance, CO measurement may only be important to a firm that experiences a high frequency of COs and has a propensity to engage in high-risk closure. These should be used to place optics on close-out and influence upstream and downstream behaviors much in the same way that diet and exercise (upstream) influences better weight and health (downstream).
Processes & Tools
Many firms have some semblance of a preconstruction phase, but unfortunately lack a defined and consistent close-out process. Put another way, does the firm have a preconstruction phase for the last 10%? The process is often triggered by some milestone or is simply defined during the preconstruction phase. For instance, firms may have triggers tied to an inspection, man-hour percentage, or internal phases such as landscaping, final grading, or final cleaning. The steps from there should include an internal meeting focused on strategizing close-out and an external meeting(s) that involves the customer and/or trade partners. Exhibit 5 displays the typical agenda items and the action plan:
Item 10 is often the component that is most vexing. For instance, deficiency list completion gets increasingly complicated with the addition of new contract work, leading to the dilemma of focusing on profitable work or work that represents incomplete contract work. What will the firm’s response be? For example, should a new crew/foreman be included as someone that is simply dedicated to extras that arise?
Lastly, it is important to note that in the close-out discussion, there has been little consideration for the use of dedicated punch list teams. On the surface, this sounds like an acceptable strategy to attack the punch list with new found energy and gusto. However, these groups are often riddled with problems including the following:
- Cost Allocation – While the close-out phase should have a budget line item, there becomes an internal battle over how much time is required, usually leading to resentment or angst. In short, does there become a cultural war and internal divide amongst operational teams?
- Punch List Punting – Since the project team knows a special crew is coming in to serve as the closer, will the project experience a higher frequency of close-out items? In other words, will contract work, not punch list work, get punted at the end leading to increased cost allocation issues?
- Utilization – In theory, close-out is a small portion of the overall schedule so unless this team has other obligations, will the firm suffer from cost overruns because of failed utilization?
Research has uncovered several successful uses of “Punch List Teams,” Tiger Teams, and/or Close-Out Crews. These successes are tied directly to a well-thought out strategy that has well-developed rules of engagement. More importantly, the existence of these groups began as an answer to drive superior customer service rather than to serve as a backstop for punch list costs.
The Voice of the Customer
The most important voice in this process is that of the customer. Many firms focus on their version of “done” rather than the customer’s. What does “done” mean to them? For instance, this should be reinforced during the preconstruction phase as well as the close-out phase. Below is an example of questions and components that should be defined early and revisited throughout the construction process:
- Document Collection – Short of the description in the contract, what will be expected in terms of the as-built documents, operations/maintenance manuals, training, and more in both format (i.e., electronic, paper versions, etc.) as well as the number of copies. The contract documents trump many things, but in the court of the customer’s perception, there is the contract answer and there is their answer.
- Punch List Process – Who will do the punch list? What is their experience with this process? What has frustrated them in the past? Will there be multiple inspections?
- Owner Vendors and Suppliers – Furniture, low voltage coordination, security, kitchen equipment, etc. – all of these contractors are professionals but lack the element of specific job knowledge. In addition to notification of the selected parties – assuming they have been selected – it should be incumbent on the lead contractors to execute a coordination meeting as a part of the preconstruction and close-out as if they were on the team already. In cases where they have not been selected, the savvy prime contractor would develop a proactive coordination timeline working backwards from the final award to illustrate important decisions and considerations (i.e., fabrication, municipality expectations).
So often, an owner vendor’s ability to get done will impact the overall project’s ability to be done simply because the municipality’s version of “done” was not considered.
Close-out is the piece of the project that leaves an indelible imprint on a customer’s mind. They may forget the botched start, but failing to complete the nagging punch list may mean the difference on the award of the next project. A focus on project close-out is imperative for every firm, but the leaders realize this is also a true differentiator in a field of mules.