Staying Profitable in the Rise of Time and Materials Construction Work

Scott Seltz:

Hello and welcome to this webinar, the Staying Profitable in the Rise of TNM Construction Work. This event is brought to you by Engineering News Record and sponsored by InEight. Hi, I’m Scott Seltz, publisher of Engineering News Record, and I’ll be your moderator today. Our presenters today are Crystal Gerstel, Billing’s Product Manager, InEight, and Nick Mizera, Senior Director of Operational Services at Bird Construction. Now, before we get started, please take a moment to scroll down and explore the webinar console. You can download handouts, click on the speaker images to read their bios, and submit your questions or comments anytime using the Q&A box. We’ll address as many of those questions that you field to us as possible at the end. Today’s webinar is recorded and will be archived on enr.com/webinars. And now, I’m excited to turn it over to Crystal and Nick to kick us off.

Crystal Gerstel:

Thank you very much, Scott. For those of you who aren’t familiar with InEight, it’s a company that delivers project control software for capital construction across industries like infrastructure, energy, mining, industrial. Our platform really helps to connect the full project life cycle, everything from estimating and planning through to field execution and project closeout, helping teams deliver complex projects with greater certainty. Today, InEight supports projects in more than 60 countries and has been used on over $1 trillion of construction worldwide.

So with that overview, we’d like to jump into a couple polling questions to discover who our audience members are today. Looks like we have a lot of general contractors in the audience, some consultants and designers, few owner reps. Looks like a good mix. Excellent. Well, we look forward to this discussion. I’d like to bring in Nick Mizera into the conversation and just get his perspective on what he is seeing in the industry. Are you ready for this, Nick? Are you seeing more time and materials work in project portfolios today compared to a few years ago? And if so, what do you think is driving that shift?

Nick Mizera:

In some sectors, yes. Some sectors have been doing large scale T&M work for quite some time, at least in my experience, my exposure in the business. What’s driving the shift? I’d say most owners are going to be looking for cost certainty, which is why lump sum is the default in those situations. But now I think what we’re seeing potentially is just with timelines, the stage of engineering or design, things like that. At the end of the day, there’s just more risk involved in the bid that would make it worthwhile for the owner just due to cost, too costly at the end of the day. So really then we start leaning towards some sort of risk sharing that can overall reduce the cost. And sometimes it can allow for us to get boots on the ground sooner because we don’t know for sure everything yet. We can roll with the punches depending on how the design works out, but that can get them to completion potentially sooner than if we do everything in order, we do things more in parallel.

So really brings you more towards that type of model. The other one as well is at times it can be a bit of a value play as well. So in a lump sum world, you’re going to find that sometimes cheapest usually wins, but that doesn’t necessarily mean that’s the best. So some owners now are considering more of a value play. I’m not necessarily looking to get this done as cheap as possible, but at the end of the day, I want the best product. And in those situations, you can sometimes find T&M showing up a bit more as well.

Crystal Gerstel:

Well, especially with some of the cost volatility, so material cost, tariffs on materials, labor shortages, things like that. I think that it’s probably a little bit of a trigger for that T&M project contract type so that to prevent some of those or to alleviate some of those risks associated with that that you would find in lump sum projects where you’re estimating that contract using lump sum values, predefined material costs that you’ve gone out and done your research on. But then over time, those costs have changed obviously because of some of the uncertainty right now that’s happening globally.

Nick Mizera:

Yeah. At the end of the day, it always leans into, again, having to build some type of a buffer in the price. So then the cost just keeps going up and up. And at times, sometimes that buffer can raise the price to a level that you can’t get a project off the ground. So sometimes changing up your contracting strategy and sharing some risks can really allow for, even for something maybe even to get off the ground, period.

Crystal Gerstel:

Yeah. So that’s how you see T&M making more sense than lump sum and fixed price, primarily around the increasing project complexities, supply chain uncertainty, cost volatility, things like that. You’re thinking people are leaning a little bit towards more T&M work because of that?

Nick Mizera:

I would think so. Otherwise, it comes back to if I can get cost certainty on what something’s going to cost me, I’m probably going to stick to that. That’s true of any consumer. But yeah, with just some of the things that are going on in the world right now that can affect, like you say, availability, materials cost, materials escalation, we’ve got challenges with labor availability. And then I think on some level as well, there’s some best value out there as well. I think all those things are giving us a direction where that’s becoming more and more prevalent.

Crystal Gerstel:

Yeah. One of the challenges that we often hear about is the frequency of that back and forth during billing reviews and stuff like that. So actually getting into the time and material work and managing it, how important is it to see audit ready, the audit ready on T&M jobs? And what steps do you think that you can take to be prepared for a type of contract like that?

Nick Mizera:

From an audit perspective, really it’s foundational. You have to be ready. If you have it in your contract, you have to expect to be audited and you really have to be ready day one. If you start consuming or bringing in inputs and processing data that’s not going to stand up to audit, you’re going to have to catch up later. And if you don’t have time on day one, you’re probably not going to have time on day two or two months down the road. So you really have to set up your project upfront to be ready for audit if you have that language in your contract. Ideally, you don’t want to have to necessarily do extra steps. You want to set everything up so that things can, through the natural course of your process, things are going to fall into the right buckets and the information’s going to be available when you need it.

So at the end of the day, you’re going to be focused on transparency and having as much detail as you can to help maintain the relationship and share as much information as possible.

Crystal Gerstel:

What do you find that typically causes the most back and forth with clients on T&M invoices in your experience?

Nick Mizera:

Typically, what you’re going to run into there is questions around rates that the correct rates were used that were in the contract. Quantities are always going to be something for conversation. Did that person work this many hours? That sort of stuff. Did that equipment operate in that timeframe? And then the other thing that causes back and forth is going to be the timeliness of your reporting or sharing that information or your charges, your tickets, your LEMS, whatever it is you want to call them, but being timely with those as well. Those three things typically are going to create the most back and forth. So to elaborate a bit, when it comes to questioning billing rates, if you’re entering those on the fly, again, human error can always creep into that. So really a lot of concern with clients I’ve worked with, ensuring that the right rates are used all the time.

So to make that easy and reliable, you really need to store it in one place, ideally enter it once, verify it once, and then just have it referenced as part of your preparation process for your information, your charges you’re going to send to the customer. Quantities as well, best to utilize some type of, if it’s labor, gate swipes, things like that, sign-in sheets, things that you can utilize to validate that people were there and those hours were worked. Again, that’s going to always get questioned as well. And then-

Crystal Gerstel:

So really getting in front of the client with all of that information before they come to you. So you’re actually going into the conversation with them already with the answers that you know that they’re going to post to you and just having that clear picture of what it looks like.

Nick Mizera:

Yeah, really having a defensible position within that, because again, it’s their job to question it. Some people will take the position that they treat it like it’s their money and they’re saving the company money by not paying you for it potentially. And so yeah, the key is doing that work upfront and being in a defensible position when you present it. And then of course, I mentioned timeliness. So in reality, you’re going up against memories and notes a lot of times with the folks that you’re hoping to approve this stuff. So ideally, if you can present that information next day, end of day, next day on a daily basis while memories are fresh and you can get a steady flow of approvals going, get those questions on the table early so you understand the position you need to take to be defensible because maybe you didn’t anticipate the angle they were coming in with their questions.

Start working those things, building that trust, and getting that approval flowing smoothly, I guess. But worst case scenario, some customers don’t want to be bothered daily. You may be pushed into a weekly or monthly situation, which still happens. When that does happen, really at that point, it really just almost you think, “Oh, good. We only have to only submit once a month or once a week.” But in reality, it may lead to more work because in order to be defensible with what you’re presenting, you’re going to now be running up against foggier memories. So you really got to make sure you’ve-

Crystal Gerstel:

That’s a good point.

Nick Mizera:

… got everything organized when you’re coming in. And less frequently as well, as opposed to talking about what happened yesterday, now you might be talking about something that happened two weeks ago. And so memories change and things don’t line up. So now you may have to do more work to support what your charges are.

Crystal Gerstel:

So have you found that that transparency, improving that transparency with the client around billing helps reduce the conversations that you’re going to have around billing rates, the reliability of the data, things like that around T&M work?

Nick Mizera:

Yeah, it’s all about trust. And in reality, in these shared risk situations, there’s a lot of transparency, and so you really can’t hide a whole lot in most of these. Some of these contracts, they really see everything. They see your base wage you’re paying people, everything, what your burdens are, the rate schedule in the contract shows everything. So there’s a bunch of transparency. And then from there, it’s all about trust.

So you need a solid process, you need reliable detailed data through that visibility and reliability, those are your foundation of trust. And trust is the grease that works the gears of your billing process. So the more transparency and trust you have with your client, in reality, nobody wants to spend all day looking at time tickets and arguing over hours and things like that. So if you can be a reliable partner in that regard, everybody can get back to what they usually enjoy doing, which is really getting the work done in the field and seeing the things we build take shape.

So yeah, it really helps to be trusted in there and reliable in your process and accurate and timely from there, then things start to flow. And ultimately, in my experience, once you get past that original approval from the site validating what happened happened and be willing to pay for it, typically the rest is contractual and just ensuring some other administrative type things on the backend for the customer. So usually that just gets the money queued up. And so as a contractor, you’re going to see money start to flow in on a regular basis as well.

Crystal Gerstel:

Yeah. So in my experience, I definitely like the flexibility of T&M contracts, but they also introduce a different type of risk around billing processes when things aren’t tightly controlled. So I’d really like to talk about revenue leakage, margin erosion, because it happens in the most subtle ways. So I’m just trying to figure out from your experience working with the contractors, is it typically labor equipment, materials, or something else that typically slips through the cracks in that billing process?

Nick Mizera:

Yeah. So your biggest contributor to margin erosion and revenue leakage in a T&M contract is just going to be flat out missed building opportunities. So third party invoices, equipment that’s on site being utilized, labor hours, if you miss those billing opportunities, the cost exists and the revenue does not. And in these types of contracts, that’ll just flat out destroy margin faster than anything else. And then, so the next other item would probably be overspending. So if you got a set of rates, so if you know you’re going to pay a certain trades person this rate or something to that effect, pick a number, you’re going to pay them $55 an hour or something like that. And you come in and you start paying a bunch of your really good folks $5 an hour more, that can quickly erode your margin as well.

Not to say you can’t have a range. And if you start at 55 and you’re paying some above, some below, and on average you’re hitting that mark, you’ll probably be okay. And you do need to monitor that. But if you start paying outside the scale really and your base wage is going out the door higher than what you’ve got in your rate, especially somebody who you’re going to pay five bucks an hour more, you might only be making $3 an hour on that person. So now somebody else has to work hours to actually pay for that person to be there. And I’m sure they’re really good at what they do and they help, but at the end of the day, you’re going backwards there. So you really have to monitor those sorts of things. And we’ve got reporting that we utilize to monitor that stuff. And then there’s just discipline in your recruitment and hiring practices as well if you’re outside of a collective bargaining agreement.

If you’re inside of a bargaining agreement, it’s a little more structured there. But with that though, when bargaining agreements change, you also need to make sure you’ve got your contract adjustments in on time as well, so you don’t end up carrying some sort of a two-week retroactive pay increase before your client’s willing to accept the new rates. And again, that does happen from time to time, but you do your best to stay on top of it. Overspending on things like small tools, consumables, things like that as well. Again, these are smaller than wages and missed billing opportunities, but there’s still something that have to be managed. So usually clients still want to pay for every pair of gloves kind of idea or be signing off on that. So there’s a little bit of risk on the contractor. You’ll throw a few bucks an hour kind of idea that’s figured out in the rate to cover those sorts of things. And then you really just have to monitor your spending against your recovery and how many billable hours you have. And then-

Nick Mizera:

Oh, sorry, go ahead.

Crystal Gerstel:

No, no. I was just going to say too, estimating and actually executing the project can be a little bit different. So understanding the people that are executing the project, understanding what’s actually built into those rates. So for small tools and consumables, are they aware of what those rate buildups are made up of so that they can understand and manage the contract accordingly? So it’s that transparency to your field, your execution team as well, to understand how those rates are defined within your estimate.

Nick Mizera:

Yeah, you bet. 100%. Yeah, you got to lay out the rules of engagement as they pertain to the rates in a T&M contract to those folks so they know what they’re getting into and what they can manage to. And even on the rate side of it too, I’ve been in situations where some of the folks on the execution team are hiring people they know and to some degree if the hiring practices in the organization are that way, they are the ones setting the rates. So to your point, it’s even more critical that they understand that we’re able to pay somebody 52 to $57 an hour and everybody that can fog a mirror can’t be getting 57 and then your friend gets 60 because then we’re really sunk right out of the gate kind of idea. So it is important that they have the relevant information to make the moves they need to within the confines of the contract.

The last one would just be carrying costs on delayed payments. So if we don’t take care of the things we talked about upfront and make sure we grease the gears of the billing process, so to speak, being timely and defensible with our quantities and reliable with our rate usage and ensuring it’s all aligning with the contract, even coding potentially, that leads to delays in payment as well, which can, again, it can erode margin because there’s carrying costs there that can hurt you. And at some point too, it can also affect cashflow, which again, it can be critical at times. I’ve seen it really pinch a few organizations in some big contracts.

Crystal Gerstel:

Yeah, no, absolutely. Let’s just shift to the operational side of managing T&M billing because that’s, I think, where a lot of people feel the burden around it. In your experience, what have been the most significant process improvements that you guys have seen your teams do in order to manage T&M contracts a little bit more efficiently? Other than the stop using Excel, because we all know that’s the tool a lot of people use right now in the industry, but can be a great one, but there’s got to be some more efficiencies that can be incorporated into your processes to better manage these T&M type contracts.

Nick Mizera:

Yeah. Excel’s always got its place. It’s available. Lots of people know how to use it. They understand the process and they can put something together. Usually we find though you’re going to run into a ceiling at some point with those tools, but they are quick to stand up. And in a lot of cases, you can get a lot done with that. In a small enough scale, you can muscle your way through a lot of those things. But yeah, so we’ve covered most of the things, the significant process improvements you see as people try to take on more of that work or especially level up, that one’s actually more dangerous sometimes. I’ve seen it firsthand where, well, we did a project for this customer last year and we had 30 people. Okay, well, that’s great. And then the client likes our process and we’ve got all the things I’ve said, we’ve got the trust and they’re really happy with us and that’s great.

And then you scale up and next year you get more work because they do like you and you go from 30 to 150 or maybe 300 people. And then you try to apply the same process with the same tools that involves PDFs and shared folders and Excel. And then you try to do all the same things. But imagine the wagon and all four wheels flying off at the same time, that can happen in that situation just because it doesn’t scale. There’s just too many manual touchpoints, too many opportunities for error in things like Excel, too much handholding of the process, emailing PDFs and saving them in folders, then the corrections come. You got time sheet errors, which are always going to happen. We do our best to avoid that, but time sheet errors will happen. And then you start getting questioned by the client because you were a couple days late getting it in.

And then there’s some real errors there because again, we’re doing a lot of manual things and all of a sudden everything starts unraveling and snowballing the wrong direction and piling on. And you’re actually spending more time doing corrections than it does take to actually process a day. And it just keeps compounding because every day there’s more mistakes and you can’t correct it. And so by design, it’s just failing and falling in on itself.

And so again, so really that’s where you’d probably want to start considering just as you scale up and things, ideally you want to probably look to include some type of tool or technology that’s a little more structured than just Excel and some manual process that’s probably got a lot of people by to this point. Really ideally, you want to make sure that you’re touching data once, wherever possible, validating it as far upstream as you can, focus on your process to help your people be accurate upfront. Like I said, supervisors are going to make errors on time sheets, but helping them, putting them in a strong position to be right as much as possible, all those things will help you level up or apply those process improvements to make those improvements or level up in the amount of work you do.

Crystal Gerstel:

Do you feel that field capture, the billing processes, or the approval process with clients is more difficult? Do you feel one is a little bit more complicated than the other?

Nick Mizera:

They all have their nuances, I guess. They all have their own challenges. As far as important, I guess it is important that you’re realizing that everything upstream affects everything downstream. So it is important to get that time capture, that input process as timely, accurate, correct, as possible with the minimal amount of touches as well. And then from there, that means that now all you’ve done is really set up the next step to go as smooth as possible. And then now you got to get into the intricacies of your billing process. And like I said, having your rate control in place so that rates can be stored, entered and validated one time, and now I know that table is set until we have a contract change or maybe a bargaining agreement change which changes the rates or something like that. And then we go do it once again and validate it once, setting things like that up to make that process efficient.

And then from there, being timely and accurate and defensible with your client when you get into your approvals so that again, so now we can work on that process. Most of it’s a people thing. In that case, once you get all the data together and building trust, but then let’s make sure that goes smooth because if that goes smooth, then the bills get out smoothly, which means then on the backend payment goes smooth and then I’m not getting a call from my leader a couple, two, three months from now saying, “Where’s the money? We haven’t been paid for these invoices yet.” And then that’s another task that you have to take on when you’ve got a lot of other things that you’re concerned with, the safety of your people getting the work done, the actual work done for your client, all those sorts of things. There’s enough challenges in a day. We need to try and make these things straightforward and simple.

Crystal Gerstel:

Yeah, I definitely think that that field capture piece is probably the most important because like you said, it definitely impacts everything afterwards. So if you don’t get that in timely and as accurately as possible, then the ability to follow through on your billing processes, your client approvals and all of that, it just makes it a lot more challenging. So definitely a lot more delays. So that ultimate source of data capture is definitely critical. And I think understanding what that process is and really defining that process is super important in a time and material project.

So just getting into, as time and material work continues to grow, contractors are realizing that their existing processes weren’t really designed to manage this at scale, mostly probably because a lot of people use those shared folders, Excel tools as you previously mentioned, but how can contractors use T&M billing data to better understand the project profitability while work is still happening? How is that useful for them?

Nick Mizera:

Yeah, it does give a big advantage. I know when I was running projects as well, if we’re collecting time on a daily basis and processing it, from an execution standpoint, now I know I [inaudible 00:27:53] hours next day. I used to always imagine it as if it was a shop and I flipped the close sign on the door at the end of the day, I can balance the till. I can use some estimated actuals and I can, especially if you’re labor heavy, even equipment heavy, like self-perform type stuff, it’s a little trickier on the third party stuff because you’re waiting on invoices, so there can be a bit of a delay there.

But if I’ve got labor and equipment that we’re operating, I know at the end of the day what those costs were, at least close enough for me on site that the timeliness of that doesn’t need to be to the penny, but I know at the end of the day where I’m at. And then I can also run that against what we should be billing there. And I know I can start to identify margin erosion or missed billing opportunities pretty quickly.

That’s on the billing side, but then now I have actual hours every day. So I can start to apply those against budgeted hours and even customer costs, all those sorts of things. So I can use that data on the operational side to align with the work that’s getting done, client budget information. Again, is everything going to be always right to the penny? No, but I can get ahead of it and I know where we’re at and knowing that as time passes, things will dial in and get to the penny when it needs to be. So yeah, it’s a bit of, like I said, in my experience, it’s been the holy grail for self-perform contractors to have that data at your disposal and on that frequency, it gives you a lot of visibility as to what’s going on if you’re looking at the data, what’s happening in your project.

Crystal Gerstel:

Yeah, absolutely. That real-time visibility is definitely a plus on time and material projects. So understanding what that looks like and just having the processes in place to really capture all of that material, those material costs, those subcontractor costs, labor, equipment costs as they come in and as they actually happen within the project, I think is critical for T&M work.

Nick Mizera:

And it can happen on a lump sum project but in my experience, if it’s not really needed, it gets left. So then the driver for labor, as an example, is payroll. So as long as we get the time sheets done on a weekly or biweekly basis to make sure everybody gets paid and we hit the month end mark if we’re closing at month end or in some cases they get assigned to a quarter end, that kicks the tin can down the road quite a ways before we actually feel like we have to do it. And as human beings, we tend to only do it when we have to. Like I said, we’ve got a million other things on the go. I’m not going to make myself busy with things I don’t need today. I’ve got too many fires to put out. So not to say we can’t do those things on T&M jobs or sorry, on lump sum jobs or other projects, but the need being there on T&M jobs makes it always come to the surface or it always has to happen. But again, the data is still-

Crystal Gerstel:

Well, and that transparency to the client… Sorry. That transparency to the client, I mean, you do need a little bit more real time because I mean the intent is that at any point in time really they can ask you where things are at. And yes, you have agreed upon reporting schedules with the client that you’re contractually obligated to, but ultimately you want to be on top of it as frequently as possible so that you can change orders, you can manage change orders, you can communicate any of that work that’s out of scope and you can be really on top of it for managing those budgets like you mentioned and having that real-time visibility into the entire contract value at any point in time throughout the lifecycle of the project. So I think that that’s pretty important.

Nick Mizera:

Yeah. And it’s shared risk with the transparency as you said. So you really want to share that information as quickly as you can with the client as well, because they’ve taken on some risk in that regard. And by being on top of those things, starting those conversations early, giving yourself and your client more time to adapt to or adjust to what the conditions are or what’s coming down the pipe gives you better options to minimize impact as well. So being on top of those things too, just also just goes further to build more trust with your client.

Crystal Gerstel:

So how confident are you that your guys’ current processes are really capturing all of those billable costs for your T&M projects?

Nick Mizera:

Yeah, I think I’m very confident in what we do on our T&M projects. We have a very large maintenance group as well that is really strictly T&M in a lot of cases. And so yeah, are we capturing everything billable? We’re not perfect, but we’ve got processes in place, reporting in place to try and by exception, identify those things and start the right conversations and making sure that things are caught. So yeah, as far as as good as you can be, I believe we’re right in that ballpark and always striving to be better.

Crystal Gerstel:

And do you feel that that’s what separates your guys’ ability to be profitable from maybe others that struggle with it is really those processes that you guys have in place and you define that?

Nick Mizera:

Yeah, I think for sure. Definitely doing those things to make sure we don’t miss out on the billing opportunities, which I find are the biggest misses. And then really even just from overall profitability, not just margin, but as far as earnings go, our processes are, I guess to some degree, hard earned, but they’re able to scale to large size and keep up with what’s necessary so we don’t get drowned. We don’t drown ourselves in rework and errors and things like that as well so that we’re able to reliably deliver that information to the clients on time.

Crystal Gerstel:

Excuse me. What kind of cultural or training changes do you think are needed for companies who decide to take on more T&M work?

Nick Mizera:

Yeah, so probably one of the biggest ones, I was chatting with a colleague here a few months back and really don’t underestimate the critical importance of your front end supervisors and your administrators, your administrative efforts in a T&M contract. That’s your front end. So if you miss that out of the gate or you trip up in your billing process between those two, by the time you go to get in front of the clients, you’re going to be in trouble. So you really have to focus on accuracy and timeliness there and setting them up for success, simplifying things wherever you can, creating single touchpoints. Instead of having three touchpoints, if one will do, that’s what you have to do because yeah, if the time sheets are a day late and two hours short, you’ve lost before you’re even out of the starting block with the process.

So a lot of people don’t fully understand how you can help those folks and the importance of it. And then sometimes, again, your superintendents get a lot of airtime, your PMs get a lot of airtime, but in a T&M contract, what really makes this stuff move is your supervisors and your administrative efforts.

Crystal Gerstel:

Yeah. And I think that sometimes understanding time and material projects tend to be a little bit more administrative heavy than maybe some of your other project types. So understanding the needs from that administration side of things and what it takes to actually run your processes smoothly and accurately and as efficiently as possible, they’re really there to support your supervisors and ensure that they’re getting the information that they need in order to do their job, that those foremen capturing the labor and equipment hours in a timely way, supporting them on that to do that, supervisors reviewing and approving, or your field engineers reviewing and approving the work and really having everybody understand how that contract is meant to be executed and ensuring that all of those people are well-informed on what they need to do within that process in order to make the final output as good as possible.

Because obviously that output to the client, all of that information coming into for the billing process, so those foremen capturing the daily time, the third party billing, anything like that, having all of that come in as efficiently and as timely as possible gives you assurance that you’re actually billing the client as quickly as you can, ensuring that cashflow is there, and just ensuring that the transparency on what your project expenses are are visible so that the client, you guys can discuss it at any point in time and really know where you’re at within your contract. So if you could give one piece of advice to contractors struggling with T&M billing, what would it be?

Nick Mizera:

Yeah, I’d focus on efficient processes and disciplined processes. So I’ve touched on it a bit, but wherever possible you really want to set it and forget it with your data. So if you can set up a person or your classifications or your rates one time so that when you go to enter the time, you really just need to know the person’s name. And we’ve already got it set up that that person is a journeyman pipe fitter and the rate that’s in the system for that contract at this time is already set. Nobody has to think about that because it was already set up. We really just got to make sure that Nick gets… I get my eight hours of straight time or whatever it is, or split it up over three codes or whatever it is for the day and make that as simple as possible. And then nobody has to worry about that data after the fact.

So if you can do some of those things, then really we just got to focus on what the person needs to provide at that point. So the supervisor is the only person who really knows what that person did that day for how long. That’s really what we need to get. So give me the name, give me the task code, and tell me how long they did it for. That’s all I need from them. And if we can get that right, and then from there, everything else can start to flow and it puts less work on the administrative efforts. If the rates are already set and they’re pulling in automatically as well, we don’t have to worry about people looking that up and keying those in or anything like that as well, so it makes life easier.

So then once you get that process nailed down, then just really discipline to it, make sure we’re running our validation steps. If there’s a cross reference to swipes or something like that, make sure we’re running those reports. Build some automation, connect some reporting, or build some reporting that connects those data sets and really just brings the exceptions to the surface so your administrators can just chase down the five breaks between the swipe hours and what ended up on the time sheets. Now I’m only chasing five people from two different supervisors to validate why was Nick only swiped in for eight hours, but we paid them for 10. What’s the deal with that? And usually there’s a reason, but we can get to those things quick, which saves us time and we can keep things moving forward because again, there’s a million things to get done in a day.

Crystal Gerstel:

Yeah, I would definitely agree. So given that great conversation on T&M, and we’d love to throw this over to Scott and get some questions from the audience.

Scott Seltz:

So let’s jump in. I actually had a question that occurred to me as I was listening to your conversation, and my question is, as TM work continues to grow in the industry, what’s the one thing contractors should change in their billing strategy to stay profitable?

Nick Mizera:

I’d probably say really, it’s probably in most cases just knowing how most people get started, I’d probably say get started with, like I said, you start with a pretty manual process and probably some spreadsheets and things, it would be to probably look to add a tool to add that efficiency. That’ll be your next level up and put you in a position where you can start to do some of the things I mentioned where maybe automating some validation and things like that, because then you can leverage that technology to find those missed billing opportunities, where you’re missing on your rates, as well as really grease the wheels to get your billing processed efficiently and get money in the bank that’s probably to stay profitable and put yourself in a position where you can be more profitable by doing more work. Again, T&M work. The more you do, the more you make. So yeah, that’d probably be what I would suggest.

Crystal Gerstel:

Slowly reduce those-

Scott Seltz:

I like that relationship.

Crystal Gerstel:

… spreadsheets that you’re using. Sorry.

Scott Seltz:

Sorry, Crystal. I didn’t mean to interrupt you.

Crystal Gerstel:

No, I was just saying slowly reduce all of the Excel spreadsheets that were currently built into your previous billing processes.

Scott Seltz:

Great. Another viewer… A viewer’s asking, do you see certain sectors that use T&M more than others? My background leans into industrial building side of things, which have utilized T&M quite a bit.

Nick Mizera:

Yeah, I’d say there definitely have been in my experience. I come from industrial construction primarily actually in Alberta, I cut my teeth when large capital projects were happening in Northern Alberta and the oil sands back in the early 2000s. And I can remember when I first came up, lump sum was the order of the day. The folks I worked with were really good at lump sum work. They knew how to nail our costs. I was fortunate to work with those folks. But by about, geez, it was already happening in 2002, 2004, and primarily a lot of it was just… We were putting boots on the ground before engineering was ready, and there was a whole lot of people standing around on lump sum contracts. And so the change orders, the claims were starting to build, and at the end of the day, everything converted.

And in Alberta, in that industrial sector, we’ve seen… T&M has ruled the day ever since. And even going back further than that, and later in my career, I got much more involved in industrial maintenance. And of course, that type of work, as far as I can tell, as far as I can go back and talking with people that’s been in T&M that long. And so in those sectors, it’s really, really big. And so if you’ve seen it in the industrial building side, I’m not surprised at all there. I’m getting more involved in the buildings, commercial buildings side of the business now with Bird, I came to Bird through acquisition. And so getting more exposed to that side of the business now, a lot of lump sum projects still, they’re still prevalent, but definitely seeing it, the collaborative projects starting to come to the surface a bit more now. And so we’re definitely seeing more of those types of contracts showing up in other sectors that have been, in my experience, more traditionally lump sum.

Scott Seltz:

Great. The same viewer actually is asking a second question, and this one, bear with me. It’s a little bit longer. He says, “My experience on this type of work is to have daily T&M tickets, work detailed by performing contractor that verifies, confirms the work. It avoids questions or challenges that have happened in the future. Not doing so, this can add risk, especially then to the contractor.” Thoughts, your thoughts on this.

Nick Mizera:

Yeah. As long as I’m nailing that there, but I think I agree and touched on some of this stuff a little bit earlier as well as, yeah, daily for me, and I can even say in my experience with working with other sectors that haven’t done as much T&M work, we get exposed to that. Well, we’re just going to do time sheets weekly. We’re just going to do our T&M bill at the end of the month. And where I come from, and I’ve obviously spent a quarter of a decade in T&M work here, daily is mandatory in the space I work in. Even just as a project manager, I’d want that information just to help support my project.

And even with coding and things like that and getting that right, because in reality, a perfect time ticket, a perfect LEM, whatever you want to call it that you’re submitting on a daily basis to that customer, a perfect one can still get rejected because they may look at it and go, “You know what? We’re running over on this code and I don’t really want to go to my boss.” Or, “I don’t want to do the work to move the budget.” Or, “I don’t want to go to my boss and ask for more money. So I got room over here, so just go change the coding and put it over there.” So corrections are going to happen and they pile up. So timeliness, getting that stuff in front of the customers and working through all that and adapting to what they need is critical to success.

Scott Seltz:

Great. How do you ensure field terms consistently capture all billable labor, equipment, and materials on T&M projects without creating extra administrative work?

Nick Mizera:

So for us, again, not just even for us, because transparently, I’ve spent time cleaning these jobs up for others as a consultant in the past and things like that. So I’m not just speaking exclusively to Bird, it’s just my experiences, but you really don’t want to create more administrative effort anywhere. That’s really what you’re always working against. So you want to… What we’ve done is if you can set up swipe systems, so if people are coming in every day and when they’re leaving, they’re swiping, there’s a bit of work to get the discipline up there. But honestly, if they’re just clocking in, clocking out that way, we’re compiling that data on a daily basis. We put a little logic into a report to deal with breaks and unpaid breaks and things like that, even swipe early, swipe late logic as well so that you can try to match up the hours on the swipes to the accurate or full whole number of hours that you’re going to see on a time sheet.

We then just will cross compare that stuff and then really just bring that report to the surface so that someone just can chase that stuff because they’re going to have to chase it down anyways. It’s a discrepancy. But instead of somebody with a ruler and a highlighter and checking one by one by one on a printed sheet or something, like trying to leverage technology that’s available these days, which we were doing this stuff 20 years ago, the technology we have available to us now and what you need to know, like I used to need developers to do that 20 years ago. Now I can honestly tell you, I have a pipe fitter superintendent who’s one of my top developers now using the technology that’s available in the world in these days because operations knowledge is the new superpower.

So things like that help. With equipment, we have GPS installed in our equipment as well, so we know where it is and then utilizing data from there as well and then looking at where equipment is assigned or expected to be charged or even where it was physically located and by proximity saying it should be on this job.

And I can tell you we have conversations right now about some of those opportunities that might be getting missed at times that we need to get a little better at. But again, we’re leveraging the data to do that, not adding administrative effort and really just having the meaningful conversations with individuals because at the end of the day, you are turning some of your operations folks into salespeople. They got to go ask for money every day. They got to walk over with that stack of… If they’re still handing paper or they got to hit send and answer the question because they’re asking for money every day and people don’t like doing that. When I was a young guy, I was probably first six months in the business, they gave me the stack of time sheets to walk across the site over to the customer’s trailer and I had to go ask for it every day and the superintendent over there would give me a hard time. And because again, I was asking for money every day. So I drew the short straw being the young guy on the site.

Scott Seltz:

On the job training, I think that’s called.

Nick Mizera:

Yeah, exactly. Exactly.

Scott Seltz:

So a viewer’s asking, do you think the more you’re transparent with your client, the easier it makes the project?

Nick Mizera:

100%. 100%. Especially in these contracts, they’re really written that way. So yeah, transparency helps. And it’s shared risk in a lot of cases, or at least the customer’s taking on more risk than they would in a lump sum contract as an example. And in those cases, they’re really not privileged to a lot of that information. But even now, they’re starting to understand the value of that data, and even in lump sum contracts starting to write in that they want access to certain data, even though it might not be part of the compensation model, they still want to see some of that data at the end of the day.

But so yeah, transparency is key. And I think I had a note on it, I don’t think I touched on it earlier, but that’s one thing that if you’re coming from the lump sum side of the world where we do very much have things partitioned and it’s their side and our side, and it can be a little more adversarial at times. When you step into this transparent world of T&M work, if you’re not good or you’re not organized or those sorts of things, it will become apparent very quickly. So you really want to be on top of your game, you want to present well, and because really they’re going to be in your closet, it’s not stuff you can just store away because it’s all shared in these contracts.

Scott Seltz:

Great. We have time for two more questions. First question, what are the most common reasons clients push back on T&M invoices and what can contractors do upfront to avoid those disputes?

Nick Mizera:

Yeah, well, the most common one usually, and then that’s the easiest because it just depends on who’s signing or approving your submissions. But the first thing they’ll always question is our quantities, right? Well, was that equipment here? Did that equipment work that long? Was Crystal really here for eight hours yesterday? I didn’t see Crystal. I don’t think I need to pay for Crystal. Those are the first ones that come up. And like I said, to get around that, if you come in with a swipe report, and we’ve been tracking that, and I can show you that Crystal swiped in, swiped out, was here for actually for nine and a half hours, she actually showed up early and read the paper before she went out and all that sort of stuff, once they know you’re defensible and you have all that backup and you’re checking it all for them and making their lives easy, they just need to look for gross discrepancies, that’s making their lives easier and making it easier for them to sign off.

Where else was I going with that? Oh, and then rates. So the next thing that’ll happen is once it gets approved on site, a lot of times it gets more into a contractual review. And so clients will spend a lot of time reviewing rates to make sure that we actually put the right rate for Crystal as an example. And so if you have a system that’s in place that you can even transparently share and help them understand how you’re doing it and what way you’re doing it, then they can start to trust that. If they know I have to key it in a spreadsheet or it’s even in a spreadsheet with a cell that might get modified accidentally, then they’re a little less trusting. So again, making it easy for them to approve. And then really then they can, in some regard, they know they’re doing their job well enough without having to spend a bunch of time, you’re making it easier for them and they still have usually an audit clause that they’ll fall back on anyways.

So those are usually some of the biggest pushback and another easy way to get around that is just if you’re getting in front of them every day. And then over time too, it’s a relationship thing. So it might not be perfect day one, but the fact that you show up the next day and you have the answers and you’re improving and as time goes by, then it just gets easier and easier. The trust account fills up a bit and then you’re in good shape and ideally getting paid. And one thing I didn’t mention as well is in these contracts, a lot of times you can expedite payment terms. So sometimes getting paid in two weeks, getting paid in 10 days, or maybe you’re getting paid in 60 days, but they’re paying you in 60 days from day worked kind of idea.

So as long as you get your time sheets approved. And so then on the finance side of things, that’s money rolling in every day. You’ve got accounts receivable that are being posted every day. And so that money is just a continuous flow. And then the key is your efficiency and your process is to keep the amount of money you have in that approval chain or in that cycle. If you can keep that as tight as possible through efficiency, now you’re a well-oiled machine from a money perspective.

Scott Seltz:

Nice. Last question. This viewer is asking or saying, “T&M that I’ve seen is usually profitable. When is it not profitable within a large project?”

Nick Mizera:

Yeah, you’re right. Generally speaking, especially larger scale, if you’re organized enough, as far as being able to sink that boat, I think that comment is valid. For us, things we hit on a lot with that is we signed that MSA, we signed that contract to perform that work and we said we were going to get, pick a number and we said we were going to do 8%. So then we get… And everything’s auditable and all those sorts of things. So then we really get after making sure we don’t miss that opportunity and do it all very intentionally because sometimes there’s some hidden winners in there. If you’ve got a steady crew for an entire year and you get, up here in Canada, you get your CPP and EI, you get your benefits paid up for the year, sometimes in the rate, you’ll have the full amount there. So on the back part of the year, you might have a bit of a win. And if that part is not auditable in your contract, you might get a bit of a windfall there.

And that can even help keep you afloat and help you even hit your say 8% mark or your 3% mark, whatever your margin happens to be. But for us, we don’t want to leave that on the table. And you’re right, so you probably won’t sink the boat, but we drive very hard to deliver what we would call nameplate margin on our contract or our opportunity that was approved. And then even from there, we don’t want to miss any added opportunities that can help the bottom line.

Scott Seltz:

Great. Now as it would turn out, we actually have three minutes left and we just got a great question, which has three parts to it. So are you ready? Here we go.

Nick Mizera:

You bet.

Scott Seltz:

Do you think the industry will continue shifting toward T&M and cost plus models over the next five years and why?

Nick Mizera:

I like to believe it’s going to. I guess it would be the way I would say that. From where I’m sitting, I’m seeing that trend. Again, my lens is only so big. I don’t see… At times, even within Bird, we’re very focused in Canada currently, so I don’t necessarily see all the trends that are happening in the US, which is a massive market. But I’m seeing it in the spaces I’m working with that it’s trending that direction. Just the way I’m wired, and it’s not necessarily how a lot of folks of my demographic are wired or within their experience, but what I’m seeing also generationally, as the younger generations are coming along and maybe how they’re wired, I’ve never really enjoyed being adversarial on a project. I don’t like trying to do my best work with a knife at my throat. And so the space, the space and then trying to get one over on each other, it’s like, well, we’re supposed to be… And I think it’s… So what I find in T&M work is it aligns intention and objectives much better.

So instead of in a lump sum project where it’s like, well, I’m here to build it for you, but I’m building it so that you’ll pay me and then I’ll make my money. And honestly, if I’m just here to make money, that can be in competition with others on the site, but ultimately we’re trying to do the same thing where I feel that the T&M contracts, collaborative contracts bring everyone together more with a shared objective, with the client, with other contractors, so that we’re actually all working together, which to me, I got in the business because I liked building things. I like seeing those things take shape. I like driving by and seeing it later and letting people know that I was a part of that project, part of that team.

And so maybe it’s from playing sports, maybe others feel that way as well. I just know for myself, I’ve always enjoyed it. And so I really hope that that trend’s going to continue, that people are going to understand that feeling that I’ve had and like it, and feel like we can actually accomplish more together while still being profitable. And actually, I believe building better product at the end of the day, if we’re all shared and we’re all really good at what we do and if we’re all aligned in how we build things, I think we can have better outcomes.

Scott Seltz:

Oh, that’s great. Well, that’s all the time we have for questions today. Please join me in thanking Crystal Gerstel and Nick Mizera and our sponsor, InEight. If you have a question but it wasn’t fielded, just email us at [email protected] and we’ll forward your question to the presenters so they can respond directly to you. When you exit the webinar, you’ll be taken to a brief post-event survey. We’d appreciate you taking a moment to share your feedback as it helps us to continue to improve our programs for you. Please visit enr.com/webinars for the archive of this presentation and information about our upcoming events. We hope you found this discussion to be a good investment of your time. Thank you again for joining us and have a great day.