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Tips & Advice Trends & Technology

A Way of Attracting Younger Construction Workers? Technology.

Many construction industry companies are looking for ways to attract the younger generations to work with them so their businesses can continue on into the future. But with a labor shortage throughout the country, and particularly in construction, companies have to work harder to attract younger workers.

The answer to the question of how to reach younger workers and encourage them to join the industry is technology. By updating systems and software, using the latest in tech gear, and focusing on recruiting young workers, construction companies can make the industry attractive again.

An aging workforce

Workers younger than 25 make up only 9% of the total construction industry workforce. Roughly 40% of workers in the industry are 45–64. And according to data from the Center for Construction Research and Training, workers aged 55 and over increased from 17% in 2011 to 22% in 2018.

Add to that the fact that the industry has struggled to attract younger workers and it’s a recipe for a shortage in the near future. High school students are encouraged to go to college and choose a career path from there. The trades and other construction-related occupations are not given as much fanfare.

Contractors are complaining about the lack of skilled workers available, but the truth is the industry doesn’t do a good enough job attracting potential workers. The younger generations have grown up with technology by their side and have come to rely on it for every aspect of their lives. However, construction has been slow to adopt new technology, and many workers still rely on outdated resources to perform their work.

If contractors and other construction companies want to attract younger workers, they’ve got to adopt the latest in technology. This will allow them to take advantage of the benefits of younger workers’ skills. Students in construction management programs are getting trained on the use of scheduling software, project management software, estimating software, and electronic material takeoff. Administrative and accounting professionals are being trained using new software with new functionalities. Asking highly trained workers to use outdated programs discounts the education they worked so hard to get.

By asking workers to use systems they are not familiar with also slows down the training time and increases costs. Companies that still do manual takeoffs will struggle to teach a Millenial worker about scales and manual calculations. This leads to a longer onboarding process, costing companies more money while they wait for a new worker to become productive.

Upgrade your tools

Companies that want to attract younger workers need to upgrade their tools to the latest technology can offer. You don’t have to be on the bleeding edge, but there’s a lot of researched and tried-and-true technology that construction has been hesitant to implement. Companies need to adopt tech to help match the skill sets, education, and training those future workers are receiving.

Accounting

In accounting education students are quickly trained on the debits and credits, then they are moved to software. While most construction companies use accounting software, not many use software specifically designed for the industry. QuickBooks and other general-purpose accounting software can be useful when a company is starting out, but as they grow and want to attract a higher level of talent, industry-specific software becomes a necessity.

Since construction accounting is so different than any other industry, using industry-specific software becomes even more important. Trying to show someone the intricacies of construction accounting using software that isn’t built for those intricacies can lead to a lot of confusion. New workers need a straightforward process that often isn’t available when using generic software.

Project management

Students in construction management programs are learning project management and documentation by using software packages. These packages make tracking correspondence, submittals, and RFIs much easier than using an Excel spreadsheet. If companies aren’t using these tools, they could be losing the opportunity to work with some of the best and brightest.

Estimating and takeoff

When it comes to estimating and material takeoffs, integration is the key. Too many companies rely on outdated software or manual methods to create project estimates and do material takeoffs. Those amounts then need to be entered into another software system once the project is approved. By integrating and automating the estimating takeoff process, companies can improve speed and accuracy. Both of these lead to more work and higher profits.

Scheduling

Scheduling software allows project managers to build dependencies and relationships between tasks on a project. This makes updating the schedule a lot easier because tasks automatically move depending on their predecessors. Having to spend hours manually updating a schedule can be costly.

In addition, some schedules can be imported into the project management system, allowing the team to view the day’s activities and adjust the schedule as needed.

Update your software with Premier

By implementing the latest in technology and bringing processes into the 21st century, construction companies can attract younger, skilled workers. Companies that do not upgrade will continue to struggle to recruit new workers and attract the best and brightest.

If your company is ready to upgrade your accounting and project management software, contact us to see a demo of Premier Construction Software.

Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

 

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Accounting Industry Insight

How to Create a Time & Materials Billing for Construction Projects

In our final article series covering the main types of billing methods in the construction industry, we’ll be discussing time & materials billing and its key benefits.

Some general contractors prefer time and materials billing, as it shifts most of the risks onto their customers. Any costs incurred come out of the customer’s pocket, not the contractor’s. This format allows them to focus on their profits and concern themselves less with the unpredictable nature of contracting. 

While the time and materials agreements are straightforward, the act of putting together a bill can be daunting. Contractors have to collect all the receipts for all of the materials they purchased throughout the course of the project (possibly with mark-up), account for manpower, and add any support documentation that the customer requests. Factor in time for manual data entry (and the mistakes that tend to come along with it), and the process gets even more convoluted. 

Thankfully, Premier Construction Software provides a time and material billing solution that quickly and easily generates accurate, professional invoices.  

What is time and materials billing?

A time and materials billing format involves the contractor charging the customer for, quite literally, time and materials. The contractor bills for every man-hour spent on the project, as well as for any materials purchased for that job. Labor rates are typically outlined in a simple format in the contract, though these rates can vary depending on the tradesperson working on the project.

On top of the labor rates and materials costs, some time and materials contracts allow the contractor to mark the cost of the materials up a bit. Again, this is something the contract will clearly outline, but it does help the contractor maintain a healthier profit margin. Should the customer decide to use high-end materials, the contractor’s profit will grow accordingly. 

To calculate a time and materials invoice, a contract needs to multiply the man-hours by the agreed-upon rate for each trade, and then add it to the materials costs (plus the markup, if contractually allowed). This is a very transparent billing format where the customer is aware of everything other than the hourly rate you’re paying your crew.  

Time and materials contracts are most suitable for projects where the scope isn’t crystal clear. If the customer is undecided on materials, direction, or the project is ripe for unforeseen costs, time and materials contracts help keep the contractor and customer on the same page. It also does away with pinpoint estimating, allowing contractors to get to work right away.

This billing format does hold a few disadvantages for the customer. Contractors have to be meticulous with record-keeping, from receipts to man-hours. One missed expense and the profit margin shrinks. Also, the costs to get the project off the ground are on the contractor’s shoulders, making timely accurate documentation and timely billing a sink-or-swim proposition.

How to calculate a time and materials billing

The first step for a contractor to be successful under a time and materials contract is meticulously detailed record keeping. This includes documenting labor, equipment rentals or purchases, and materials. 

Contractors need to log each of those costs into Premier Construction Software’s accounting system to ensure the contractor can charge for them when it’s time to bill. They also need to consolidate any separate ledgers, time logs, or job cost entries with the job. Any cost accidentally left out or forgotten comes directly out of the contractor’s profit. 

Creating your bill is easy. While you’re in the time and materials billing module, simply select the costs and labor hours to add. You can set each cost to bill with the current invoice, save them for later, or mark them as never bill. 

Once you select all of the costs and their billing designations, Premier Construction Software will automatically calculate the invoice. The system will automatically determine the appropriate rate for each man-hour by the labor code. And, if the contract allows, you can set the time and materials billing module to add set percentages for materials markups.

Once you review the invoice, Premier Construction Software will send the bill automatically via email to your customer. Your customer will be able to open the invoice from any internet-enabled device, drastically reducing the amount of time it takes to get paid.

What documents should be included with a time and materials billing?

Top view of general contractor working on aia application for time and materials billing

Each project has different billing requirements, including what supporting documents the customer wants included with the invoice. Luckily, Premier Construction Software’s document management system makes it easy.

Most time and material billings will include the following backup:

Invoice – The invoice should provide a summary of the amount. It should include the number of man-hours, and the labor rate, material expenses, and the overall markup.

Transaction list – Include a detailed report of the labor hours and costs for which you’re billing. The customer will want to review this list for accuracy and use it for their own reporting purposes.

Copies of invoices and receipts – Most customers will want copies of your accounts payable invoices that are being used to determine the invoice amount. They’ll also likely want to see any store receipts for smaller purchases. 

You can spend hours tracking these down and making copies, or you can use Premier Construction Software’s document management tool to automatically add copies of pertinent invoices to the email that goes to your customer.

Copies of timesheets or certified payroll reports – Customers may also want to review copies of your employee timesheets showing the hours worked on their project. 

If the project is prevailing wage, you may also have to provide certified payroll reports. These reports list all the employees on the project, the hours they worked each week, and certify that they were paid the correct wages and benefits.

Lien releases or waivers – Some customers may require copies of lien releases or waivers from your vendors and subcontractors as proof that they have been paid.

Time and material billing doesn’t have to be a waste of time

Preparing a time and materials bill for construction projects requires a keen eye for detail. Being able to put your finger, or mouse, on every receipt and timesheet that applies to a project will ensure you aren’t leaving money on the table. And, the faster and more accurate this process is, the better. 

Using Premier Construction Software’s document management system with the time and materials billing module will streamline your time and materials billing process. You’ll be able to create accurate invoices instantly, free from missed line items or forgotten costs. And, with electronic signatures, you’ll even reduce the amount of time it takes to get paid.

If your team struggles with assembling time and material billings, let us show you a simpler, easier way. Book a call with one of our representatives today to see it live.

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Industry Insight

Billing in Construction: Progress Billing via Schedule of Value (SOV)

When working on a long-term construction project, contractors often use progress billing to keep cash flowing during the project. Progress billing involves requesting funds for the portion of the work that has been complete. It is usually based on a percentage of the contract. Most project owners require a breakdown of the work on the project, showing the progress on each line item of the breakdown. This is called a schedule of values and is used by most contractors when they are billing long-term projects.

We’re going to look at what a schedule of values is, how it’s used, and how to create one.

What is progress billing and a schedule of values (SOV)?

Construction companies bill projects based on the progress of the job via a schedule of values. A schedule of values lists every billable item on the project along with the subsequent dollar value of that task. Typically progress billings are submitted monthly, but complicated projects may require more frequency. A project manager enters in a % completion or amount for each item as they progress on the project. This routes to the architect and owner for approval. Once approved, the accounting team generates an AR invoice from the progress billing to ensure accounting and job costing are always in sync. The SOV is a valuable tool in the evaluation of percent complete on a project as well as a management tool for the billing process each month.

What is the typical breakdown of a SOV?

In the United States the industry-standard format for a billing schedule of values is per AIA form G703. General contractor accounting issues are common, so it is essential to establish a good schedule of values early on. Typically, a contractor discusses with the client how the schedule values should be broken down. Creating this schedule of values prior to the beginning of a project is beneficial to everyone because it then becomes part of the signed construction agreement. It’s important to verify that the sum of all line items should equal the total contract value.

A schedule of values looks similar to a requisition form and should list the items and scheduled value followed with the amount previously billed, amount billed this period, materials presently stored, total completed & stored to date, % complete, balance to finish, retainage. A construction contract will typically require that “Retainage” be withheld from each application for payment in order to provide the Owner or lender protection from the Contractor not completing the entire project. Additions to the contract can be listed separately below or in some cases, clients prefer for them to roll into the cost items listed above.

What is a schedule of values used for and by who?

The cash flow of a construction project is determined by the schedule of values, which is why it is the main document used for monthly payments. The schedule of values also evaluates how the project is progressing according to plan and whether the percentage is on point to where everything should be with the amount of money that has been spent at that time.

Many contractors prefer to collect as much of their money upfront as possible, which is why they’re always tempted to front-load the schedule of values.  The experienced architect and owner will not allow this front-loading, and will try to more accurately identify the proper values of each line item on the SOV.

While a general contractor will use the schedule of values continuously throughout the project, it is always also available to architects and owners. For most construction projects, the architect has an essential monthly task: reviewing the contractor’s application of payment. That means that they can see how well the construction project is progressing, if everything is on schedule and on budget, and see if there are any changes that they can make to improve their results.

Financing companies may also request a schedule to use for their own internal breakdown of loan funds. The schedule helps the lender reconcile the project draws to the total loan package. The lender must ensure that the contractor is not overdrawing specific line items, so they use the schedule of values to track the progress of the draws.

How to complete a schedule of values

The first step in creating and completing a schedule of values is to list the phases or activities of the project that are related to your work. Enter the scheduled value for each phase. Once you’ve assigned accurate values to all the items, add up the amounts to ensure that they equal your total contract amount. If there’s a discrepancy, review your calculations to find any errors.

Typically, the schedule or actual costs determine how much can be drawn for each phase of the project, it’s important that the information provided is as accurate as possible. Enter in the % or amount each month and generate the progress billing application and AR invoice.

Conclusion

Schedules of values are important documents in construction projects. They are used to bill the project and to show the progress of the work. Banks and owners use them to reconcile their financial documents and ensure that the project loan or funds have not been overdrawn.

Creating a schedule of values involves breaking the project down into phases or tasks that can be used to show the progress of the project. Each phase or task is assigned a value and the total of all the items matches the contract amount. Project teams rely on the accuracy of the information shown on the schedule to determine budgets and payment amounts.

To learn more about how Premier Construction Software can help you streamline your billing process, get in touch with our team for a personalized demo today.

Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

Categories
Accounting Industry Insight

The Main Types of Billing in the Construction Industry

While many industries operate around a fixed price or point-of-sale billing structure, the construction industry tends to be a bit more complicated because of its long-term, project-based nature. Every construction project is unique and comes with its own set of requirements and challenges. Because of this, contractors may use a number of billing styles and methods, which then requires the use of construction accounting software in order to track, create and manage those billings.   

A construction contract is a legally binding document that stipulates how and when payments will be made once a project is executed. The contract type is usually defined by how disbursements will be made, and will include other pertinent project information like duration, liability, quality requirements, and more. 

While there are a number of variations that can be made to meet the specific needs of a project, this blog will focus on the most common construction contract types and billing options.   

Fixed Price / Lump Sum

Fixed price contracts (also referred to as lump sum contracts) are the most basic type of construction contract because they outline one total price for all construction-related activities. Sometimes, incentives are built into these contracts for early completion, but they may also include penalties (called “liquidated damages) for projects that are completed late. 

  • Pros: Fixed price contracts simplify the bidding process by naming one total price in lieu of submitting multiple bids. Because the project price is already set, finishing under-budget results in higher profit margins.
  • Cons: Because there’s one set price that’s agreed upon, any unexpected changes or setbacks cut directly into profit. Therefore, it’s critical to try to account for every variable upfront, which can be difficult to predict, especially on larger and more complex projects. 

Cost-Plus

Under a cost-plus billing structure, the owner agrees to pay the contractor for the project costs plus a fee, which may either be a fixed fee or calculated as a percentage of costs. 

  • Pros: This billing structure provides the most flexibility, and allows owners to make design changes along the way while also providing the contractor with assurance that they’ll be paid for any extra time or materials those changes require.
  • Cons: Cost-plus contracts require contractors to front and justify costs, which can sometimes be difficult to account for, and owners may be reluctant to reimburse for indirect costs like mileage or administrative expenses. And because the owner is ultimately responsible for payment of any unforeseen costs, this structure provides owners with the least control over costs.Automate your cost-plus billing process using Premier Contstruction Software

Time and Materials (T&M)

With a time and materials billing structure, the contract price is based on the cost of materials, plus an established pay rate. 

  • Pros: T&M billing is easy to use for small projects, and a good option when the scope of work is unclear or undefined. It’s attractive for builders because it means they’re not completely limited by budget, although price caps are commonly established to mitigate the owner’s risk.
  • Cons: Tracking and logging the cost of time and materials can be tedious, but failure to do so results in lower profit margins. Also, because this billing type pays by the hour or by the day, there’s no real incentive to finish a project early unless the contract includes a stipulation to pay a bonus for finishing ahead of schedule.  

AIA Progress Billing

Named after the American Institute of Architects (AIA) that produces its official forms, AIA progress billing invoices the customer based on the percentage of work that’s completed during that billing period. This type of billing is common in projects that last a long time as it allows the contractor to fund themselves and the project while it’s in progress.  

  • Pros: AIA contract documents are widely-used, standardized forms that are applicable to many project types, and they can be customized to include specific terms like retainage rates or interest rates on late payments.
  • Cons: While the AIA standard contract documents can be customized, the contractors may have to pay for these modifications to be made, which can be expensive. Additionally, any changes to standard documentation invites the potential for legal risk and, therefore, should be reviewed by legal counsel.

Conclusion

Understanding the different types of construction contracts and billing models is critical to determining the right fit for you and your project. Premier Construction Software supports cost-plus billing, progress and time & materials with built-in automation to streamline your billing process into seconds. To learn how Premier Construction Software can help streamline your AR billing needs, click here

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.