Are tech missteps costing your construction company millions?

In construction, failing to use the right technology can result in massive financial losses. Wade and Stephen delve into real-world examples where contractors lost big due to outdated project tracking, skipping BIM, and neglecting equipment maintenance. 

Learn essential lessons on how effective use of technology could have saved projects from costly overruns and preventable disasters. Discover the importance of cybersecurity, bid accuracy, material tracking, and contract management in preventing financial pitfalls. If you're on the fence about implementing new technology, this is a must-listen!

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Topics we cover in this episode include:

• 00:44 Real-World Case Studies: Technology Failures
• 02:47 The Importance of Cybersecurity
• 04:39 Avoiding Costly Bid Errors
• 07:32 Material Theft and Mismanagement
• 13:11 The Role of Telematics
• 16:55 Legal and Contractual Safeguards

LINKS

Visit the episode page at https://carpentercpas.com/techmisstep for more details and a transcript of the show.

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

[00:00:00] Wade: In construction, not using the right technology can cost you millions. Whether it's outdated project tracking, ignoring things like BIM, or skipping maintenance on your equipment, failing to adapt can lead to massive overruns and preventable disasters. Today on the Contractor Success Forum, we're diving into real world use cases straight from Stephen Brown, where contractors lost big because they didn't use available technology. We're going to break down what went wrong and how the right tools could have saved time and money. I'm Wade Carpenter with Carpenter Company CPAs here with my co host, Stephen Brown with McDaniel Whitley, bonding and insurance as always. And Stephen, you obviously have some great stories to tell here.

You've told me some stories about how there's been some huge financial hits because they didn't use technology or things that could have been preventable. 

[00:00:52] Stephen: Yeah, that's how it started, Wade. And also, unfortunately, I had to relive some of these stories. One thing that hit me in every single one of the studies where technology would have helped, I see the smallest sort of item in a large company that was ignored, and how it had a ripple effect, sometimes tragically.

But at the same time, what is technology there for? It's there for repetitive routine tasks. It's helping you have an extra set of eyes and ears, as the owner, manager , as your company grows, you want to know what's going on and what could you have done to keep it from happening? So it all started from a podcast where we were saying, what are some good case study examples?

And I told you, Wade, I had written down so many of them that I didn't even have time to interview the rest of the folks in my office from stories they had, because there's just a lot more. But you said, Stephen, let's do a podcast on this and let our listeners hear what happened.

[00:01:49] Wade: I thought that was some great use cases that, that I was like, wow, I couldn't believe that. And, whether it's the technology or what you were just saying, that reminds me of that story I told probably a couple of years ago. I don't know if you remember, a buddy of mine that was working on a job and they were working on a scaffold and they had somebody, cutting the crown molding that they were putting up.

And so they had this, I can't remember what it was, like a bucket or something that was in the way of the doorway. Every time they cut the crown molding, the guy would get the measurements, jump down, and then jump over this bucket. And, then go cut it in the next room or outside. I'm not sure.

And honestly, the takeaway from that, which sounds incredibly stupid here, but it's what is in your way? So again, his partner got down off the scaffolding while he was cutting and moved his bucket because he kept going back and forth. So as you mentioned, some of these things that are getting in our way of success, sometimes they're small things and you've got some great stories.

So kick us off with one.

[00:02:47] Stephen: First thing that , as an insurance agent, I have to point out, and as a bonding agent, it's just a simple, security software to protect your most personal information, your information with your clients, your financial information. 

We've had in the last five years, four different situations where data was held hostage and there weren't good firewall protections in place with that particular customer. 

And even as an insurance agent, we can quote some cyber liability coverage in case that happens. There still has to be some internal controls for you to qualify for it. And some insurance companies will throw a little bit into your insurance package and say, oh yeah, you got cyber coverage if that happens, but you don't. 

When your data is held hostage, in every situation, the contractors had to, pay the people that were holding their data hostage. And the minimum in each one of those situations was $50,000. Sothey know when they steal their data, what kind of impact it's going to have on you.

[00:03:44] Stephen: And so what do you do? So the technology didn't exist to protect them. What kind of technology exists to help them deal with the situation? And what did they have to do? It was a perfect storm of no technology. 

We've talked about this too, and I remember, you used to be able to get cyber coverage fairly cheap, and then, all these claims -- I know some particular contractors that got hit with these things, but, the takeaway, I guess I would say from that is, yeah, you can even pay the coverage, but if you don't have these things in place, there are certain minimums I think you have to have, and honestly, having your stuff with proper protection, not just getting some kind of antivirus software, that's not enough. Having proper backups that are not just online, not just in your office. And just having it automated, because you're not going to do it if you're trying to do it manually. 

We're obnoxious about it with our clients. It's a real risk and it's our duty to make you aware of it and how to take care of it. Okay. Here's another situation. And this cost a customer of mine $196, 000. It was simply a bid addition error. 

[00:04:48] Stephen: What could have technology done? It wasn't even a multiplication or subtraction error. It was an addition error. What should be the most simple thing in the world to check. Even the simplest spreadsheet in the world can add up a column of numbers. But nevertheless, there was a bid spread on this particular project, and, there was addition error, and the customer absolutely swore that their math was perfect. I begged them to quadruple check their math, because they had a chance to dispute it and get out of the bid if there was a math error. No, no, no, it's a good bid, trust me, we're gonna make money. And then it turned out there was addition error. 

Okay, whose fault is that? What kind of technology could be in place to double check your estimates? Because the addition error and technology is just about checking all of your estimates for accuracy.

[00:05:37] Wade: Absolutely, and I see it too, just addition, lot of the guys are still old school on some of that stuff, they do it by hand. Spreadsheets, or having software that does it can definitely eliminate a lot of that. 

And just the same kind of thing with pay applications. When you put in a pay applications like AIA and you're calculating rate of retainage, I don't know how many we see every year where they get kicked back by the architect because the math doesn't work.

 It just, it doesn't add up. 

Either using a spreadsheet, having somebody check behind you, just, any kind of technology rather than trying to do it by hand can save you a lot of world of hurt.

[00:06:13] Stephen: Absolutely. And another thing, talking about technology checking behind you is when you simply have a proposal to put in, and there's certain information that has to be put into your bid. Usually, at the beginning of a bid package, there'll be a checklist of things that you need to have in that bid. You can automate that and take it a step further to make sure there are no mathematical errors. 

But I had a customer in a joint venture lose a 3 million gross profit on a project that they would have been low bidder on, but their joint venture partner refused to share with them the, proposal before it was turned in.

The most basic fundamental things in that proposal were missing. And my client that was the minority joint venture partner in that situation had vastly more experience than the majority partner that they had. Anyway, they would have been low bidder on the job, hard bid project. But they were thrown out because the bid wasn't put together properly.

[00:07:10] Wade: That's sad, and I get it, and I've seen some of that stuff with joint ventures. But again, just having somebody else check that kind of stuff as well as. If I was the, whether you're a majority or minority partner, I would want to know that the people are bidding properly. So it's just really sad to hear that somebody didn't make the money on a job, but especially to that tune of $3 million. 

[00:07:31] Stephen: Absolutely. Another story about technology is purchasing materials and supplies. I got a couple of stories there. One of them was, a, project manager, job superintendent, was buying materials and supplies and have them delivered to another job site. He was running construction in his own name, and stealing those supplies and have them delivered elsewhere. 

And it was a big enough job that it wasn't caught because there was no joint checks and balances system in place. That could have so easily been automated with job costs. and posted and caught. 

That particular project manager I just happened to mention to coworker about meeting him, and he just blew up.

What? Oh my God. We went into full panic mode. He's a con man. He's ripping them off. We don't know that. Yeah, we know it. That was my customer. Whoa, whoa,And immediately just started auditing, everything behind the scenes. And, he had stolen, oh, almost 290, 000 worth of materials, delivered to his own project.

Now, luckily, they got some of that back and recovered some of that. We had some employee dishonesty insurance coverage in place that helped offset that loss. 

Another thing about ordering materials that could have been automated through technology, is the fact that this automation is something that can help remind you of something that needs to be done.

And this was right around COVID hitting, the project manager, job superintendent on that project had not ordered a bunch of materials that needed to be ordered. When they could get the materials, they were highly specced out materials coming from overseas. When they couldn't get the materials, the price escalated in order to get the materials by 40 percent, and the delay in getting those materials, took the job into liquidated damages.

And, on a 1.2 million dollar project, they lost $380,000. So we say all the time, there's a limit in the construction industry, how much money you can make, and no limit on how much you can lose. It's true. Wade, how could technology have kept that from happening, do you think?

[00:09:31] Wade: Well, I think as you're telling these stories, I keep thinking of situations with my contractors too, it's all hit home here.

I guess from my perspective. one thing, as coming from an audit background as well on contractors, thinking about smaller contractors don't have ideally segregation of duties and a dedicated purchasing manager, those kinds of things.

A lot of times having a system like a purchase order system that you can track, having the owner check it if you don't have somebody else to, but it does happen,. And I see that where they've been covering their own jobs on the side, and it's really sad to see.

Contractors hate purchase order systems because they're never set up right, but having a tracking on that and having that tied into your invoicing, as well as, having the system that's integrated, that goes a long way to fixing those kind of problems. 

[00:10:20] Stephen: Yeah, and the ability to set in warning systems that something's out of whack. That dashboard we were talking about once that gives you real time performance data on how you're performing. That can so easily be done with technology. And yet, so many people aren't doing it. 

Another story that ties right in with what you were talking about is multiple change orders. The costs were incurred but never billed. Retainage was paid, the owner would not pay for the change orders and of course had amnesia because these change orders were not in writing. Had amnesia. Attorney convinced my client that, I can get most of that money back for you.

And I then charged a big legal fee to try to do it. And they literally lost the lawsuit. So there was lost profits. There was extra expense to try to obtain your money. Luckily it did not put them out of business. It was over 400, 000 loss to them, when it all shook down.

And that's the thing, I don't talk to my clients about when these losses shake down. I see it on their financial statements in future years. And, so that's another thing I wanted to bring to our listeners attention. Wade, please tell me what technology could have helped that from happening.

[00:11:28] Wade: Again, that's another area I see contractors having problems with all the time. And we preach on here about, just thinking one I had in Texas that, they relied on verbal change orders, and they lost big on that and cost them a couple of million dollars, as well as a reputation.

But as far as what can we do? We also talked about predictive change orders, AI is coming to that point. I don't know if we're there yet, but, you know what we are doing, you know, I would say, that was a long time ago. We had a guest on here that, had a system taking pictures and that kind of stuff, but having a regular report from your project manager, a lot of times people will do that, like a weekly report or something like that. But just asking one more question, was something done this week that was a change, that we need to put a change order in?

Just having that kind of thing, plus having a system to make sure that they get done. And sometimes the project manager is not necessarily the one that needs to be drawing those up. Somebody needs to be holding them accountable for it. 

[00:12:28] Stephen: Sure. And you can have systems in place like the previous story I told you about the material theft. The ratio is getting out of whack that we set on this project. It's just a simple ratio that you can put that will give you a warning that we're out of our number.

We're either way below it or we're way above it. If we're way below it, then what's going on? We know that we're going to order these materials next month. I can let that go. If it's not corrected, they'll tell you, I need to do something about this. And if it's way over, you can immediately pull every invoice for materials purchased and tie it to the job and then forensically go in and find out what happened.

And if it's legitimate, you can stop the bleeding. But either way, that technology should have, could have been in place. The simplest thing in the world. Another example of technology from my experience was just simply not having telematics in a company vehicle. In this particular situation, telematics, Wade, is dash cams and systems in place that can allow you to block your employee's personal and company phone from use while that vehicle's in motion.

So that's telematics. And, In this particular situation, there was an injury that occurred. My client got a ticket. A lot of times, somebody wants to give someone a ticket, they wrongly gave it to my client. There are witnesses involved. They were adamant with the claims adjuster that this was not our fault and this is what happened. 

 Our insurance company came in and did forensic work on everything from skid marks to everything else, experts to try to, defend, our customer, but there just wasn't simply enough evidence to justify this going to court, so they made a settlement. And of course that settlement, it's once you turn in an insurance claim, it's up to them to whether to pay it or not.

[00:14:10] Stephen: Once you turn it in, you can't tell them, I want you to pay it or not to pay it. it's their call. And they paid it. And of course, it's affected all their insurance premiums going forward, and left a bad taste in everyone's mouth. 

But Looking back on it, Wade, if a dash cam had been in place, there wouldn't have been a leg to stand on for settling this case.

So there's a real technology issue that costs. 

[00:14:33] Wade: Two weeks ago, had a contractor, they sent me the video from a dash cam that saved them. Because had a kid coming around them like on an entrance ramp, went around them and then, Essentially cut in front of them. Had everything on dash cam and basically T boned and pit maneuvered the whole thing. 

And the guy came out it was all your fault. And I was trying to fight my contractor. And this dash cam video, he showed it to the cop. It's you're going to jail, this kid. And again, I could tell you more about the situation. The simple insurance, it's well worth it if you can save one of these lawsuits, because I can see from the video. I watched it happen and I could see how he could be blamed for that. But with video, it was just amazing that like the cop said, Nope, kid, you're going to jail. 

[00:15:18] Stephen: I want to see that, and it just brought to mind restaurant I had insured and a vehicle came through the front of it. Nobody was hurt, but it took out the whole front of the restaurant and a couple of cars parked out front. And, they had a camera on the front of their building and, it clearly showed, even though I had that barbecue restaurant insured, it clearly showed another one of my customers caused it. So it was a great Monday morning type of claim.

But dash cams, that technology, we talked last time about a situation where simple GPS grading, grading that was performed incorrectly, caused a huge loss. We have certain situations where that can be the proof that you need to absolutely save your tail in a lawsuit situation. 

Because when something happens, your fault, my fault, nobody's fault, you have got to prove that you're innocent as fast as possible. And technology does that. Pictures of the work that's done. Proving payment records. How often is technology mandatory to prove to an owner that the work has been done so you can get paid? That's worth its weight in headaches.

And then having those images to prove that the work was not only done, but it was done properly and the documentation attached to that technology that shows that it was inspected and approved. Wow, that just, that takes your name right out of a lawsuit. 

Because you know Wade, in a lawsuit, they name everybody and their brother in the lawsuit, and andyou have to be prepared to defend yourself unless the judge clearly can see and state that you had absolutely no involvement and take you off the list.

And, that takes a while. In the meantime, you're getting sued and you've got to worry about how that's going to affect your company. So, technology, again, saves the day over and over again. 

While we're talking about the legal end of running a construction company, let's talk about technology literally helping you read your contract documents.

Our buddy, Alex Barthet, down in Miami, he's got tool that he's designed, you can go on his website and use it, but it'll read your contract documents for you, and it'll pick out the major things that you need to be aware of that could come back to hurt you. You do that a few times and then you realize that this is technology in the most simplest form.

Just like you can download a document and use AI search engine, to look for certain words, clauses, phrases while you're reviewing a contract to do it quickly. And again, as we mentioned to you earlier, that old saying, measure twice, cut once, read a contract multiple times, sign it once.

So many people don't read it once. Ah, this looks like a standard contract. Oh, really? What about the last few pages? Did you notice what was scratched out? Did you know what was added? It's always added very neatly at the end of the contract. Unless you, who are signing it, draw a line through it and say no, and then initial it and send it back to them.

[00:18:00] Wade: The one thing I would say about that, obviously the technology can help you get a very good handle on that kind of stuff with AI. I think it does not replace a good construction lawyer either. So I think that's a good starting point, AI I definitely can do that. 

But what you said about years ago, we had a guest on here that had pictures. I don't know if you remember the story.

[00:18:19] Stephen: Oh, I remember that episode.

[00:18:21] Wade: Yeah, he was a hotel, basically a beautiful concrete floors and they got messed up by another sub.

And the owner of the hotel was like, you're going to get in here and fix this because this was done wrong. We got to open. And he was like, this is going to come out of your pocket. And he's here, I got pictures of it. It was perfect when I left. And what turned out to be something that was going to be a back charge to him turned out to be a profitable change order.

[00:18:45] Stephen: Yeah, that hotel owner had paid someone else to come in. How beautiful was that? 

[00:18:50] Wade: He ended up paying my contractor to go 

[00:18:52] Stephen: fix it. Yeah.

[00:18:53] Wade: Yeah, but he paid a premium, cause it wasn't his fault.

[00:18:56] Stephen: Yeah. So there's a happy ending. Happy ending. Seems like all these stories had sad endings, Wade, but that was a happy ending of that. And invention breeds necessity, and necessity breeds technology. That's how it happens. That's how it takes place. And it doesn't have to be hard, but just think about where your real exposures are.

Maybe some of these actual case studies will hit home to you, triggering your memory of something that may be going on that you need to address. And as always, there's something that can be done for technology to help. You just got to figure it out.

Great life lessons here. 

These are real things that happen. They cost our customers money. 

[00:19:35] Stephen: But hopefully, you're going to hit a snag or something and you won't have to learn the hard way. , you can learn from someone else's, mistakes. And, that's the best of all worlds, I think.

[00:19:45] Wade: Take away from me, just going back to that same story I told earlier, are you still stepping over that same bucket that's getting in your way?

Some of these things are not hard things to implement. And if you've been thinking about some of these things, it could eventually cost you a lot of money.

If you've been on the fence about this, if any of it has struck a chord in your mind, don't wait, go do it today. That's what I'd say.

[00:20:07] Stephen: Alright, good luck. Nobody said construction was easy, Wade.

[00:20:11] Wade: Nope. I appreciate you bringing all this to us. If our listeners have any thoughts, comments on what we talked about today or ways that you've seen that somebody has lost a bunch of money because they didn't implement technology and it could have been easily fixed, we'd love to hear about it in the comments below. 

We appreciate you listening in. If you would like, share, subscribe, do all that stuff you always do. And we'd love to see you next week on our next show.