aenspire delivering developmentprofit.com

The short term rental guarantee lends itself to one of the most insidious scams in residential property investment.

They can take different forms but most commonly the scam works by convincing – through basic math manipulation and psychology – a purchaser to pay more than the true market value. The sellers are typically ‘investment promoters’ one step removed from the developer (albeit often linked at the financial hip). They guarantee a rent that is above market, and when the guarantee period ends, the purchaser is left with a lower rent and much poorer than promised investment. Many rental guarantee schemes result in substantial capital loss.

This is an example how a basic rental guarantee for residential property works:
– Market rental is $500 per week
– Purchaser is sold property on a market investment basis at a 10% gross yield
– Purchase price is the annual rental divided by the gross yield
( $500 x 52  / 10% ) = $260,000
– Promoter guarantees rent for two years at $600 per week
– Purchase price is based on the same 10% initial gross yield
( $600 x 52 / 10% )= $312,500
– The cost to the promoter is $100 per week for two years or $10,400
– The true value to the purchaser is $10,400
– However, the difference the between sale prices is $52,000
– So the developer pockets $41,600
– The value to the developer is often more pronounced than this as the guarantee is over time, and therefore inflation further reduces the guarantee’s cost

Caveat emptor (buyer beware) perhaps and yes markets can turn sour. However, the key component of the scam is when the purchaser is sold the investment as if  $600 is a realistic market rate.

Rental guarantee scams are more common in off-the-plan sales as settlement is typically a year or more out and over embellished market rent estimates much easier to promote. They are also often offered for renovated high yield, low price property. The sales tactics are typically investment based seminar hard sells with the psychology focused on the yield and leverage. The guarantee is promoted as being their belief in a rising market and their superior investment selection prowness as opposed to a logical look at the assets true value. Near the latter stages of a property cycle, these schemes always appear to resurface – I have first hand experience with them in three countries now, across two property cycles and the tell tale signs are all so obvious.

There is nothing wrong with investment seminars to sell property. However, the problem arises where the promoter knows full well market rent is less than being touted but is prepared to subsidise for a short period of time to make the sale at an inflated price. They then hope for higher rentals in the future or blame the difference on market conditions. Worse the promoter simply disappears.

In New Zealand the rental guarantee became especially problematic with serviced apartment rentals where the occupancy rates and room rates were guaranteed far in excess of what actually and should have been reasonably forecast to materialise. Many were also not protected by a commercial lease arrangement with sound backing.

Different variations exist in lease arrangements where investors are sold a guaranteed yield for the first period of the investment. Another variant is where a tenant has part of their rent for the first term pre-paid by the promoter before the property is sold to an investor.

There are  three types of rental guarantee which makes sense and are more aligned with an insurance policy rather than a sales gimmick.

1. If the rental guarantee is equal or less than current market rent  it effectively acts as an underwrite. This guarantee may offer piece of mind and protect your downside in the case of deteriorating market conditions. There is nothing wrong with these guarantees – often used to market properties in flat markets – so long as you don’t overpay for the privilege in the first place.

2. Even if at an inflated market rate, if a private rental guarantee were offered long term, the difference between value of the guarantee and the difference in upfront purchase cost would reduce, to the point it may be worth the piece of mind to have rental guaranteed for a longer term. Solvency of those paying the guarantee, if required, then becomes the prime concern. However, a long enough guarantee ends up being a zero sum game so why not just pay based on the real market rent at the outset?

3. Long term government leases often tie in a rental rate for a long period of time. With these you shouldn’t worry about solvency of the guarantee – if it is provided by the government on behalf of the tenant as opposed to a guarantee paid by the promoter. In addition, the rental rate is likely to be much nearer true market value as the government should have done substantial due-diligence before committing to a long term lease.

Commercial investors often employ much more rigorous logic, not to mention lawyers, to the terms they sign up on – so they should be well aware of dubious rental guarantees. There are also many private investors who enthusiastic to get into the market act like speculators and their lack of due-diligence, coupled with fairly average legal and accounting advice are key enablers of property scammers.

It is the mum and pop investors who often end up holding iron pyrite.

So, the next time you see a rental guarantee being offered it may pay to take a real close look at how golden its really is.

P.S.
If anyone has any examples of residential rental guarantees that look like scams, or alternatively those which look to add real value, I would be interested. I have researched and found both the good and bad currently active in residential property markets around the world. Some actually promote the choice of a discount or a rental guarantee which is a step in the right direction. Be very aware if buying off the plans in Dubai and Eastern Europe and maybe take a second look elsewhere, including New Zealand…

www.aenspire.com

11pm Tuesday, its fine, dry and 30C.
Ring ring.
“Hello” I eventually awake and answer.
A voice trembles on the other end  “Hola Andrew, esta policia en el hotel……”
“Ok,  ahhh ok, I’m on my way” I nervously respond.

……………………….

I arrive at the hotel, the car-park out front is full. This is usually a good sign, if the car-park is full at this time of night that means a good number of rooms are full. A full hotel is a happy hotel, lots of guests, lots of eyes across the property, lots of revenue and fixed costs well covered.

Alas the car-park is full, but it is possibly one of the worst sights a hotel General Manager can expect to view on his second day on the job.

With rifles drawn, armored vehicles running and looking like a cross between power rangers and the navy seals, the local S.W.A.T have taken over.

Note: Picture is for illustrative purposes only. This is the local S.W.A.T team and closely resembles the same scene but this is not the hotel or night in question.

So I enter, walking past the elevator which has a team of five officers going in and out of the doors and playing with the controls. I end up finding the police officer in charge and after a conversation with the operations manager, get a reasonable picture on what is going on.

A hotel guest in the hotel’s rear building had rang 911, they said they heard a gunshot. They were screaming that the gunman had shot a guest and someone was now trapped in the elevator. Alerted to this the local constabulary paid the rear building of the hotel a visit. They found a blood trail down the hallway wall from a rampaged room to the elevator. The elevator was stuck between the 2nd and 1st floors. There was every suggestion either the gunman or a victim or both were trapped in the elevator. The officers shut down the hotel and called S.W.A.T.

Thirty minutes later, desert storm was launched. The men and woman in black were highly efficient and did not intend to waste time. The elevator I had earlier walked past was being used as practice area to test how to break into the shaft and secure whatever situation they would encounter. Practice took less than an hour.

During that time I had talked to guests via phone who were still in the same building as our gunman. The S.W.A.T officer’s instruction to me to tell all guests in that building was very clear. Lock your door. Stay in your room. Stay away from the windows – that I was told was because if the gunman was outside he may shoot at any movement behind a window.

Hmm, just two days in, to managing the inn, this is not the type of information you need to keep you up at night. Revpar (revenue per available room), occupancy rate, ARR (average room rate), forward bookings, average length of stay, fixed cost per room, incremental cost of new customer and plenty of other measures are where the mind should be this early into the role.

Then S.W.A.T went on the offensive and raided the elevator in the rear building. Two minutes later after finding nothing they left. I received a follow up letter a week later in the mail.

There was no gunman. There was no shooting. There was a fight, some blood and  maybe a rifle had been sighted by the anonymous guest. But whoever the culprit and victim were they had disappeared. We never saw the guest who checked into the rampaged room again either and they had used fake ID.

The next day the hotel opened and continued as usual and a whole new batch of guests checked in, none the wiser.

We were very lucky we hadn’t yet addressed our hotel’s limited online presence and therefore there was almost no opportunity for  a guest to post an online review describing that fateful night.

I had just taken over GM duties basically to try a fresh (albeit completely inexperienced) look at improving net revenue. My original role for the hotel was to develop it  into a $100m mixed use project with for-sale condominiums, offices, rental apartments and some retail. However, that vision faded as the peak of the property cycle passed and now the previously neglected hotel had to help pay the mortgage during America’s great recession.

Most residential development projects take years and within that period you sell each unit once. A development manager on a reasonable sized project may deal with up to a couple hundred sales over 3 to 5 years. So I had to readjust very quickly when I looked at the first report on my desk on day one of my GM duties. The report displayed how many of the 166 rooms were sold tonight. Report 2 showed each night for the next 30 nights and report 3 showed monthly bookings over the next year.

Over the next 12 months I was looking down the barrel of having to manage 60,590 room night sales !

Hotel rooms are perishable, like airline seats, rental car bookings and even golf course rounds. If a room stays empty one night you can not recover that revenue. Airlines have sophisticated automatic algorithms assisted by revenue managers to help optimize occupancy – that is why the price changes depending on when you book and how many seats the airline has available and other factors.

The budget hotel industry I was involved in was relatively unsophisticated in revenue management. It was more of an art based on local knowledge and experience than anything like a mathematical algorithm.  I was in daily contact with the franchisor and I attended the parent company’s General Managers course in Orange County to learn the tricks of revenue management – or at least increase the franchisor’s profit!
However, even with thousands of hotels worldwide, across price points and a substantial support network for franchises, there was not much practical usable help on automated or assisted revenue management.

[I am convinced the mega hotel-casinos in Vegas had it sorted – even if I just base that hunch on the sheer number of bookings they managed to get out of me!]

One of the key areas where increased hotel revenue seemed obvious was to achieve a strong online presence and to maximize online bookings with third party booking engines. We had recently changed franchises (also in the attempt to improve revenue) and whilst we were now part of a new centralised booking system that  included web bookings we had not actively sold rooms via the third party sites, nor had we engaged with guest review sites.

Basically we were starting fresh, with a clean slate for reviews. Over the next 12 months a substantial amount of my focus was devoted to revenue managing third party web booking sites.

I would look at the forward booking schedule for the week almost every couple of hours, down to the minute when we were filling up and had just a few rooms left. We  tried and tested different revenue management tactics that included ideas from hotel experts, analysis of all our competitors and research into hotel best online practice.

What become glaringly obvious was the immediate power of the guest review on bookings. It has literally changed the hotel industry. Trip Advisor, Hotels.com, Expedia, Orbitz and Lastminute.com were some of the ones we focused on. There are a lot more of these sites now and  Web 2.0 social media are moving reviews and recommendations into a whole new world. Cornell University have done comprehensive research on the impact of social media on lodging performance.

A bad review on its own can be seen as sour grapes or just an out of character situation, but if 50 out of 100 reviews are negative it is going to significantly affect your potential to sell a room to any potential guest reading – at least without discounting the price. Many read the reviews across multiple web sites before they book, even to our surprise for a budget hotel.

We learned to try to manage reviews proactively. Travellers who had bad experiences were more than likely to post a review than those you had a good or standard experience.

This preemptive guest review management included:

1. We encouraged those who thanked us at the front desk (for having a pleasant stay) at checkout to post a review – we even had a computer set up in the reception where we showed them how to do this. For repeat guests  (they kept coming back for a reason, hopefully because we were doing something right) or whenever there was a positive encounter we encouraged the guest to post reviews while it was still fresh in their mind.

2. We were conscious during the guest’s stay if they had booked online via a third party site; they had more opportunity to post feedback as most of the online engines would later email guests asking them if they would rate the hotel. Yes it  probably meant we were more proactive with these guests as they had a greater chance of influencing the hotels future business.

3. We actively monitored online reviews daily. If there was a negative comment we would always address it online (some websites allowed hotel operator feedback or right of reply). Typically we would not argue the point, but we would point out our very low pricing, or future planned capital upgrades. More often than not, the comments were out of line when considering the low price guests had paid. If negative feedback was not justified we fought (to the bitter end) to get the website to remove the post. Third party websites now look to be more actively addressing unwarranted negative reviews.

4. We obviously did everything we thought we could to make sure the hotel was as clean and maintained as possible. This was a major problem for the hotel; it was old, had been neglected for years and there simply was no budget for significant capital expenditure until we were forced to spend it. Burst plumbing was especially problematic and never easy to locate and repair. Guest satisfaction and cold showers are not compatible.

5. We had a customer is always right attitude and gave refunds where justified – and even when not  justified if that was going to be more cost effective approach in the long-run and not put our reviews in jeopardy. Yes some people tried it on and threatened to post a negative comment if they did not get a refund. We actually would preempt those guests when they left and immediately contact the site they booked through and Tripadvisor explaining the situation in advance – to grease the wheels for a review removal if it was ever posted.

6. We went out of our way to provide customer service if there were issues. Moving someone to a new room was done without question. I found if our staff were super friendly and helpful, that could turn around the guests opinion from a negative to a positive.
For example if the guest wrote ‘I stayed at X hotel, the room had a faulty air-conditioner, but staff were very helpful and moved me to a different room…’ it is actually a positive review and assuming we had free rooms (which most often we did) only cost us the variable increase in housekeeping that room – about $10
Compare that to this ‘I stayed at X hotel, the room had a faulty air-conditioner, so I pleaded to move rooms because my kids were sweltering, but staff were so rude and wouldn’t do anything about it. They sent a maintenance guy but he couldn’t fix it and couldn’t understand me so I was so tied I just gave up and we had a sleepless night. In the morning the staff didn’t even apologise.’
This is a dramatic difference with the potential to affect hundreds of future room night sales, all for a lousy tenner.

7. For a while we made it clear that the low price was because the hotel was undergoing an upgrade or other works, before they checked in  – to lower expectations before they think of commenting.

8. We made more money when our guests booked via the franchisor booking system than the third party website, so all attempts were made to direct bookings that way. That helped because the franchisor booking system either did not allow comments or could manage it much more responsively. The problem was, despite their marketing attempts to retain the online booking role, third party website bookings were much more aggressive and successful five years ago. According to a Hotel News Now article this trend may be peaking.

9. Selling more rooms via Travel Agents, although typically more expensive meant groups of guests for longer stays without any reviews. In our case Contiki was a big contract (and surprisingly few problems) and we also had visiting school sports teams (however, with parents on edge, complaints could easily escalate). Budget hotels are also not always top of mind for the kinds of guests that now use Travel Agents and often the room rate had to take a hammering to secure this volume business – so opportunities to increase net revenue were limited.

All of the above helped the online reviews, sometimes staff were diligent in applying customer service, other times we let ourselves down. You simply had to continue to be super vigilant as online reviews were becoming increasingly influential.

Online ‘references’ are firmly entrenched in the hotel industry and managing their impact is now a significant part of revenue management. I can’t bear thinking what would have happened after the S.W.A.T raid  if our online presence had been up to speed.

www.aenspire.com

P.S.
Coming in a future post. What about other  industries and service providers – is the online feedback review catching on in the professional world and what are the implications?

I came home last night to find a large brown cardboard box lying in the hallway.  These boxes always solicit beads of sweat from my brow. A large brown unopened box with a courier sticker typically indicates a sizable deduction from the family bank account. Anyway, to her delight, my wife informs me the box contains the latest retro mid-century-modern baby bassinet and I will be putting it together this weekend.

This piece of infant furniture (now in several pieces lying on the living room floor, along with  broken polystyrene all over the carpet) reflects the ‘Amazon’ retail phenomena of the last decade. My wife found the item recommended by a friend on facebook or babycenter.com, looked up an online retailer, purchased it by credit card and a courier delivered it a few days later. No visit to the store and no bricks and mortar real estate – except a warehouse and factory somewhere I guess.

I look at this item and there are four separate pieces which I have to hex key together. They are made of plywood, but could easily be made of plastic or some other composite without affecting the look or design. I look around the rest of the living room, a number of Eames replica items including a coffee table which is essentially 3 separate pieces and a kids table and chairs all with quite basic geometry arranged to give that slimline non-decorative 1960’s form. You can get the designs on all these items off the Internet. In fact I was about to attempt my own Rietveld chair based on replica plans freely available on the Internet. I haven’t yet made the commitment to visit the home improvement store and purchase the materials but it looks easy enough.

While reading the article ‘World Changing Predictions for 2014′  point number seven  ‘You will actually use a 3D Printer’ I had a penny dropping moment.

Wouldn’t it be great (i.e. cheaper) if I could just have printed this bassinet out? The components are all fairly simple forms plus some screws – and I have to put the thing together anyway.

That gets me thinking. Is 3D printing a mega-trend that in a decades time we will not know what we did without it? Does 3D printing represent a potential paradigm shift in how we manufacture and procure products. What does 3D printing mean for real estate and construction?

There are a number of visionaries attempting to commercialize  3D printing an entire house. Their progress looks promising but there are a number of complexities (like reinforcing, plumbing, electrical wiring and waterproofing) to be overcome. However, with funding from no less than NASA (who alledegly has an interest to build homes on the moon) the University of Southern California are making big strides with their Contour Crafting Robotic Construction System.

If and when 3D printing houses is fully commercialized and cost effective the construction industry could be completely transformed.
For example:
– speed of construction reducing finance and holding costs
– much less transportation costs, lead time and delivery issues
– quicker supply to meet demand
– significant decrease in skilled labour requirements (albeit creating completely new roles )
– less joins for more effective waterproofing and accurate detailing
– an increased focus on replacement (and recycling) over repair maintenance and demo approach
–  colour infused exterior facing material with inherent water resistance eliminating painting
–  emerging modular systems will either embrace 3D printing or be at its mercy, as on site construction benefits potentially leap ahead of off-site prefabrication and delivery
– new composite re-usable materials (inks) with inherent sustainability, bio-ecological, acoustic, fire and water proofing characteristics – even 3D printing in steel
– the potential for craft and personalised design to merge with industrialised processes without requiring standardization and mass production to reduce costs

In the interim, there are a number of smaller 3D printing initiatives that could have a much more immediate impact. Look around your bathroom, there are a number of objects where they are simple forms. Why couldn’t they be printed onsite using by a realistic portable 3D printer?

Currently you visit the plumbing store or peruse the internet for the style you would like and then have to wait for the next shipment from China or Italy if it is not a stock standard product.  The builder of the future simply downloads a pre-approved design and material ink spec into his site shed 3D printer, customizes the exact dimensions and material colour and texture and hits the green button. 3 hours later a towel rail and a toilet roll holder emerge.

Just look around your house – even just the simple forms – difficult component printing and assembly will take longer to commercialize. Imagine if you could go to a base design on the internet, customise for your (or your architect of the future) unique design tastes and have exactly what you want ready to be printed, just before installation is scheduled. Light fittings, electrical covers, hardware, vanity tops, benchtops, even the kitchen sink!

Another simple application is to print your own construction molds. Precast concrete is increasingly used in residential construction and one way to soften its appearance is to add texture. For example a residential apartment building recently completed in New Zealand uses weatherboard on the front building, because its timber construction but a weatherboard textured precast concrete on the adjoing rear building. You cannot tell the difference. The precast texture will have required a formwork mold, typically created by the time consuming task of framing one up in plywood, and limited to basic shapes. Molds that are 3D printed have practically limitless design potential. in a matter of hours you could have a custom printed mold to create very complicated textures for use on all types of concrete surfaces.

You can imagine all sorts of other benefits and effects on construction, but what about the potential fundamental shifts that will affect real estate and the logistics industry, including importing and exporting?

Rather than transporting finished components to site you are transporting raw ink (printer material composites or ingredients). That would mean significantly smaller required transportation volumes in total if you look at a whole house.

Rather than warehousing construction materials you are warehousing ‘inks’ or the component materials within. Or I guess they could be stored in big drums like oil. This may mean less demand for low impact warehouse space and more demand for heavy industrial style storage space.

Rather than going to a retailer to purchase goods, many of which are stored on site to meet lead time expectations, you are purchasing intellectual property (and emerging  issues) and then printing it yourself.

What would this mean for retailers of construction products and their real estate requirements? Does it mean less and less retail and warehouse space required as 3D printing gradually replaces successively more and more complex products that retailer’s currently supply?

Is the home improvement store with its shelves of ‘standardised’ generic products gradually replaced by 3D printing machines in everyone’s home?

How does this affect current business models of Internet retailers who generally make their money off sourcing, storing and sending you physical products? What about their warehouse demand?

What happens to courier companies who in recent years have been boosted by online retailing? – I guess to counter this courier demand could increase if neighborhood design-printing facility businesses as opposed to in-home printing offer a more convenient service.

How does this affect the massive production of construction materials in China, that still incur transportation costs to their end installation site?

If you can pay for a design off the internet, download it into your 3D printer and ‘bake’ your product at home, how does this affect importers and exporters ? (and brown cardboard box makers!)

What happens to the work subcontractors are involved in maintenance if construction is much more reliant on product replacement, and that product replacement comes from 3D printers owned by the client? Think of government housing associations for example whom have hundreds of thousands of items to repair/replace each year.

Do developers of the future need to design to a 4 bed, 2 bath, 2 car garage, plus 3D printing room specification?

Yes there is still a long way to go, a significant amount of hassle factor and as yet dubious cost efficiency but the technology is moving fast. The desktop 3D printer market is established and growing exponentially and you can already print architectural quality products in high detail.

Eventually 3D printing could substantially change the construction and real estate industries and much of the logistics they operate with. The applications of 3D printing appear limitless and the barriers are quickly being broken down. The MIT Mediated Matter research group are doing some amazing research in this area.

My best guess is that 3D printing will involve in ways few can think of at the moment, it will make some categories of business and their real estate needs redundant but also open up new opportunities.

Back to my bassinet, while I am printing that out in my 3rd bedroom/office/3D printer room, I might as well print a couple of stools for the bar and redo all the kitchen joinery door handles.

www.aenspire.com

Brownfield residential property development is a difficult gig. From the day you identify a site to the closing/settlement date of the last home sale, time is one of your most valuable commodities. The shorter the development cycle and the sooner you can turn outgoings into incomings the better. Throw prime bank lending, complex JV structures and mezzanine finance into the ‘leveraging up’ mix and time becomes paramount.

Except in a rapidly rising real estate market – where you may be tempted to refinance to cover cash flow betting on larger revenues down the track – the ideal development is to get in and out as quick as possible. For brownfield development – through New Zealand’s resource consent planning process – quick means at least 3 years before the last home is sold, if you are lucky!

Within this period, there is an important race to achieve pre-sales (the likely trigger for prime bank financing), a two steps forward, one step back, three legged race to get planning consent and the grueling final laps to complete construction on budget – hopefully without unearthing dinosaur remains  in the process.

Every day lost can mean thousands less to the bottom line and can even put the entire project in jeopardy especially where a sunset date kicks in or the market abruptly changes (been there and it’s not pretty).

Time is money and in brownfield development time really is of the essence.

Further compounding the need to push harder to reduce timelines, developers typically run many processes in parallel. The higher the developer’s risk tolerance and as available cash flow permits, the more work is undertaken on the presumption the development will move to the next stage. This means developed design and planning work may be undertaken during the conditional purchase period, building consent documentation is undertaken before resource consent is granted and design for the latter stages of construction occurs well after site clearance and foundations are laid.

All this adds to uncertainty with an increased likelihood of variations, modified briefs and additional work required to figure it out under compressed deadlines.

There is a lot to do, a lot of uncertainty to navigate and the developer depends a lot on others to get this work done. This usually results in pressure orientated situations where consultants and contractors ability to deliver are put under high stress and scrutiny.

So how hard do you push people?

I say to the limit of their contract or brief and then push them beyond that if the project is in jeopardy or they have not delivered.

This may not win you many friends if those who choose to take on this work can’t keep up. However, if your pushing is the difference between success and failure, those who cannot keep up should not be allowed to derail the project.

There is a lot of money at risk, whether it is a private developer’s, the corporate shareholder, the financier or the taxpayer. The project is only as strong as the weakest link. If the weakest link takes a week longer than scheduled to do something that can have significant repercussions down the line.

Development is hard enough without unnecessarily waiting around. There is simply too much at stake, including future fees for the consultants and contractors involved.

It is a tough line to take but in my experience it is an absolute necessary one for even basic development projects to get over the line. Either get with the programme and do what you promised or don’t become a willing participant in the first place.

Therein lies part of the problem; some take on roles and responsibilities, contract and consult beyond their capacity to deliver to a developers expectations. Too often in New Zealand they over promise and under deliver. Many are let off the hook because there are limited alternatives. Worse some will expect to meet their promises through non-client instructed variations.

My approach to someone who is out of their depth is to not let their commission drag on, potentially slowing down a project but simply to amplify the pressure until they either figure it out and perform to expectations or crack and I am forced to use alternative resource.

I don’t differentiate whether it is an internal department, an external consultant, a contractor, a direct report, a panel of decision makers or even myself. I haven’t swayed from this approach in property or business development whether it is working for myself, a private developer, a not-for-profit or a government department.

I have actually learnt this approach from private developers, boards and high level government decision makers.

Interestingly in my experience it is easier to push professionals in the United States as they appear to have a much more competitive and less complacent mind-set – they also are not afraid to say when you have overstepped the mark and are similarly much more legally literate. In Australia, it seems more people will simply say no – that helps prevent over promising in the first place.

Don’t get me wrong, there are many great consultants, contractors, and professionals out there who know how to push themselves to meet the deadlines required for successful development projects. I keep on learning from the best of them  – and if I am in the client position typically rehire them.

I also acknowledge the full frontal attack is often not the best approach and I learn (and can learn a lot more!) to improve upon that.

Here are 10 tips to help maximise your ability to push those involved in the project hard to make the project work:

1. Set clear expectations with consultants and contractors. If it’s going to be highly variable with multiple processes in parallel, make sure the project group is forewarned and dedicates resource appropriately. Consultants should be aware of implications of non-performance on the entire project (not just their fee). No one has to accept to do this work for you, but make it clear if they take it on, it could be a bumpy ride. Whereas you will set consultants tight delivery conditions, some of the best consultants will actually insert penalty clauses if you subsequently try to expose them to conditions beyond the expectations you set.
2. Try and keep the eventual construction contract as tight as possible, regardless of the uncertainty. This may mean separate out the contract to its highly variable stage or components and then it’s more stable stage with tighter conditions.
3. Exceed consultants, contractors and employees expectations for you getting back to them; practice what you preach. Be clear with direct reports to push back on you if they are out of their depth. Make sure you have top down agreement within your business for appropriate and timely resource to be dedicated to your project in other internal departments. You do not want an internal resource outside of your direct control to slow down your side of the agreement.
4. Ensure the decision making process is transparent (as much as possible). There is nothing like a seemingly left-field decision to derail a project team’s motivation. If such decisions are likely, let the team know accepting this changeability is a condition of the role.
5. Ensure as many ground rules are set before the project team gets underway. In a private development setting, this can be quite basic – we need 20% Return on Cost or there is not a project and nothing more for you to do. In a government or not-for-profit setting the ground rules can become very difficult to establish and subject to non-monetary considerations. Even so as developer for these types of clients you need to push the top decision makers to get firm upfront ground rules.
6. Make sure all your development processes and programme management are up to scratch. Monitor the project timeline like a robot so you know the instant you need to push harder.
7. Pay for performance, on time and as per contract. It is a double standard asking for high performance and then not paying in a timely manner.
8. Contract with incentives to improve the critical path – you will likely need any time buffers later on. Reward over-performance – this may be as simple as preferential treatment for future projects or other roles. This is a common expected outcome for a private developer (i.e. you typically stick with someone who over performs for you). It is more difficult to achieve when formal corporate or government procurement processes are involved but important to pursue.
9. Don’t let yourself become complacent and let others think your complacency gives them a chance to slow down and break their commitments. It is very hard to turn that around without losing ‘friends’.
10. Be prepared to step in if you push too hard.

My thinking it is better to push very hard early to meet what is necessary to make the development work rather than get into a messy litigation later when contracts are not delivered.

However, it is exciting to see when consultants and contractors do rise to the challenge and despite the odds and pressure make the project happen – a successful project will typically help their careers and bank balances as well!

Ironically so can dinosaur bones.

www.aenspire.com

To identify new opportunities that exist for your professional services firm a business development manager (BDM) may employ idea generation techniques. The resulting output is a business case describing each opportunity accompanied with research, costs and potential risks. This can then be used by executives of the firm to consider for implementation…..

Click to read full PDF (free, no gimmics)

IdentifyingOpportunitiesProfessionalServices.pdf