Monday, October 13, 2008

Keys for Growing a Construction Business: Keep Pace with Technology and Understand Operations, says Treasurer and CFO of Donley's Inc.

In 1981, upon graduating from Cleveland State University, Patrick J. Powers began his career as a public accountant doing auditing, tax, and consulting work for small businesses (and some contracting companies). Ten years later, Powers was recruited to become the CFO of Donley's Inc., a self-performing general contracting company. Since then, Powers has become an integral member of Donley's management team, helping the company grow in scope and revenue - from $40 million in 1991 to over $200 million today. Powers shared his thoughts and experiences recently with Fred Ode.

FRED: You've been on the business side of construction accounting for more than 17 years. What do you think you contribute most to Donley's?

PAT: The thing I spend the least amount of time on now is what I was brought in to do, and that's accounting and finance. My role here now involves all the financial reporting, all the banking relationships, that sort of thing. I handle all of the risk management - that is, our general council reports and safety reports. I handle all the insurance, bonding, HR, IT, and strategic planning.

In my early time here, I did not have a strong accounting staff, and so my biggest contributions were in that area. I was able to turn the company to where they had accurate and timely financial statements. Before I got here, Operations simply reported profitability to Finance once a month, and Accounting didn't really have a role in reviewing projects, progress and profitability. I introduced regular monthly sit-downs with all the project managers. They sit down once a month and go through their jobs with me, and with my controller, and report where they stand.

FRED: How was the response initially? Did you get immediate buy-in?

PAT: No, not at all. It took a while for them to realize that I knew enough about the process and enough about the projects. Really, what it took was for me to get out on the projects and have a presence out there so that the supervisors and project managers knew that I understood what was going on.

FRED: So your advice, then, to someone who is reading this interview is to educate yourself on the operations side of the business?

PAT: To be effective in the role of controller or CFO in construction, you've got to be present on the job. You've got to have a visibility out there. You've got to be willing to go out and walk the job, talk to the guys in the field and understand what they do.

FRED: Do you think that's unusual?

PAT: I've been told it's unusual, which I think is amazing. Probably about ten years ago, one of our board members was the former president of a large international construction firm and, frankly, he said none of the finance people he had ever got out and walked jobs.

FRED: That's my impression. I think they get caught up in their own work, and that probably creates that classic office vs. field mentality. To change direction a little, can you tell me a little about Donley's in general? What kind of work do you do?

PAT: We are a Design Builder and Construction Manager that self performs structural concrete. We cover Northeast Ohio, all of Virginia, and down into the Carolinas. We're a fourth-generation business, and it's still primarily family-owned. Our current president, Mac Donley, is fourth-generation. His father, Terry Donley, is chairman of the board. Myself and two other gentlemen, our executive vice president of operations and our regional vice president in Virginia, make up the ownership and management team.

FRED: How different is Donley's today, compared to when you joined the company in 1991?

PAT: At the time, we were a general contractor, but probably 60 to 70 percent of our business was self-performing concrete. This year, we'll do in excess of $200 million dollars, and we'll self-perform about 25 to 28 percent of that. These days we're running about 200 trades people.

FRED: What's your bread and butter type of work or job?

PAT: Bread and butter, historically for the firm, has been parking. That's probably the single largest line of business that we've had. For example, we recently completed the Cleveland Hopkins Airport garages.

FRED: What about the changes within the Accounting department. I'm sure there has been some.

PAT: There has. We are running COINS (accounting software) now, but they were on CMAS prior to that. They were on an IBM 36 back then. Terry Donley has always been very much a forward thinker. His background is finance so he had a real appreciation for that side of the business. He brought me on for that purpose: to bring some in-house accounting, finance and tax expertise to the company. Fortunately for me, Don Dreier and Mac Donley were being promoted into executive position levels, and they also recognized my skills and they gave me the opportunity to give back to the company.

FRED: That's great. How do you think Donley's sets itself apart from the competition in your arena?

PAT: Traditionally, what we've been able to do in Northeast Ohio is handle the very complex projects both from a technical standpoint and a schedule standpoint. When I say that, a lot of folks will say, "we can do that." But an example of what we've done is all the structural concrete for Jacobs Field (now Progressive Field). That was the most critical, crucial part of that job. We drove that whole schedule on the project.

FRED: Can you share how large a contract that was?

PAT: Altogether we had five contracts down there that totaled in excess of $60 million dollars.

FRED: That's a lot of concrete.

PAT: That wasn't all concrete. The concrete portion was probably $25 million, but we did the build-out of all the suites and the restaurants. We also did the Indians' administration building and one of the parking decks - the north parking deck. Other complex jobs, the Cleveland Botanical Garden, the Cleveland Institute of Music, those are good examples of unique structures, and those are things we have been able to do well.

FRED: From what I understand, there are two aspects of doing well on this type of work. One is bidding it correctly, and two is performing it. Do you agree with that?

PAT: You know, construction starts with the estimating process. That's where it starts for all of us, and I don't care if that's hard bid work or negotiated Construction Management work. You either have to have very good take-off and pricing if you're going hard bid work or you have to have really strong pre-construction abilities if you're going to do the CM-type work. So it really does start there. But there's a real tie, and I think the firms that do it the best have a close relationship between their estimating group and their operations group. And the firms I think that struggle - and if I look back over history at the jobs where we've had any type of difficulty - are the ones that do not have good operations input with the estimators.

FRED: That's the classic office vs. field problem.

PAT: Not just the field. I'm talking about it might be your project management group in the office just not working well with the estimators. The classic concrete contractor has a couple estimators in the back room. They get the job, they price it, they win the award, and then they hand it over to the operations folks and say, "Here, build it." That is not the best recipe.

FRED: Does your company work on this? Do you have an educational process, or do you have a culture that promotes a close relationship?

PAT: We have a culture that makes that a necessary part of reviewing every project. Operations needs to be involved at the early stages of any project that we're looking at so that the estimating group can handle the take-off, and they can handle the pricing. Hopefully they know enough about constructability, but you need to involve Operations early on to make sure that the constructability issues and the schedule issues are addressed prior to starting the work.

FRED: You've been involved in construction for quite some time. How has the industry changed since your first involvement, whether as auditor for Arthur Andersen or when you started with Donley's?

PAT: The issue that we all are having is labor. It's probably the biggest concern. I don't care if you're a union or a non-union contractor. People are having these situations. Skilled labor is a major issue. Seventeen years ago, when I started here, that was not the case.

FRED: Isn't this an opportunity for some young people if they wanted to get into the trades?

PAT: It should be, absolutely. But it's interesting. We have a generational thing here where a lot of people have been told for a whole generation that you have to go to college to raise yourself up and make a living.

FRED: What other things have you seen change?

PAT: Fortunately, what has to change is productivity in the construction industry. If you really look at it, productivity in construction over the last 20 years has improved just a fraction compared to productivity in manufacturing and other areas. If you look at the rest of the economy, it's easy to get two or three percent productivity gains over a given year, but in construction you're looking at two-tenths of a percent. So there's still a lot of old traditional thinking in construction, and it's still the way it was ten or 15 years ago. One of the biggest challenges we have is getting people to think differently about how to address or attack a task.

FRED: How do you try to do that?

PAT: Probably the biggest issue is better planning. That is one of the most significant things. For us, concrete is our self-perform business. So we've made significant investments in forming systems over the last ten years. They're not developed in the States. They're European systems that are more efficient and less labor-intensive to utilize. And that's technology. You know way better than me that our industry is way behind in technology. You've got to be ahead of that.

FRED: Are you utilizing document imaging now? I'm just curious.

PAT: We're doing scanning for approval purposes, but we have not put in a true document management, document-imaging system. That will be a major part of the new ERP (software we are considering) this year.

FRED: Your website says you use project-specific websites. How does that work and does it help with communications?

PAT: Eight or ten years ago, web collaboration got a lot of attention, and some of our techs and engineers starting telling us we could do it. We invested a bunch of money trying to put that together, and we do make it available on almost all of our jobs. It gives owners and really everyone the ability to go to our website and view the status of RFIs and submittals, pictures, and webcam video. But frankly we get very little use out of it. In reality, the hits are mostly our own folks using webcams, looking at pictures, and that sort of thing.

FRED: So are you using a third-party product or your own?

PAT: It's something our IT guys put together. We're looking at a couple products now, though, that have portal ability. It's an interface, and hopefully down the road people will start doing it. It's just an example of how far behind people are technology-wise.

FRED: Yeah, in my mind it's a no-brainer. Web collaboration is a must for companies like yours, but it's a paradigm shift to get buy-in from everyone. You need vendors, owners, workers, everyone to get on board. Speaking of technology, you mentioned you're looking at new ERP technology. Why? I know you started with a new accounting package in the early '90s, and now you're looking to change. Why is that?

PAT: You know, ten or 15 years ago we kind of took a best of breed approach to what we were doing. And it was hard because you didn't have a lot of integrated packages then. So we selected one of the better accounting packages at the time for self-performing contractors. We were primarily a self-performing contractor back then. We also started to utilize Primavera Expedition for our general construction and our CM work. We are a very heavy user of that, but there is no collaboration between the two.

FRED: That's the Holy Grail: that full enterprise solution. I'll be curious if you find it.

PAT: Right, I don't know if it's out there completely. But there are packages now that provide project management and document management as part of their overall job cost accounting, and that's kind of where we're headed.

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