Kevin McClain joined The Weitz Company in 1999, serving in numerous operational and executive leadership roles before being named president and CEO on October 1, 2017. He is a construction engineer and active in many industry association groups, including the Construction Industry Round Table (CIRT) and Associated General Contractors of America (AGC). Earlier this year, he sat in with Husch Blackwell’s Josh Levy to discuss the construction industry.
How did you become involved in the construction and design industry?
I did not set out to go into construction. I went to school to become a runner and in my junior year found out nobody actually runs professionally (or, at least, very few people do!). That was a tough learning experience, but at that point, I was far enough down the academic path that I was able to shift to earn my degree in math. I spent time thinking about what I really enjoyed and looking at career options. Construction was not in my family or part of my youth—but I found that I loved the process of building. After graduating with a BA degree, I joined the Laborers’ Union, started working in the trades, and went on to frame houses. Ultimately, I met a mentor who encouraged me to go to Iowa State University and get an engineering degree. That set me on a path to where I am today, and ultimately, to The Weitz Company.
What are some unique approaches you are taking to combat the supply chain disruption?
It starts with owner alignment and an open conversation about the fact that supply chain issues are real issues. Then, I would recommend hiring the contractor with the best preconstruction department you can find. We have titled ourselves as good builders, but most of the value to the customer comes before you start the build…so it is the people that really understand preconstruction who are worth their weight in gold these days.
The next piece is about being open to interesting tactics and ideas. So when our teams saw supply chain disruption impacting projects, we asked “What is driving this?” There are certainly material issues; but by now, I think we all know how to handle that with early buys and warehouse storage. However, the other major component of this disruption, is the fact there is the same amount of trade worker capacity in the market today as there was six or eight months ago. We are all competing for those resources, and we have not seen many people getting very creative in their approach to secure these. We saw this opportunity and started talking to owners about how to achieve the best production - which will ultimately drive schedule, which in turn control costs – and then going to our trade partners and asking, “What are the things that will help you perform the best?”
What it boiled down to was #1 - making a commitment on certain backlogs so trade partners know their backlogs align with their schedules. And #2 - talking with them about how they keep their workforce going. Then, we started to get creative with payment terms. For example, we went to several owners and said, “…we think if we can shift from a 30-day payment term to a 15-day payment term, we will get the best trade partners and/or the best people from these trade partners.” And lo and behold, we did. The job they were being paid for on a 15-day cycle was staffed much better than the job they were getting paid for on 60-day cycle. And that doesn’t seem like it was that genius of an idea.
When Covid initially hit, we went to every one of our owners and said, “…none of us know how this is going to play out, but you probably have two options. #1 - You can either accelerate things or #2 - You can slow play it safe. Our advice is to accelerate and here’s why.” One hundred percent of the time, the jobs that we accelerated had good success. We mitigated the downside risks and used tactical approaches like switching payment terms because cash flow is so important in this business.
How can the right process and partners help drive guaranteed maximum price (GMP) savings and increase profitability for all involved?
Once you set a contingency, we like to put the contingency aside and go drive the efficiencies because everybody focuses on fee when hiring a general contractor. And honestly, fee is the smallest component of the work. There is 90-plus percent that is the actual cost of the work, and that is where the dollar savings are and where we can impact contingency. So rather than going to the mechanical or drywall trade partners and saying, “…we want you to put your fee in a shared pool so it’ll build up this contingency bucket,” we’ve had success by going to them and signing them up on the same type of agreements that we’ve been signing ourselves with owners for years.
Think about putting your mechanical or drywall contractor on a GMP with a split savings clause - incentivizing them to be efficient and helping them really understand the work. I’ll give an example. We just won a large data center project in the D.C. area. Prior to winning this job, we built the exact same facility in Des Moines, Iowa. Our forward-thinking team filmed the process we used in Des Moines to highlight the build sequence. So, when we went into the D.C. trade market months in advance to meet with all of these partners, we showed them exactly how we were going to work together to build the project. Because they saw exactly how to build it, they were able price it appropriately. With this model, we are having great success. In fact, I received a call from a mechanical partner out there that said, “…we’ve never been treated like this before. We feel like a true partner.” In addition, they are able to increase their margins, which then returns money to the owner because they are on a GMP savings split. The build itself is more efficient. That, to me, really fuels the contingency discussion. For too long we have had this focus on 5% for design omissions or gaps in the GMP. However, the real cost of things in our business is in that scope of work and how we can move away from the contractual issues. Incentivize people to be efficient and then help that fuel against contingency and savings…it works.
What is your focus in 2022?
What is unique about the way we set up our business is that about 50% of what we do today is delivered through local offices, since construction still tends to be local for a certain size and demographic of product. The other 50% is executed through what we would consider our Weitz product lines. Our customers primarily hire us for our expertise in those product lines. The big ones for us tend to be aviation, data centers, student housing, and senior living. I think we probably do more lived-in structures than most people in the U.S. And, most of our clients are repeat—though the one-off big jobs obviously tend not to be repeat—they tend to be driven by unique deal structures. Nevertheless, that is our product focus, spaces and places where we are experts. We are builders more than construction managers and contractors. That is really our niche. We continue to drive that focus and look for opportunities to provide customer driven solutions. Today, we are finding, as projects get more and more complex, we tend to be the pin that pulls all of the different parts and the pieces of a project together.
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