The death spiral of testing and inspection in construction

August 2010 » Web Exclusive » COMMENTARY
Jaye Richardson

The recent financial crisis has put much of the construction industry in the United States on hold or in bankruptcy. Most construction that is going on has funding from federal, state, or local government coffers. These public interests are always looking for the best value they can get for the money they spend. This is leading to a disturbing trend in construction for both the public and private sector.

I have received many Requests For Proposals (RFPs) and Requests For Qualifications (RFQs) during the last few months. In almost every case, pricing has been a portion of the request. Sometimes, they don’t even bother with the niceties that normally come with requests. We get the one-page fax or e-mail with a list of units and a request for a lump sum bid. We all receive these and normally respond to a large percentage of them, especially when it is a client we currently work with or are looking to develop a relationship with. I know I have. I am deeply concerned about where this trend is leading us.

But, the path we are on leads ever downward. We cannot sit idly by and allow the commoditization of materials testing and inspection services. Some of the markets in the United States are already beyond the event horizon for this, and others are spiraling quickly that way. The one thing we cannot afford is our profession turning into a lowest price commodity, like ordering paper towels, with no qualifications or quality-based criteria required. When anyone can simply call up a website, send out a fax or e-mail and request, for example, four slump tests, two entrained air contents, and three concrete cylinders, we are finished as a profession. We might as well ask them if they would like fries with their order.

Our profession does not provide a commodity-based service. At least that was what I was taught and believed. Now, there have always been those schools of thought that say making money in this business can only be achieved by large volumes of low-margin work. Although they may be making money in the good times, I have one word for that school of thought … “Seriously?” This process of under-bidding the competition leads to low-margin fees and undercuts the professional aspects of inspection. We are living up to the lowest expectations of contractors, architects, engineers, and developers. We are putting our careers and skills on the open market for the lowest bid, regardless of whether that person or firm is qualified to perform the inspections that the project requires.

Quality counts. We all know this but refuse to stand up and demand it. Firms should be judged on their qualifications, personnel, and experience on similar projects. To do any other selection process is a grave disservice to the owner, client, and the public at large. The only two things we can hang our profession on are the quality of the services we provide and the integrity we bring to each effort we undertake.

Integrity is another thing that is rarely considered in the quest to beat the guy across town by $0.50 an hour for a concrete technician. Value does not always mean the lowest price. Quality often overshadows price if truly considered in proposals. Notice I said proposals and not bids. Contractors bid. We propose. Quality control (QC) and quality assurance (QA) have something in common: They both refer to quality. If you are not competent to perform the service, how can you ensure compliance with quality standards? It is so tempting to send a cheaper, less experienced person to the site. That is the easiest way to make up for that low bid we put in. Rarely do we stop and think of what the consequences of this might be. The ASCE, ASFE, CoMET, IBC, ICC, AASHTO, ASTM, and every other professional society, regulatory body, or standard bearer for our industry all say the same thing. We must supply people who are qualified, competent, and experienced in the area they will be responsible for inspecting.

It is a lot easier to simply edit a field report, concrete break, or density result to wipe away a problem. I know the reasoning: “It is a small piece of information. The engineer has built-in safety factors to account for these types of things. No one pays attention to these reports anyway.” If these arguments sound reasonable to you, you are on that slippery slope. You don’t believe me? What does this guy know about your business model? You are in control of your own future … right?

A case in point: Testwell Laboratories, based in New York, and 12 of its officials were recently indicted for fraud and corruption. They were convicted on those charges, as well as interstate corruption. Press reports indicate that they changed data on concrete breaks to show passing results on some cylinders that did not pass. That led to a deeper probe into their practices. It seems that someone was manufacturing concrete break data and mix designs in place of simply running the tests. They then billed the government for the tests they pretended to run. This is not a case of this firm being required to return funds or arbitrate a lawsuit. This is federal prison time.

The lead prosecutor secured a conviction against the president and vice president of the firm and has asked for the maximum — 25 years in federal prison. Think about this for a minute: 25 years for racketeering, corruption, and fraud against a firm whose job was to make concrete cylinders. How does the district attorney see this? According to a Feb. 25, 2010, News Alert from Engineering News-Record, Manhattan District Attorney Cyrus R. Vance, Jr. said, “Testwell’s conduct was reprehensible not only for its pattern of theft and deception, but for its utter disregard for the safety of the public at large.”

This company did not operate in a vacuum. They did not operate in this fashion for years without either implicit or complicit knowledge by others. By others, I mean architects, concrete manufacturers, engineers, and codes officials. They also did not get to this low level of service as part of their long-range strategic plan. More than likely, it began as an attempt to be cost competitive in a lowest-price-wins market. The situation simply devolved from there. The problem comes when you have to decide how you are going to beat a competitor’s prices. There are only a few ways to do this and each has a consequence.

Method 1
Pay the technical staff significantly less than they currently make. The positive effect here is obvious. You increase your margin on every employee allowing you to reduce your prices while maintaining profits. This is the old “do the same for less money” approach. The negative effects are equally as obvious. Lowered wages push out more experienced and higher-paid staff. They are replaced by younger inexperienced staff which not only depresses wages in the area, but it also drastically reduces the quality of work being performed by QA-QC firms.

Method 2
Propose a reduced scope of services than that normally performed during typical inspection services while adding a minimum site visit charge. This is the “do less for the same money” approach. As an example, instead of monitoring a concrete placement from beginning to end, the technician makes the required series of cylinders on the first couple of loads and then leaves. If you have a minimum four-hour charge, you increase your profit margin by billing more time than the technician was actually on site.

For example, if only five technicians did this each day, staying at each location only one hour and moving on to the next location, each technician would bill 40 man-hours for each 10-hour day worked. These five technicians would bill 200 man-hours a day. This is 1,000 hours per five-day week. If each client pays only $40 per hour for a technician, that generates $40,000 in revenue per five-day week. If the technicians are making only $10 per hour, it would cost you only $2,750 for that same week of effort (including overtime at 1.5 for the 10 hours per technician). Easy math says that is a multiplier of 14.55. Now that is making money, but at what cost?

The cost is compromising the actual purpose of quality control. While the company in the example may be delivering the required amount of testing, it is not observing the placement to verify it was conducted in accordance with the specifications. How are they to know if a load of concrete with an extremely high water/cement ratio went in if they do not see it? How do they know if the concrete placed was within the temperature requirements if no one was there to use a thermometer? Concrete is an extremely sensitive product. Laboratory-cured cylinders made off the first two or three trucks do not represent the entire placement. It gives a false, or in my opinion, fraudulent, impression of the actual placement’s performance.

Method 3
Act like a low-bid contractor and propose a severely reduced scope for a lower-than-anticipated lump sum fee. This is the “do less for less money” model. It is also known by the less attractive titles of “bait and switch” or “the scope-creep change order shuffle.” Most of the clients that buy into this method suffer from the failure to read beyond the price. The low price wins the job, but that is when the fun begins.

The winning firm then begins to track all of the things that are not included in the lump sum price assumptions. Bring on the change orders! The project might require a full time inspector for 10 days to monitor fill placement, but the proposal included only four site visits at two hours each. The project is scheduled to have six concrete pours, but the proposal counted on only two. It is easy to see how this can get out of control quickly. What you rarely see these days is the real secret to success — Method 4.

Method 4
This method is a little out on the fringe: Do it right. You propose the scope of work needed to meet the intent of the project specifications. You use qualified, skilled, technical personnel who are fairly compensated for their knowledge. You supply resumes, projects, certifications, and a unit rate table for services that the client will need to execute the project successfully.

If you believe in the methodology that “great clients appreciate quality” you will find yourself surrounded by outstanding employees and long-term client relationships. These clients are appreciative of the value your firm brings to their projects. If you do not get at least 70 percent of your annual revenue from these types of clients, you may not be focusing on this method as much as you thought.

Although it may seem naive to say this, I believe all QA-QC technical personnel are true professionals. They are also the most visible representation of our firms. Our clients know our reputation by the people we send to the field and the work they do every day. They are judged by how they speak and dress, their work ethic, and the service they deliver. How can we as managers, principals, and owners expect a higher level of professionalism from our staff than we are willing to deliver ourselves? We are consultants. We are not fast food restaurants, convenience stores, or “Quickie-Lubes”.

If we do not put a higher value on our services than we currently represent to the marketplace, we should not be surprised to find more of our contemporaries in prison and home improvement stores carrying “do-it-yourself” QA/QC kits. Remember, if you cannot control, you will never be able to assure.

Jaye Richardson is a materials operations manager with AMEC Earth & Environmental, Inc. He can be contacted at jaye.richardson@amec.com.


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