Excessive government spending has been a sore point for many voters. Whether it is a million-dollar study to find out if cows fall in love or $600 toilets seats, many Americans view the government as wasteful.
In response, incoming president Donald Trump recently intimated on Twitter that he wanted to cancel Boeing's Air Force One order because of perceived cost overruns. Boeing yielded, and the company plans to lower its price tag.
Whether Mr. Trump was right or wrong about his handling of Boeing, he has made it abundantly clear that he expects government contracts to come in under budget and on time. This tactic may be necessary for companies that have abused the government's leniency about paying overages. However, many honest construction contractors could be facing unrealistic expectations by their customers.
Common cost overruns in the construction industry
There are numerous unforeseen problems in construction, which makes the industry more fluid than are many others, such as:
- Design flaws that need to be corrected
- Expansion of the scope of the project
- Unspecified project details
- Contract underestimates project complexity
- Other unforeseen impediments to completion
If Trump's highly publicized dealings with Boeing are a harbinger of things to come, people in the construction industry may want to have their contracts re-examined before Jan. 20 and have their legal team review a 2017 strategy for government bidding and contracts.
If you fulfill - or are fulfilling - any government projects, the sooner your contracts are re-evaluated by legal counsel the better. It would be wise to assume a stricter compliance standard. The last thing you want is to have to litigate legitimate cost overruns or eat losses.
Boeing situation may have long-lasting implications for contractors
There is little doubt that the Boeing situation was a warning shot heard 'round the country. You may need to make changes to your bidding process. For example, if you have had flexibility in the past with fixed-price contracts based on good standing, that door may close. Here are some questions to consider with respects to future projects:
- Should you avoid fixed-price government contracts altogether?
- Should you increase your normal estimated cost overruns in bids?
- Should you have an agency sign off on individual overruns as they arise?
There is little doubt that the business climate will change under the Trump Administration. It appears there will be a strong push to rebuild American infrastructure, and that is good news for the industry. To maintain your good standing in the industry and to enjoy the potential robust construction environment, seek the advice of an experienced attorney from the law firm of Stuart D. Morse & Associates, LLC.