Sharing my personal experience on how to avoid contract disasters.

1. Day in the Life of a
Contractor:
ALI EL-ZEIN

2. How to Avoid Contracting Disasters
Based on my experience and day-to-day activities as COO of ALWEDAD contracting company
(specialised in MEP works) in the construction industry, I noticed that most contractual conflicts are
due to the lack of understanding of the measures and standards required from the sub-contractor or
supplier. The root of the problem usually stems from the inability to qualify them as suitable,
satisfactory, or necessary for the conditions of the work at large.
With this article, I will try to walk you through our day-to-day practices on how to determine and
qualify the eligibility of the sub-contractors and suppliers so that you may avoid costly mistakes.
This is a series of practices which have successfully worked with us as a company. Although, it might
not necessarily work with you due to varying circumstances of your company, nonetheless, it is bound to
draw your attention to important key points.

3. The False Myth
My first advice to you is to stop selecting your sub-contractors and suppliers based on their
lower price range offer. Although cost is important, falling into the mind-set that lower price
means more gain, is actually a false myth that could potentially cost you a lot more.
My assessment process is classified into three stages:
• Stage 1: The 3p’s matrix.
• Stage 2: Financials.
• Stage 3: Contract.

4. Stage 1: The 3p’s matrix
I am a firm believer in the efficiency of the 3p’s matrix (people + product + process =
success). This popular methodology and philosophy is practiced and implemented in successful
businesses, industries, and systems all over the world. Many influential business owners use
this methodology, most popularly being Marcus Lemonis, a billionaire entrepreneur. His
definition of a solid good investment is one that has at least two of the three p’s covered.

5. People
People:
Employees are an integral part of the business. Having happy employees will definitely result
in happy customers as well as an increase of security for the business. It is only common
practice that while we select our candidate’s sub-contractor/suppliers that we meet the company
owners, managers, representatives and technical team. This creates a certain level of
engagement and communication which will therefore be able to tell us answer the following
questions:

6. People
• Does the candidate company take care of their employees?
You will be able to answer this question by defining, a) level of contentment, b) the culture of the workplace and
whether or not it is being run with a set of ethics and values c) level of loyalty and
motivation of the staff.
• Are these the people that I want to be surrounded with for several years to come?
The answer of this question, whether yes or no, will determine the level of flexibility or firmness and resolve that is
necessary on your part in the next stages.
• Does the candidate company hire creative professionals?
The level of creativity and education of the sub-contractor and employees will largely evaluate the above points. While
evaluating the technical team, try to understand the demographic characteristics of the
company (number of employees at the office, site or factory).

7. Process
On a large scale, it is crucial to understand that your success is all about the process even
when it comes to making small scale decisions.
The “Process” begins at the conception stage (i.e., product/service development) then directs
the company through the hiring process of employees, marketing strategies, accounting systems,
expansion, etc.
While evaluating the “Process” of the candidate company, you should seek answers for the
following questions:

8. Process
• Does the candidate company have enough working capital?
The answer of this question is usually determined in stage 3, however, I always prefer to communicate with the owners of the candidate company so
that I might take note of any unforeseen or potential financial risks in the near future, which have not yet been recorded in the accounting books.
• Does the owner of the company micromanage the process (design, HR, marketing, manufacturing, accounting,
etc.) or does he or she tend to delegates others?
Company owners who micro-manage are always too busy to define the right business model and the appropriate workflow channels. These types of
owners who proceed with a “one man show” mind-set mostly struggle because they are limited to a single person vision. Personally, I always avoid these
type of establishments because it is the perfect recipe for disaster.
• Does the contractor always re-invent themselves through the use of technology (i.e., ERP system, BIM
modelling, project planning software, estimation software etc.) and do they have an inventory system in place?
Companies which seek to re-invent themselves are reliable companies. It not only gives them an edge and competitive advantage but also reflects the level
of professionalism they have.

9. Product
Whether you are trying to determine the qualification of a contractor or supplier, the quality of the
delivered service or product is the determinant.
I try to understand this aspect through three easy steps.
• Understand in what aspect does the candidate company stands out.
Basically, what are the competitive features of this company? What are their resources in regards to
managerial, technical, and financial aspects?
Does the company have in-house capabilities or do they rely on outsourcing of sub-contractors or
factories.

10. Product
• Make site visits for at least three projects.
After handing over the project and having the financial settlement in place, problems will start to
emerge. The real quality of the final product will appear within the first year after handing over. I
personally believe that physical site visits for projects that have been executed in the past five years tell
you a lot about the quality of work, owner experience, and after sale service.
As a company, we directly communicate with the building owners who share their reviews and
experience through the stages of construction as well as the after sale services. You will be surprised
how much priceless information you are able to obtain.

11. Value of the product
• Understanding the Value of the product
As we previously emphasised, consider the quality of service or product that the company is
offering, rather than the value of money of the product or service.
The real value of the product or service is determined by its quality regardless of its cost. This
can emerge from the level of confidence the candidate company demonstrates, by providing
additional guarantees on the services or products

12. Stage 2: Financials
• Key Numbers
Check the key numbers for at least three years in row and highlight the following:
• Company revenues per year.
• Profits per year.
• Company debts.
Always try to analyse the financial curve and level of progress of the company you are dealing with. This will
help indicate the risk level you are in as well as determine the financial capacity of the company.

13. Stage 2: Financials
Detailed study:
• Analyse the financial papers of the company.
This will help you understand the cost structure as well as help you determine the financial stability of
the company. If you are not good with numbers it is best you consult your financial advisors.
• Request a projection of cash flow
While you are willing to do business with the candidate company, it is best to request a projection of
cash flow for the specific job. This is for the purpose of determining the planning ability of the
company and to anticipate most of the job requirements through the cash flow which will
indirectly tell you of their ability to deliver.

14. Stage 3: Contract
Now that we have reached the final stage, I advise you to dispatch a draft copy of the contract to the candidate
company in order to get their comments and feedback about the terms and conditions especially in the financial
aspect.
• Based on the level of risks that have appeared in the previous stages of assessment, it is imperative to secure
yourself contractually.
• You might get surprised during the signing of the contract with the company’s inability or refusal to provide
bank guarantees. That is why we have advised you from early on to test the financial capabilities of the
company through their acceptance or rejection of issuing bank guarantee and bonds.
• We usually prefer to act on back-to-back basis with our subcontractors which naturally transfers part of your
responsibilities to the sub and vice versa.

15. Conclusion
• Finally, all the above stages are several measures and standards required to determine
whether you will proceed with business or not with the candidate companies. This is the
most significant method to build a circle of solid partnerships which will be your platform
to expand your business. Don’t be afraid from making mistakes every mistake is an
opportunity to learn.
• References:
https://www.youtube.com/watch?v=Uc9qvIcodDg

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