Obstacles Facing Electrical Contractors

Electrical Contractors | Managing the Margins

Electrical contractors are busier than ever as the COVID pandemic recedes and pent-up demand grows. However, the same old problems persist for contractors – being hired for jobs based on cost and then managing the project within schedule. Budgeting and scheduling are two fundamental business principles still as relevant today as they were fifty years ago. However, winning a bid can be challenging due to tight profit margins if the project’s scope is not clearly defined.

Design-build contracting is more prevalent today than ever before in commercial and industrial construction. Although design-build enables electrical contractors to compete on more than just price, it also carries additional risks. Therefore, most electrical contractors concentrate on design-build, working only with trusted general contractors (GCs).

Regardless of the project delivery system, the electrical contractor will have to deal with the procurement methods and contract formats selected by the owner and general contractor. In the dreaded Owner Furnished Contractor Installed (OFCI) method, the electrical contractor loses one of the best profit margin generators. Generally, this makes sense if the OFCI equipment is specialty equipment related to the owner’s business. Although, owners often take the OFCI approach to reduce perceived costs or meet schedules, thereby transferring the risk to the contractor.

OFCI Equipment | Minimizing Risks

The double-edged sword of owner-furnished contractor installed (OFCI) equipment assumes two things are true:

1. The owner’s procurement team can specify, procure, and deliver to the jobsite the correct equipment
2. The entire process takes place on time and costs less than a contractor’s amount to complete the same work

Typically, you find OFCI equipment in complex long-lead capital equipment such as switchgear, transformers, and substations. When procurement mistakes occur, the owner’s team has an incentive to hide the error, rather than share with the electrical contractor to mitigate the impact of gaps. Large electrical contractors with deep pre-construction or design-build teams can be proactively in the submittal review process. In these situations, the owner’s vendor mitigates the risk.

In addition, the manufacturer’s quoted lead time for the equipment doesn’t include the submittal review process. By releasing orders to a manufacturer without reviewing vendor submittals, an inexperienced owner’s procurement team can undermine the OFCI process. So, when electrical contractors insist on being part of the OFCI submittal review, their input is often written off as. It’s viewed as “late” or not per the original specifications (if any exist). The owner’s procurement team focuses on cost and delivery date only, not functionality specifications. Often, this strategy leads to conflict between the procurement team and the electrical contractor. Ironically, the longer contractors spend reviewing submittals, the less time they will have on-site for installation.

During the design phase of a design-build project, contractors need to be diligent. Documenting the time it takes the OEM to review and approve the OFCI equipment for manufacturing is vital. Moreover, it’s imperative that contractors, owners, and electrical contractors agree on the system’s operational specifications and electrical sequence of operations. Failure to address gaps or issues until the equipment arrives on-site creates distrust between the three entities.

General contract terms stipulate that:

Electrical contractors are responsible for ensuring that the equipment that shows up on-site is compatible with the electrical distribution system.

Scheduling for Success

Electrical contractors are uniquely responsible for the overall project schedule for construction projects. One of the first subcontractors on-site often is the electrical contractor. To facilitate construction, they hook up temporary power to trailers and install the underground duct banks. Electrical contractors are often one of the first trades on the job and the last to leave. Coordination with every other trade on the job is essential. So, having a close working relationship with the General Contractor (GC) and the owner is crucial.

Now, combine the long-term on-site presence and schedule accountability with OFCI equipment like electrical switchgear, substations, and transformers. The pressure is always on. Even a minor slip-up in the schedule can result in a disastrous outcome for the entire project.

On occasion, an owner’s procurement team may order electrical equipment with inadequate short-circuit interrupting capabilities or insufficient circuit breakers. The impact extends beyond the electrical contractors who await the switchgear for installation when this occurs. Additional underground electrical duct banks are needed under the freshly poured foundation or slab to install another circuit breaker in the switchgear. The electrical contractor may also need to install a new transformer and substation and additional electrical equipment.

Electrical contractors may see this as a golden opportunity. However, keep in mind that the owner’s procurement team will focus primarily on equipment costs and scheduling. The procurement team’s goal is to limit the impact of any change. Therefore, they may not understand the overall impact of adding one more circuit breaker. Similarly, large electrical contractors with an extensive pre-construction and design-build team can detail the impact of relatively minor changes. To help facilitate this process, contractors seek the assistance of a specialty electrical contractor (such as APT).

Non-Obvious Costs of Changes and Delays

The total cost associated with a small change might seem obvious to an electrical contractor. Here’s a checklist of direct and indirect costs:

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It is not the purpose of this post to dig into the details of construction law for calculating delays. Nevertheless, our simple checklist illustrates the importance of clearly defining the electrical systems sequence of operation and standard operating procedures.

Missing a relay protection scheme or load shed requirement could lead to substantial delays and much mistrust, especially with OFCI long lead electrical equipment like:

• Switchgear
• Substations
• Transformers

Owners and contractors can reduce their risk by retaining specialty electrical contractors (like APT) who focus on the electrical system’s operation.

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APT 4 Electrical Contractors

APT specializes in expanding and commissioning electrical systems, particularly medium and low voltage substations with multiple power flow paths. When building or expanding a facility, owners and contractors often fail to document these electrical procedures and standard operating procedures. Moreover, APT’s resources and expertise to contractors are usually less than 1% of the total project cost. With APT on your team, you can enjoy a smooth project from start to finish.

Interested in completing electrical projects faster?  

APT’s unique expertise in operating and commissioning electrical systems helps our clients finish projects with lower costs and faster turnaround times. In addition, we often proactively identify alternatives to owner-directed changes that support the entire construction team, and the owner aligns and completes work more quickly with better-documented results.

Andy Taylor PE I APT Chief Executive Officer