ARE YOU A STRUGGLING SMALL CONTRACTOR?
Wednesday, September 23rd, 2009How many of you out there own small jobbing or contracting businesses? By that, I mean you’re entirely reliant on irregular contract work, and you have to work hard to get it. In other words, you have no guarantees of work in the ensuing weeks or months, unless you quote your brains out; – and even then you may not be successful! Not that any of us are guaranteed work to come, but somehow jobbers – small contractors – are much worse off.
As far as I can see, there is one fundamental problem to running a jobbing business these days – the high fixed costs of employment are becoming almost impossible to control. Let’s take one small contractor as an example:
He quotes on a job. He allows five days for completion, thirty percent of the price for materials, and enough to cover overheads and a small profit. He gets the job.
In addition, in the course of the month, he quotes on and gets another ten jobs – jobs of various sizes, values and in different locations. He now has to ensure that his production team can manufacture the product on time and within budget, and that the various installation teams will do the same.
He knows that if he was left to do each job himself, he will be able to meet the relevant deadlines. He knows what he’s capable of, but his expectation of his team is too high. And, – doing each job himself; and managing his cash flow, and doing his marketing and managing his human resources; and finding some time to eat and sleep is well nigh impossible. So he relies on others – his employees, hopefully leveraging his time in such a way that he is able to ‘spread himself’ around.
But guess what? It doesn’t happen! If they’re not managed properly, these employees will stretch the job to the limit – after all, they’re being paid by the hour! And how is it possible for a small contractor to manage a number of jobs adequately, when this attitude prevails?
One of the biggest problems employers face in this age (and I’m writing generally) is that far too much emphasis is placed on the rights of employees at the expense of the responsibility of employees. That’s all we seem to hear emanating from Cosatu’s interminable conferences these days! It might help if more training was done on the basic responsibility of every employee to do a fair day’s work for a fair day’s pay, but I believe it is going to require a significant mind-shift in the minds of most employees to get this right. Employees today (generally) seem to believe that their only responsibility is to turn up for work, and that it’s the responsibility of the employer to see that they do it.
In addition, here in South Africa, we still have a number of archaic collective bargaining councils which impose huge pressures (and costs) on employers in the various jobbing industries. (I believe they are archaic and seriously in need of review.)
I understand why they were formed – at one time employees’ rights were being abused, – but surely with the advent of both the Labour Relations Act and the Basic Conditions of Employment Act, employees have all the recourse they could want, if they’re being prejudiced in any way.
For example, Electrical Contractors are faced with a minimum wage rate for each employment category (regardless of performance or ability), and a compulsory bonus – whether the firm has made a profit or not. (Once again, regardless of employee performance.) Peripheral employment costs imposed by these councils can add as much as 30% to a wage bill. In addition, because they cannot possibly police everyone, those contractors who comply with their legal requirements are prejudiced by a large number of those who don’t, and who get away with it.
These industrial councils will argue that if an employee doesn’t perform, he can be replaced. Well, have you ever tried to do that in South Africa? Even if the employer is correct in principle, it is of no relevance unless due process has been followed. The hassle for the small contractor, who is already stretched as a manager, is just too much, and very often they find themselves stuck with mediocrity out of convenience.
My suggestion, – and I know that it works because I’ve seen it work (and that it works for both employers and employees) – is that in the jobbing industries, allowance must be made for employers to employ their workers on a piecework basis. In other words, workers on various jobs are entitled, as remuneration, to a percentage of the job value, and that this is defined up front.
In addition, a performance bonus scheme is agreed, based on bringing the job in on cost (or less than cost), and on time (or ahead of time.) In each case, savings made by the contractor are shared with employees who worked on the job. Poor quality work, which can happen if the job is done too quickly at the expense of quality, will have to be rectified by the same workers and they won’t get paid for it. In this way, both risk and reward, in the jobbing environment – and which can be great either way – is shared.
This works particularly well for teams who get to know each other’s abilities and contribution to the team. Each team also ensures that loafers are not tolerated because it impacts on their income. In a very short time, teams become aware that the more work they do, the more they will earn; and the overall spin-off is amazing. And – and this is very important – it takes a huge management load off the business owner at the same time!
Over the past ten years or so, I have managed to get a few jobbers to introduce such a scheme. In every case, it meant a return to profitability within a very short time; and an efficient and motivated workforce. Sadly, in every case, it was blown out of the water by over-zealous Industrial Council inspectors or Trade Union officials. The Jobbers were told – conform or be prosecuted. Some conformed, and slid back down the razor edge to bare subsistence. Others closed their doors – and those motivated, earning, working employees all lost their jobs. There has to be something wrong with this picture! Surely, in an environment where jobs are being lost daily, the biggest employer of people in the country – the small business – should be encouraged to provide work wherever possible? Sadly, in South Africa today, it seems that process is more important than principle!
If I was a small contractor, trying to make a success of my business, this is what I would do (and let me say that if you decide to follow suit, you do so with caution and fully-informed of the implications):
I would divide my workforce up into teams led by skilled tradesmen and each team would be employed on a contract for contract basis. If I had no work, I would employ no people!
For example, if I was a Plumbing contractor, and I was awarded a contract to ‘plumb’ a house, I would employ a plumbing team, led by a qualified plumber, for the duration of that contract. Their employment with me would commence on the day the house needs them, and would terminate when the house was built.
The team would be told what the budget on the job was, and the time constraint for completion. They would also be told how much they would be paid as a team, how those payments would be made (daily, weekly etc), and how much bonus would be paid for bringing the job in ahead of time and cost.
My job would be to find as much work as I can for each team. It would be in my interests because the more work I get in this way, the more profit I would be able to make.
Quite frankly, if the industrial councils didn’t like this approach, then I would tell them feel free to sue me. When I have my day in court, I will ask the judge why I should be punished for providing well-paid work for people. I rather suspect I would receive a favourable hearing, and perhaps it would go a log way to addressing the current inequities small contractors face each day. (And if I didn’t I’d shut the business down!).
