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Understanding General Contractors Fee Erosion

  • 1.  Understanding General Contractors Fee Erosion

    Posted 03-03-2022 11:02
    Good morning, South Florida CFMA Members - 

    I am finishing my Masters in Construction Management at the University of Miami and I am reaching out to the CFMA member to better understand General Contractor Fee Erosion.  If possible, please help me collect information by complete the below 3-min survey on the bottom of the post.  Thank you in advance for you time.  Welcome to any comments and/or suggestions, as well.  

    The South Florida Construction Industry is a high-risk business with little reward due to low profit margins.  Industry average profit margins range between 3-5%, with the net profit margin being half.  Since, the profit margins are so low the within the Top General Contracting Firms, organizations must pay special attention to keep their fee and margins intact.  If low profit margins weren't bad enough, the construction industry is getting more difficult with each passing decade.  The scale and complexity of projects are increasing, with each developer bringing a new product to the market trying to surpass the competition as they compete for the same marketspace.  To make matters worse, the Construction industry has yet to solve the decades old issues of staggering decline in productivity and skilled labor shortages.  Each pose a potential risk to the contractor's profitability, as they struggle to perform these massive projects.  The Contractor must proactively manage and mitigate all possible sources of fee erosion to be successful.   If not, any one of the below items can erode the contractor fee and turn a profitable project a into loss. 

    Common Sources GC of Fee Erosion:

    1. GC/GR Cost over runs
    2. Schedule Delays
    3. Missed Scope/Scope
    4. Incomplete Drawings / Design Errors Omission
    5. Weather Delays
    6. Change Orders
    7. Deficient Work / Rework
    8. Poor Coordination
    9. Project was staff in a different manner than bid.
    10. Inaccurate bid


    Understanding General Contractor Fee Erosion
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    Thank you, 

    Charles Byrd

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    Charles Byrd
    Senior Superintendent
    Student
    Miami FL
    (305) 301-5008
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