Can a Single Project Take you Down?

April 17, 2019 Uncategorized

There was an eye-opening article in ENR on March 14, 2019 about Munilla Construction Management (MCM), the prime contractor involved in the bridge collapse at Florida International University that left six people dead last year. MCM recently filed for Chapter 11 bankruptcy as it was unable to win new projects, lenders pulled their financing, and they are facing numerous lawsuits over the bridge collapse estimated at over $90 million.

While many of us on the outside would assume the Florida International University project was the singular cause of MCM’s downfall, the ENR article points out their troubles started several years before. According to ENR, MCM hadn’t turned a profit since 2015, and that year was a slim one at that.

To understand the history, you have to go back to 2010 when the company decided to expand geographically into Panama and Texas, because those areas appeared to be more vibrant than MCM’s typical markets in Florida that were still suffering after the Great Recession. Both Panama and Texas were new territories that MCM had never worked in before, and involved hiring new personnel, working for new owners, and learning the competitive and legal landscape.

The Panama and Texas operations were dismal failures, and they became a drag on MCM as the Florida market picked back up. The Panama division had lost $22 million by 2018 and ultimately had to discontinue their operations becoming the subject of an involuntary bankruptcy proceeding in the Republic of Panama. In Texas, MCM had a hard time landing work, and one of the projects they did win, the company ended up getting terminated from.

In his book, Managing the Profitable Construction Business, Dr. Thomas Schleifer lists six of the most common risks to contractors as:

 Taking on projects that are two times or greater than what you’ve successfully completed in the past.
 Expanding into new geographic areas.
 Moving into new types of construction.
 Replacing key personnel.
 Lack managerial experience and maturity to handle growth.

Dr. Schleifer goes onto say, “dealing with any one of these areas of risk at a time should not be life-threatening to a healthy business even if the change isn’t handled well. Most of the failures observed stem from the contractors attempting to deal with two or more of these risks at one time.” As you can see just from the brief description of MCM, they took on at least three of the five risks simultaneously and possibly more.

Conclusion
In the book Good to Great, there is a chapter called the “The Flywheel and The Doom Loop”, and it describes how the companies that transformed from being good to great never occurred “in one fell swoop.” It came about from a “cumulative process” by a series of well thought out actions by disciplined people.

This can also be said about companies that fail. It comes about by the same “cumulative process” of poor decisions and actions by undisciplined people rather than one defining problem or issue.

Dr. Schleifer confirms the same in Managing the Profitable Construction Business, “In over 1,000 cases of failed construction companies studied, outside stimuli did not cause failure. Some of the more obvious industry problems like weather, labor problems, inflation, and even fluctuating marketplace aren’t enough to put a construction company out of business. The contractors studied had the freedom of choice to manage as they saw fit, they failed by virtue of making the wrong choices.”

“Management decisions alone determine whether an organization will succeed or fail in the construction business.”

This last line by Dr. Schleifer can be a very hard pill to swallow, because it takes away all our excuses as business owners. It’s much easier to look at the great companies and say, “They got lucky or were in the right place at the right time.” Likewise, for those companies that fail we can say, “They were a good company and that project or owner could have taken anyone down.”

So, back to the question, “Can a single project take you down?” My answer would be, “Maybe”, but that wouldn’t explain all the contractors I’ve had survive nightmare jobs. In my view, the real problem does not lie outside of our organizations, it’s within.