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Challenges faced by turnkey fit-out and interior firms

Challenges faced by turnkey fit-out and interior firms

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The fit-outs industry in India is experiencing a rapid surge in demand. This increase is driven by multiple factors: the growing demand for luxury residential interiors, retail expansion in tier-2 and 3 cities, substantial office space demand in tier-1 and 2 cities, and a late resurgence in manufacturing facilities. These trends are expected to drive the growth of Indian fit-outs industry over the next decade.

Despite the current market showing promising signs, many turnkey fit-out contractors in the industry express concerns. These apprehensions stem from persistent challenges that prevent them from fully harnessing the market’s potential and scaling these fit-outs business.

This article tries to explore these obstacles in-depth, as identified through extensive dialogues with numerous interior companies.

    Common Challenges faced by fit-out contractors
    Fit-outs contractor

    Accurate BOQs & Timely Quotations​

    Getting an accurate project estimate for a fit-out project is often a recurring challenge for the fit-out contractor. To do successful bidding, you need accurate estimates within short response time. If the fitout contractor asks for quotations from its sub contractors and then add their markup to give final quote to client, the process takes too much time and waiting for it kills the prospect.

    Solution :

    • A ready to refer rates of materials should always be available in your company and somebody like a Super-technocommercial person should be taking care of it.
    • Labour Service contracts to be in place with labour contractors. Also, schedule of standard labour rates to be maintained for ready reference on which your team is confident in finding labour.
    • Standardising BOQs to BOM calculators to quickly arrive at assembly item costs.

    Incomplete Designs​

    Designs not being handed over to the contractor on time or sometimes designs are not detailed enough to carry out the work. This results into

    • Clarifications & RFIs from contractor which breaks continuity of work
    • Reworks due to wrong assumptions which result in time and cost wastage and added blame game

    More often than not, in absence of details in design, the contractor is being asked to start the work without waiting for the refined drawings. On ground what happens is that those incomplete drawings are used by the team and subcontractor based on their best interpretation.

    Solution : All the design gaps needs to be identified and should be tracked so that the contractor and subcontractors can keep track on which areas or points they have to follow up for missing details. Also they should be able to easily decipher which files are the latest version of drawings and what are the revisions in it.

    Planning & Procuring Long lead items​

    If the procurement planning of a contracting company is poor, then it will be exceedingly difficult to accomplish any interior fit-out project. It is crucial that the material and the labor move in sync with the project. The problem is more nuanced and often in case of long lead items which will take long time in production, dispatch and delivery to site.

    Solution : The Turnkey fit-out contractor must identify the long lead material items and place their order and keep track of their dates. They must identify the speciality trade subcontractor and the service order to be timely given to them. Also, these dates as a plan to be shared between these subcontractors and labours employed.

    Expected vs Actual Handover Date

    A common issue most interior fit-out contractor’s face is that the two dates : Expected due date & Actual handover date never essentially match, and this is communicated to the client later towards the end of the project which leads to a loss in credibility on the part of the contractor and frustration on the part of the client.

    Solution : Daily or weekly progress report must be enforced with special focus on expected date. The changes in expected date should be highlighted and tracked. This DPR not only gives a medium for expressing the progress done or the manpower details but also the blockers on the site, Requisites from client and Potential delays.

    Increasing Scope and frequent changes

    Fit-out companies must confront their clients, when their expectations continuously change (and this causes delays for the project). More often, client hasn’t kept track of these change events and when the final timeline deviates they don’t believe in the justifications given by the contractor.

    Solution : You need to make sure every single detail is put down, saved and agreed upon before the work starts. It’s crucial to have a way to track your project, throughout the entire delivery process, at any step on the way. You must make sure you have the correct details on your BOQ, that each financial document is correctly approved and if changes are requested, then those shall be tracked and communicated.

    Project delay during last 5% completion of project due to finishing Snags

    While the client is right in expecting every thing cleared off before handover, the ways in which multiple people report snags at multiple times makes snag identification and rectification a never ending process and creates distrust between contractor and the client.

    Solution : The contractor should initiate the process of snag identification and invite client for site visit and should give a definite time window for identification of the snags. Now once all the snags are recorded and the snag window is over, the vendor should rush towards rectifying them and share status of those recorded snags to the client. If the client wants to visit site again for this, and during revisit, new snags are identified by client, these new snags should definitely be recorded and resolved but should not be taken as blocker for deemed handover and corresponding payments.

    Collecting Timely Payments from Client

    Fit-out projects typically require significant upfront investment from the contractor in materials, labor, and other resources before any payment is received from the client. Clients may delay payments due to various reasons such as financial constraints, disputes over project completion and project milestones, dissatisfaction with the quality of work and Inconclusive additional costs.

    • Financial constraints : In many cases, Fit-out contractor deals with builders or PMCs. For builders, this is an investment and they are in constant pressure of managing their cashflows. In some cases the fit-out project is awarded by a PMC ( Project Management company ) who pays to the fit-out contractor only upon getting paid by the actual client.
    • Complex Payment Terms: Turnkey fit-out projects often involve complex payment terms such as milestone payments or payments linked to specific project deliverables.
    • Disputes Over Scope and Quality: Clients may dispute the completeness of the project or achievement of milestone and quality of the work done becomes a major caveat to not pay the contractor on time, leading to disagreements over the amount to be paid.
    • Change Orders: Changes in project requirements or scope during the fit-out process can lead to additional costs that were not initially accounted for in the contract. Negotiating these change orders and ensuring timely payment for the extra work can be challenging.

    These issues can result in payment delays and strain the relationship between the fitout contractor and the client. The contractor find themselves in tight spot thinking whether or not to pressurise client which may further strain relations with client and hamper their future partnership.

    Solution: Payment terms should be made very clear based on milestones which should be measurable. e.g If a payment terms is : ‘30% payment to be done on 40% completion of project’ then what constitutes 40% completion should be made very clear which cant be disputed. Managing these terms and ensuring that payments are made on time according to the agreed schedule requires careful coordination and communication with the client and can be made part of the Daily progress report wherein apart from progress update, a reminder for payment in advance goes to the client. Apart from this, the contractor should treat QC and snag resolution as a time-bounded regime so as to de-risk their payments.

    Tracking Unplanned expenses of Project

    For a Fit-out contractor there are some planned expenditure and some unplanned expenditures on a project. These Unplanned expenditures are mainly site expenses including cost incurred in travel of site engineer and supervisor, accomodation costs, urgent wages given to labours and adhoc material & equipment purchases. These expenses are borne either by the employees or through petty cash. These expense events are smaller incidents but have tendency to pileup and become quite significant. More often than not, these expenses are not properly tracked live and the project controller only tracks the planned expenses when measuring margins and towards end of the project when these unplanned site expenses are filed, they erode project margins.

    Solution : All expenses should be filed and tracked within a day or two and should be accounted in project cost so that it gives complete margin picture. Also, when tracked instantly, Its easier to verify the need of such expenses and verify proofs. This also goes long way in keeping trust between management and site teams intact.

    Contractor

    Apart from these above issues there would be typical challenges faced specific to residential or commercial fit-out projects.

    In summary, the solution lies in enforcing SOPs for : Lean planning ( planning for the most risky items), Collaboration ( of Design, changes, progress, timelines), Expectations setting with client and Training of your projects team. How easily you are able to codify these SOPs and maintain them within your team decides whther or not you have created a playbook for delivering fitout projects while securing profits and cashflow.

    Our team at RDash has been working on codifying all these solutions into a software platform and have automated SOPs for Fitout teams and industry so that they can transform their business, train their teams and be ready to scale their business.

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