One of the changes that I’m proposing for construction contracting is the use of return on investment for any contractor. This is a measure obviously that’s financially attuned. It’s the one that says how well we are doing financially in all of our projects or in our company. A large company might use the term return on investment capital.

What I wanted to make sure of is a return number that is given and calculated for a capital number, an invested capital number. So if you look at ROI, it is a simply straightforward calculation, say on a project, how much money am I giving a project in average, what am I being paid in profit for that capital being given to the project. So, if you’re renting money to the job, what are you being paid on top of that rent when they return that working capital to you?

If you look at ROI, you know, to use numbers, let’s say that you’re giving a project an average of $100,000, that’s you know, after paying your labor and equipment and subcontracts, and material, you know, your average investment in the job is $100,000. If your profit is $5000, your ROI is 5%. Certainly, that number is not good enough for any contractor given the risk factors that we have. Contractors typically really look at 20% and 30% as the minimum they need to have to take on a job. Some contractors have driven that number to 40% and that’s because they’ve been very smart about their work practices, their financial practices, their estimating practices. Some have gotten higher than that. The point is that if you follow ROI instead of the old rule which was backlog and gross margin, you follow ROI as your determinant of a good job or not good job, you’ll be much better served.

I firmly believe that every contractor in this country at the age of 60 or 70 or 80 wants to be financially independent. I don’t know about anything else but I know each of us wishes not to have any dependence on the government or our relatives and ROI is the way to get there.