About Southwest Capital Group
Professional Risk Management Services
Southwest Capital Group exists to help you achieve your goals! Construction contracting is by its very nature risky, often due to poor information, inefficient processes, sub-par subcontractor performance, or lack of working capital! SWCG works every day to minimize risk by providing you the information and capital necessary to succeed. Please see below for more detail on our products and services.
Why Us?
We are here to help you build with peace of mind by providing the financial resources necessary to fairly compete for construction projects.
Our core values mean that we keep our word, you have online access to all project records and there are never any hidden fees, and we treat everyone with respect and dignity.
Construction Management Software
SWCG provides customized construction management software to provide YOU with the information you need to make decisions and manage your business! See Demo!
Funds Management
Funds Management is a way to assure lenders, surety, owners, developers, contractors and subcontractors that funds intended to pay bills for a specific project are used for that project, at a fraction of the cost of a payment bond!
Outsourced Accounting
Outsourced Accounting (outsource all bookkeeping and financial reporting to SWCG), so you can focus on your core business: building great thing!
Subcontractor Underwriting Services
We are professional underwriters! If this is not your core business, consider outsourcing the underwriting function to us. We will provide you with a detailed report to help you make one of the critical decisions regarding what subcontractors to use on your next project.
From Southwest Capital Group
Risk in the Construction Industry
As every construction professional knows, the construction industry is risky! When people think about reducing risk, their first action is typically putting in place an insurance policy. There are many risks such that insurance is the appropriate response, including liability for accidents, life policies on key individuals, or theft and fraud insurance to protect from employee malfeasance. However, these only scratch the surface of construction risk.
The most common second thought is bonding, to protect from performance and payment risk. This can be helpful to owners (or in some cases GCs if they require subs to be bonded), and the very reason most public projects require bonds. Bonding typically does not lower the risk to contractors paying for the bond! Plus, surety bonds are not insurance, and act simply as a credit enhancement. Contractors that default on a bonded project are contractually required to pay back the surety, thus there is NO reduction in risk to the contractor.
There are countless risks that cannot be covered by insurance and can only partially be eliminated by contractual language. Some of these risks include underbidding a project, delays caused by other parties, cost overruns due to inflation or supply disruption, subcontractors not meeting expectations, misuse of trust funds by subs, inadequate information systems needed to make timely decisions, underperforming back-office support, lack of working capital, and many more! Of course, small construction contractors are most susceptible to these risks.
The best ways to manage these risks are to proactively manage the business. Large organizations have teams of estimators, underwriters, experienced project managers and financial executives, and full information technology departments. Fortunately, there are many third-party services to support small contractors.
Most small contractors would not be in business if they were not capable of doing the actual construction part of their business, and many may be even exceptional at one or more of the other business tasks, such as estimating. Very few, if any, are exceptional at every business requirement! Augmenting the team with third-party experts is a viable way to reduce risk. For example, lawyers can review contracts to ensure you are not taking undue risk due to contract language. In addition, there are many companies that can create estimates or review your estimates to verify accuracy prior to bid submission.
Cost effective construction management information systems play an important role in mitigating delays and cost overrun risks. Timely information can assist in proactive management, by requesting additional time or change orders for increased cost. Waiting until the end of the project to bring up delays, additional scope concerns, or cost overruns will typically be met with complete indifference to the contractor’s difficulties! However, when addressed immediately, with proper supporting documents from suppliers, change orders can be negotiated in a spirit of cooperation. The right CM system can store all the relevant information, as well as provide reports showing delays or variances between estimate and actual costs.
The information system must be able to track schedules to manage self-performed work as well as the progress of subcontractors. The likelihood of mitigating risk from subcontractors increases the earlier problems in their performance are detected. Time is the only way to correct performance issues that can be handled with additional resources! There are cost effective CM systems available to assist with project tracking and decision-making requirements.
Other risk areas include the company’s back office. Does the small business have the accounting expertise to provide the timely processing of vendor invoices, pay applications and lien notices? If not, there may be significant delays in receiving funds needed to survive. If not, there may be no recourse if the GC or owner does not pay. Third party bookkeeping and virtual CFO services can reduce the risk of underperforming back-offices.
Further, selecting subcontractors requires underwriting expertise within the small contactor’s business. Subs will often bid on projects beyond their expertise or their financial ability to perform. Proper underwriting of subcontractors is a critical risk mitigation task often overlooked by small contractors. At times, a larger GC can recommend appropriate subcontractors, or firms that specialize in construction contractor underwriting can provide professional reports on the subcontractor’s ability to perform a project.
One major risk is the misuse of project funds. State’s trust laws require that all funds, paid to contractors, are used for project expenses and appropriate overhead costs. Use of funds from one project on another project is strictly against the law, and there are many people in jail right now that can testify to this risk. Funds management programs can significantly reduce this type of risk. All project funds go through a third-party escrow account, and the third party is responsible to review the paperwork (such as actual vs. budget and payment to vendors working on the correct project) to ensure funds are used for project expenses. Owners, sureties, and GCs often require funds management to minimize payment risk. Funds management has the additional benefits of being an early warning system when budgets get out-of-line.
Working capital is an often-overlooked risk. More small contractors are destroyed by a lack of working capital than any other issue. As payment terms are stretched longer and longer, the requirement for working capital has been increased. Today’s project can sometimes require more than 90 days of cash on hand from the start of mobilization to the first pay application being paid! This can be an insurmountable hurdle for small contractors. Further hampering working capital is the reluctance of banks to provide asset-based loans to contractors.
Unlike other industries, the trust laws that support contractor payments, require funds to be used to pay vendors and subs before debt is repaid. Most banks don’t want to manage Accounts Payable as well as track Account Receivable, so they just don’t lend to small contractors. Luckily, factoring is a viable option for contractors, from experienced construction focused working capital providers. By selling the receivable to the factor, and the factor’s careful use of proceeds to support the project’s labor and vendor expenses, working capital can be safely provided to small contractors.
July 12, 2021
The results of the 2021 SWCG Commercial Construction Survey are in!
The first question, on the main issues facing the industry, the results were clear. The 'rising cost of materials' was the main issue for most responders, with 86% overall and 100% of GCs selecting this issue. Note 73% of the responders were GCs and 27% Sub-contractors (with 27% of responders not specifying their company type).
The ability to 'hire skilled labor' was the second most common response, with Subs being much more likely to have an issue with finding skilled labor. The third most common response was a 'delay in project start dates'.
Please see all the responses to this question to the Left:
The second survey question was 'what was the biggest issue facing the commercial construction industry'. The consensus was clear, the rising cost of materials and scarcity of skilled labor were the two top issues! Over 90% of the responders cited these two issues as the most concerning. Only two other issues, project delays and poor profit margins even received responses from the entire list of options (see prior post for the full list).
While it was consistent for GC and Subs, as one might expect, Subs when often providing all the job materials, are even more concerned about the rising cost of materials. Over 80% of Subs responded the cost issue as the most important. The higher response from Subs is even more evident when looking at how projects get completed by contractors.
78% of General Contractors responded that they primarily sub-contract work while only 6% self perform. Compare that to Subs, where 57% responded that self perform most work. 23% of responders indicate that they split self perform and use Subs equally.
In the third and fourth questions of the 2021 Commercial Contractor Survey, we asked two key questions. First, has the rising cost of materials affected start dates. We had heard anecdotal indications that this was true, and we wanted to collect data to verify. It is clearly an issue as 7 in 10 contractors responded that project have been delayed due to rising costs of materials.
The second question was related to hiring small and disadvantaged sub contractors. 2 in 3 contractors said they would like to hire more small/DBE firms. The inference is they have not been able to up to now. This raises the question as to why more small and minority contractors have not been hired in the past. What needs to happen to make hiring more small/DBE firms a reality? We will explore these issues more in the next Commercial Construction Survey planned for Q4 2021!
May 21, 2021
There are tremendous challenges today for General Contractors, and Subcontractors alike, during these uncertain times. For those contractors able to continue to work, getting paid, a challenge in the best of times, is taking longer than ever. Skilled labor has been in short supply for some time, but now, maintaining even back office staff is presenting new challenges since so many workers are forced to stay home by government ordinance, or to care for children home from school!
We can help! Southwest Capital Group provides Working Capital Accounts Receivable Factoring, and access to Contract Surety Bonds through our bond brokerage business. In addition, we offer construction contractors a robust outsourced accounting program that provides the following functions:
- Full Outsourcing of All Accounting Functions
- Accounts Receivable/Accounts Payable Posting & Tracking
- Daily Accounting
- Work in Progress Preparation
- Cloud-based System for online access by Contractor to all Reports and Dashboard
Through the use of our system, contractors are able to gain access to both working capital and surety bond capacity and increase their capacity to work on both commercial and public projects.
Please contact us immediately to learn how we can help!
April 10, 2021
Earl Harper on Covid-19's Impact on Construction
Our very own Earl Harper was the feature speaker and put together the presentation for DARE CAPITAL's recent webinar.
Here's the presentation for those of you who missed it.
DARE says they will do another one soon!
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