In the construction industry, many projects begin with some amount of mobilization costs. Mobilization expenses include things like transportation, fuel, equipment rental, initial materials and tools, etc. Historically, construction companies have often included these initial mobilization costs in the overall job cost and factored those into their percentage of completion calculations for each project. This approach, however, is flawed because it doesn’t accurately represent the real costs of preparing for and commencing work on a project.
Instead of utilizing this approach, construction businesses can improve efficiency by executing an effective project mobilization plan and clearly accounting for those costs in the project contract. Including a mobilization fee or percentage into the project contract is one way to accomplish this. However, if customers aren’t willing to front-load their pay apps with these upfront costs, it may be best to simply include them in the schedule of values at the time of first progress billing.
This is a great idea because it will help construction business owners communicate the value of these initial startup expenses and why they must be paid up front. It also helps prevent the frustration of being unable to meet performance marks for a project because the construction business hasn’t had a chance to get their equipment and team in place. This is a common problem for newer construction companies that aren’t used to managing their cash flow during the planning and mobilization phases of projects.