How To Evaluate A Construction Company

How to Evaluate a Construction Company: 8 Key Areas to Focus On

In this blog, I’m going to walk you through how to evaluate a construction company in meaningful ways to determine whether they deliver high-quality work, run their business effectively, and are profitable. These three pillars—quality, business effectiveness, and profitability—are essential to the success of any construction company. We’ll also dive into the core systems they need to have in place to support these metrics. If that interests you, keep reading!

I work with construction companies regularly—it’s what we do. We consult with businesses, operations, and projects on a project-by-project basis. We’ve had the privilege of working with some of the best in the industry, and I absolutely love it.

Now, I’m not here to weigh in on why you’re evaluating a company—whether you’re considering purchasing it, investing in it, or maybe even working for them. But whatever the reason, this evaluation process is important. Let’s get started.

1. Experience and Reputation

The first thing you want to check is the company’s experience and reputation. What projects have they completed, and how do they speak to the company’s stability and ability to deliver? Also, check their reputation in the market—this will give you an accurate picture of their reliability and performance.

2. Licenses and Certifications

Next up, make sure the company has the proper licenses and certifications to do the work. You wouldn’t want a company without the necessary certifications taking on a complex design-build project, right? Make sure their team has the right knowledge base to deliver the work at hand.

3. Insurance and Bonding

You’ll want to verify that their insurance is current and that they are properly bonded. This is key to ensuring legitimacy and protection for all parties involved.

4. Financial Stability

Evaluating financial stability is crucial. Look at their credit score or financial statements if available. While I’m not giving specific financial advice here, it’s important to check that they are hitting revenue targets, maintaining healthy profit margins, and have solid cash flow, reserves, and contingencies.

5. Project Management and Communication Systems

A construction company’s project management systems are vital. You want to see evidence of a standardized process, supportive software, and clear communication across all departments, teams, and projects. Communication is the backbone of every successful operation.

6. Quality of Work

Inspect the quality of their completed projects. Are they delivering a product that meets or exceeds expectations? Look for warning signs like callbacks, warranty issues, or disgruntled customers. Quality is non-negotiable.

7. Safety Record

Check their safety record, including their total recordable incident rate, experience modification rate (EMR), and any OSHA reports. A solid safety record is a great indicator of a well-managed company.

8. Legal Disputes

Lastly, check whether the company has been involved in any legal disputes and how they’ve handled them. This will give you insight into their integrity and how they resolve conflicts.

Core Systems for a Healthy Construction Company

Beyond the evaluation, there are a few key systems you need to see in place to ensure the company is truly healthy and capable of delivering high-quality projects. These systems will tell you if they can deliver what they promise.

1. Project Planning

A company’s ability to plan its projects is one of the most critical factors in determining its success. There’s a great book called “How Big Things Get Done”, which covers project planning in-depth, as well as a book we’ve written called “The First Planner System”, which dives into the lean and operational components needed for successful project execution.

The truth is, most projects don’t go wrong—they start wrong. A solid preconstruction process, a knowledgeable team, and a commitment to detailed planning are essential.

2. Production Planning & Scheduling

Production planning is a key driver of success. Your production plan precedes everything—it enables financial health, quality work, safety, and much more. If a construction company doesn’t have a reliable production planning system, they’ll struggle to maintain profitability.

We recommend the Takt production system for effective scheduling and production planning. A strong indicator of a company’s health is their scheduling method. Beware of those that rely heavily on outdated methods like CPM scheduling.

3. The Last Planner System

Finally, evaluate whether the company uses the Last Planner System to engage with their trade partners and manage boots-on-the-ground operations with superintendents and foremen. The Last Planner System is key to creating a lean, visual project management process that keeps everything on track.

Conclusion

To wrap up, those are the 8 key areas to evaluate when assessing a construction company, along with the core systems that will tell you if the company is built for long-term success. If you want to dive deeper into any of these topics, check out the resources, including “The First Planner System”, “The Takt Planning Book”, and “The Lean Builder”.

These are the key tools that will help you in your evaluation process. Thanks for reading, and happy evaluating!