Tips for Contractors to Avoid Predatory Software Providers with Chad Pearson
Though the construction industry has been slow to adopt tech, one of the most common technologies being harnessed by contractors is software. Adopting new software, though, can provide some interesting challenges. How will this integrate with our current systems? How will we manage all these platforms? Are we making a good investment?
The Briq team was lucky enough to sit down with Chad Pearson, who gave us insight into how contractors- specifically subcontractors- can avoid being taken advantage of in this rising and competitive construction software market.
What trends have you seen most prominently in the last year with regards to construction software, that contractors should be on the lookout for?
“Admittedly, my perspective might seem a little dark and dismal compared to most trends lists. Every leading ConTech publication lists accurate trends that are wicked ass awesome. They make me feel like we are going to be living a Star Trek like lifestyle. I love it.
I tend to look at things differently and I think it’s because of my background…
In my former career as a Police Officer, an infallible truth I learned was that wherever you find opportunity, you find honest people serving others, and dishonest people serving themselves at the expense of others. So, when I look at the immense opportunity in trends, my training compels me to focus on the underlying predatorial trends that hurt us.
For example, the fastest growing predatorial trends are unfair subscriptions, which is an imbalance of rights and obligations that can include a lack of transparency of total cost to onboard, misrepresentation of products and service, and no reasonable options for cancellation without penalty.”
“Consider this: Subscriptions were meant for products like magazines- like Netflix or Amazon- where subscribers enjoy instant value as soon as they subscribe. Subscriptions were not meant for complex software that requires labor intensive set up with no guarantee of adoption.
People would never pay subscription fees to magazines, Netflix, or Amazon, if the articles, movies, and distribution centers were not ready for them as sold. For some reason though, subscriptions for complex construction software that does not come ready to perform as sold, has become a trend in ConTech.
Investors behind the explosion of mergers and acquisitions successfully applied subscription models to complex products in order to create spreadsheets that present attractive predictable profit margins in an industry that is unpredictable and struggles with margins.
This predatorial trend hurts the industry, as it shifts 100% of the risk of adoption onto contractors, while investors collect subscription fees and maintain certainty in their financial projections. Like the scales of justice, balance needs to be restored through fair terms and obligations.
The following 3 terms help restore fairness to subscriptions:
- Define ‘go-live’ and defer subscription fees until the software is live (see more on this below)
- Establish a fair cancellation policy without penalty
- Ensure software partners provide detailed plans for adoption, including a complete list of tasks, commitments, milestones, skills and hours required
Being aware of, and supporting progressive trends, will enhance the performance of all of us. Also, being aware of and protecting each other from predatory trends will enhance the performance of all of us, faster and more effectively.”
Chad, you’re known as an advocate for specialty contractors not over-investing in technology. What are a couple of ways you advise contractors to evaluate software or evaluate their agreements with software companies?
“Yes we’re huge advocates of protecting and serving the trades. That’s part of the genesis of #buildTRUTH.
Specialists have excessive granular transactions that many construction software providers do not handle wel,l because their products were designed for generalists or a wide scope of industries.
The core problem here is misrepresentation in the sales process and unfair agreements that enable software providers to use ‘escalation of commitment’ as a strategy to keep contractors handcuffed to them after contractors realize they were misled.
Escalation of commitment is when you feel you’ve put so much time and effort into something that you must stick with the bad decision. It’s a human pattern of behavior that some software providers, who knowingly mislead specialty contractors, rely on to keep customers.”
We are trying to stop this practice, and we recommend specialty contractors apply the necessary safeguards to protect themselves.”
SAFEGUARDS AGAINST CLOUD CUFFING:
“This is similar to unfair subscriptions but has an additional risk. Cloud-cuffing is when software vendors charge license or subscription fees before the client is LIVE but ALSO INCLUDES keeping client data hostage in order to extort additional payments from clients in future.”
“Include the following into your agreement to protect you from cloud cuffing:
- Software vendors shall defer subscription fees and/or licensing fees until the client is ‘LIVE’ on related software. Here is an example of how to define ‘LIVE’. (This example is for construction accounting software):
LIVE is defined as when the following critical milestones are achieved:
- AP payments are paid through software
- Payroll runs (and/or) Payroll service export is completed through software
- Client is posting to the GL
- Entry of historical AIA/progress billings details to enable accurate retention billing
- Software vendors shall ensure that lifetime user licenses granted in the agreement are grandfathered into ANY future agreements, or end user license agreements that and updates that are accepted by the client.”
SAFEGUARD AGAINST SMOKE STACKING:
“Smoke-stacking is when software vendors oversell the level of integration of products in a tech stack and charge additional fees to improve integrations as well as fees to maintain integrations when they break with updates.
This is a massive problem in the industry. Unscrupulous construction software vendors are using labels such as ‘open systems’, ‘open API’ or ‘software ecosystems’ in ways that suggest specialty contractors will have plug and play level integrations for their segregated systems and spreadsheets ‘at the level of granularity’ specialty contractors require.
Even worse is when software providers purchase technology companies, re-skin them as their own, and misrepresent them as being able to seamlessly integrate with the rest of their products.
This practice is like buying a TV, radio receiver, dvd player, external hard drive, and an android box from different manufacturers, re-skinning them all under one name, connecting them all with cables and calling it a Smart TV. It may have all the same features but it sure as hell isn’t a Smart TV. In fact, the mess that re-skinned bolt-on products creates here is what gave rise to the SmartTV disruption.
The industry still must go through some steps before seamless ecosystems are possible for specialty contractors. If I was a betting man, I’d bet that current tech providers are not going to solve this problem and that conversations in groups like CPC (Construction Progress Coalition) and CURT (Construction Users Roundtable) will.”
“Include the following into your agreement to protect you from smoke stacking:
- Software Vendor shall ensure integrations between relational software are integrated to the level sold in sales demonstrations with no additional set up or support fees, as well as no additional fees for keeping integrations compatible with updates to any of the relational software.”
SAFEGUARDS AGAINST R&D REDIRECTION:
“R&D redirection is when software vendors collect similar fees from all customers in all industries while functions and workflows mostly benefit a core group of customers (common when subcontractors use software primarily made for general contractors).”
“Include the following into your agreement to protect you from R&D redirection:
- Software vendors shall ensure fees related to enhancements are aligned with the demonstrable value delivered to specialty contractors over the previous 3 years of the product's release notes as it compares to value delivered to general contractors and/or other industries.”
SAFEGUARD AGAINST OVERAGES AND OVERRUNS:
“Software vendors can undersell the complexity and cost of deployment which often results in overages of 200% to 400% of the cost on contract, as well as multiple schedule overruns.
Include the following into your agreement to protect you from overages and overruns:
- Software vendors shall provide a complete deployment plan with GMP (guaranteed maximum price) for all commitments required for a successful GO-LIVE.”
“And here’s a bonus tip: Contractors working with software providers who have gone through multiple rounds of funding or mergers and acquisitions should consider ‘negotiating rate increases IN ADVANCE’ for maximum increases for any given 5-year period. If you fail to do this, you run the risk of suffering random or annual price increases that do not align with added value."
So there are a lot of things specialty contractors really need to be on the lookout for in terms of protecting themselves. What do you think is the most important ROI consideration when contractors are buying or upgrading software?
“Onboarding! Onboarding is like a dance and ROI is like a good marriage. You may get your feet stepped on and have a few arguments, but you’ll succeed as long as you work together.There is a constellation of considerations for ROI but I find they all depend on 2 foundational requirements for the marriage to excel.”
“First, the software provider needs to stay in their lane. Marriages get rocky when one party misrepresents themselves or shifts too much attention to others. When the pressure to hit quarterly targets builds or other industries seem too attractive to ignore, partners can get tempted to do bad things.
These things can happen. Using our recommended safeguards above to negotiate fair agreements can help ensure this foundation requirement for ROI on ‘the software provider’s side is maintained.
Second, the contractor needs to mitigate the impact of price’s law.”
“What is price’s law you ask? Well, hang with me here…
Half of the dance and marriage is on the contractor side. The challenges of adoption and ROI are directly proportionate to the level of team cohesion- which price’s law helps identify.
Price’s law says the square root of the number of people in a group do 50% of the work, while the rest share the remaining 50%.”
Price's Law Examples:
- If there are 10 people in a group, 3 do 50% of the work while 7 share the rest of the workload.
- In groups of 25 people, 5 do 50% of the work while 20 share the rest of the workload.
- In groups of 100 people, 10 do 50% of the work while 90 share the rest of the workload.
“Companies with NO sign of price’s law should give themselves a kick ass HIGH FIVE! They’ll succeed with any mandate as their team is high performing. If that’s you, stop reading because you have prevented price’s law from infecting your company and there is little we can recommend.”
What do you suggest for companies that may experience the challenge of “price’s law”?
“For companies who DO struggle with price’s law, we recommend the following to expedite ROI:
Step 1: Identify those who do the lion’s share of the work. We call them ‘The Roots’.
Step 2: Focus 100% of the initial onboarding efforts solely on ‘The Roots’ while keeping everyone else (the laggards) status quo. This could be considered a phase 1 roll out.
Note: Sometimes you’ll have laggards in key roles and need to include them. The goal is to limit the number of laggards in Phase 1 as much as possible.
We strongly recommend weekly alignment meetings with executives and all key roots together, so any sudden gaps, new process adjustments, and threats to ROI can be fully addressed as a team before there is any negative impact to ROI.
Step 3: Execute a phase 2 launch across the company.
Some laggards are unethical people who should be let go from the team, but most are good people who simply have bad habits, bad behaviors, or bad leadership which results in bad behavior. (For many owners, this can be a good opportunity to look in the mirror).
Consistent, effective and ATTENTIVE leadership can help turn laggards into roots, and projects such as software conversions can be the catalyst for such evolution.
Again, we strongly recommend weekly alignment meetings WITH executives and key leaders.
People are the wildcard in ROI. Inspiring, coaching, and leading those who are contributing to the negative impact of price’s law to become more productive team members can be the single most effective way to realize ROI.”
Thank you, Chad!
The Briq team would like to thank Chad Pearson for chatting with us, and sharing his kick-ass, expert insights.
Briq is the first data analytics platform built specifically for construction. We help contractors use their data to drive better outcomes for all phases of construction.
Using modern technology such as automation, machine learning, and predictive analytics, Briq helps to stop fee erosion, freeze overhead costs and provide better financial outcomes for your business. Contact us for a free consultation to find out how we can serve you.
