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| Eight survival strategies for construction contractors |
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| Email Stories - August_2010_CTSOnline | |
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Perhaps the old adage, “If it doesn’t kill you, it will make you stronger,” aptly applies to contractors working through this economic downturn. Contractor’s Tool Source editors visited with leading construction economists and asked them for advice on weathering the icy and dreary 2011 economic forecast: They suggest you: Compare your work and profitability to 2003. “If you were making money in 2003, you should still be able to make money in 2010. Look at your cost of overhead, types of jobs you were doing then and compare it to what you are doing today. It may indicate areas where you may need to make adjustments,” suggests Heather Jones, construction economist at FMI. Rethink how you work. Public-private partnerships are gaining traction on highly complex and expensive projects such as mass transit construction. “This model may be adapted to smaller projects,” says Jones. Be careful in the business you chase. “Contractors continue to bid aggressively to land jobs, and long-term success will only come to those who base those bids on their low cost of doing business, not low bid to get the business,” says Jones. Bidding for jobs outside your area of expertise can be deadly, especially in this highly competitive market. “If you don’t have the expertise on staff to do that kind of work, hire someone who is if you are serious about entering that sector,” she says. Ken Simonson chief economist at AGC recommends that now is the time to truly focus on your core competencies and businesses. “Make sure you are not spread too thin. This focus can help you be the best and lowest cost contractor,” he says. Pitch remodeling jobs. Anirban Basu, chief economist at ABC, says contractors may be able to create work by approaching building owners with plans to upgrade and remodel existing buildings that can make their properties more attractive to prospective tenants. “This takes some market research to understand what tenants in your local market. For example, tenants in the San Francisco area want ‘wow’ factor; Miami tenants want improvements that increase efficiency and lower costs.” Build your business relationships. Even if your banker continues to say “no” to projects, now is the time to build that relationship so there is a strong foundation when work turns around, says Basu. “The same is true with your bonding agent or company. Get to know each other and learn where there are opportunities and limits.” Re-evaluate your payroll. “Now is the time to aggressively manage labor costs. Make sure every employee deserves to be on the payroll. There should be no underperformers. When times are good, most contractors are reluctant to do this, but now it is imperative. This is also a good time to attract the best and the brightest from the competition .If you can identify an unhappy and talented person who is a good fit with your operation, now may be a good time to make a move for them,” Basu says. Consider mergers, strategic alliances or acquisitions. “Diversification or alliances may help contractors survive. Partnerships with others can help you leverage your expertise or location,” says Simonson. Basu also believes this is a viable strategy. “Now is a good time to explore mergers or strategic alliances with other firms. This has worked well in other industries. For example, if a smaller or niche contractor has a good reputation and another contractor has a great back-office system, there may be some synergy in an alliance or a merger that can help both contractors. This can minimize costs, decrease overhead and improve economies of scale. If you can increase productivity with a strategic merger, you can increase profitability,” Basu says. Leverage technology and trends. While contractors will be likely to shun capital purchases in technology in this economy, now may be a good time to learn what’s available and how it may help reduce business costs. Green building techniques and LEED certification are not going away, especially on publicly funded projects, says Basu. “Working on green/LEED certification and identifying labor-saving techniques now should pay you back in the future,” he says.
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