There Are No Windfalls Left

We know our business is a tough one. However, it has not always been that way. A time or two ago, material prices were stable, people wanted to work, the economy was steady and legal/political issues were a minor concern.

We all have worked as labor in the field. Some of us remember how fun it was. Loud music playing on the radio, our shirts off, and after work time was ours. What happened? In the decades since, we have moved up in our responsibilities thus less fun. However more to the point, the business has changed.

Our industry has increased its demands on us in our quest to make a profit. There are no windfalls left. We don't have the luxury of naive competitors. More information is available to more people. The internet is one cause. More educational outlets is another. Hence clients, peer contractors, and suppliers have increased their sophistication. They know our business deeper and the job of building work better. To them, construction contracting is more transparent and that leaves us with less opportunity to make a profit.

Lets' look at the changes that have occurred in the last 30 years or so. These points are compiled from several groups of contractors at different times. They were asked what has changed in the last 3 decades. See if you agree.

Rising Age of Workforce - The average age of foremen has risen to 47. No one is replacing them. As a witness to that fact, the average age of a construction apprentice rose to age 27. Less people want to be in our industry. The young people are seeking another career first and then working in construction. The replacements are not coming. This has made the average age of field managers rise.

 Declining Quality of Construction Documents - Designers work under price pressure from owners / developers. This price pressure forces intense cost / labor management. To make a profit, less time by experienced design people is spent on plans and specifications and thus details and clarity are not there. Frustration by the contractor is the result.

Fast track schedules - Years ago this was a new concept, now "Fast Track" is a standard expectation. We are starting to evolve into "Flash Track" (our term) schedules and it borders on the ridiculous.

Material availability - Between the shortages and the decreased amount of stocked material at suppliers' warehouses, this is another change that is negative. Material logistics are a greater concern than ever. If you don’t have the material, you cannot install it.

Restrictions/Red Tape – Bureaucratic demands on contactors has risen to an all-time high. Permitting, OSHA, Environmental, and client paperwork requirements make office work more demanding. 

Technology - it took this country 30 years to exhaust "800" numbers and then 3 years to take up all "888" numbers. Wireless, internet, software, and the like were not standard equipment three decades ago.  They are now.

Design/Build - The advent of Design - Build Construction is a welcome change. More project control by one organization. Contractors are glad to take over. However, some liability issues are a concern. Contractors have had to go back to school to learn this new way of contracting.

Risk - With more change and demands by others, there is more risk in contracting than ever before. Add to that price (profit) pressure and again, the opportunities are limited.  The law of repose or extended construction liability time has not decreased. This make all projects built years ago still a business risk to construction firms.

Workforce - less American high school graduates and more immigrants work in construction contracting. It is a different workforce and this will not change. The language and custom of other countries is the norm on the project. We have to gear up and learn to be cosmopolitan.

Competition - There are three times the number of contractors than there where in the 1960's. The inflation adjusted dollar volume has stayed fairly constant. That speaks loudly about the lack of profit opportunities. This translates into more bidders on projects and more headhunters of your employees.

The contracting business will some day settle down and become more predictable. We can't say when that is but when it happens, it will be welcome change.

The disciplined contractor will survive. The undisciplined ones will struggle and become extinct. Processes and people make up the construction business. Tighter construction procedures and careful hiring/mentoring is the key to a predictable future.

For more information on this critical subject, purchase a copy of my McGraw-Hill book, Managing a Construction Firm on Just 24 Hours a Day. We offer a bundle with Excel templates that are featured in the book and 5 on-line courses to help teach construction business concepts. Go to www.stevensci.com and click on the book link

Our workbook companion with 10 case studies is titled, The Business Managment Workbook for Construction with Case Studies is now available.This text is focused as an assist for Colleges, Associations and Contractor Training Programs that teach the business of construction.

My next book, The New Business Model of Construction Contracting is planned for December 2007. Its focus concerns the changing construction environment and what processes address those changes.

Matt Stevens is President of Stevens Construction Institute, Inc. A management consulting firm which works only with construction contractors. Learn more at www.stevensci.com. Take a free course at www.constructioncbt.com and sign in as a new student.