In a struggling economy, contractors must choose jobs more carefully

Construction contractors often determine their project pipelines far in advance, but with the struggling economy, contractors must be more cautious about choosing jobs, according to

“Construction margins are so tight right now that one bad project can ripple across to others and inflict lasting damage on a company,” said Courtney Davison, a senior tax manager at Baker Tilly who has worked closely with construction companies for more than a decade. “Contractors need a system to decide what work they can and should take on and cost-mitigation techniques that will give them a cushion if a project starts to go awry.”

Years of a strong construction market led to some contractors’ margins on projects being as low as 1.4% before the COVID-19 pandemic, which means contractors are operating with little financial flexibility. If a project becomes unstable, a contractor may not be able to cover its costs with profits from other projects.

Davison said if contractors can work with longtime clients who are willing to negotiate a price, they should be able to preserve a higher margin than if they participate in a hard-bid process against other contractors. Contractors also can attempt to take on more projects within their expertise in terms of geography, size, asset class and type; Davison said 80% to 90% of a contractor’s pipeline will consist of jobs similar to ones it has done before. Contractors also should speak to their lenders and insurers to ensure their underwriting and loan covenants have not shifted.

The industry’s labor shortage also may be a reason for contractors to choose their jobs carefully; they do not want to commit to future large projects and then lack the skilled workers to follow through. Davison encourages contractors to focus on retaining valuable employees by investing in their workers’ advancement and company culture; working to keep employee compensation and benefit plans competitive; checking in on employees’ mental health; thanking them for their hard work; and providing emotional and financial support for those who are struggling.

Date : Jan. 01, 0001


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