As 2012 comes to a close, it is important for construction companies to step back and analyze where they stand and determine where they need to be in the immediate future. Introspection is often easier than looking forward, but the latter is more important to implement a strategic market position and take advantage of the slowly improving economy.
2012 is considered the fourth year of the downturn in the construction economy. The total value of construction starts for year-end 2012 is projected to be 23 percent below that of 2008 levels, and is not expected to exceed those levels until 2014, according to McGraw-Hill Construction data.
Despite shrinking margins and the lack of work and local government funding available, bright spots for some segments of the construction economy are emerging. Some construction industry segments such as manufacturing and health care are growing for the first time in several years. FMI Consulting reports that the number of construction projects valued at $1 billion or greater has increased from zero in 2005 to more than 100 in 2011. An increased number of large projects has a multiplier effect on the construction marketplace.
If contractors that were forced to cut overhead and become more efficient to compete can align their resources around their customer strategy, they will be well-positioned to take advantage of the improving economy. Outside consultants may be necessary for some companies, but most contractors likely already have substantial capacity or significant expertise available from their existing CPA firm and surety, agent or broker.
Contractors must move from focusing on cutting costs and reducing overhead to strategically identifying and delivering value-added services for customers. Contractors must look at their past successes, examine market and customer niches, and identify what unique competencies they bring to owners and customers. For example, some contractors have developed unique skills and attributes to complete work more efficiently than competitors. Others have equipment, personnel or geography that supports their ability to deliver work on time and on budget. Identifying strengths also necessitates examining weaknesses and avoiding projects that do not fit with the firm’s unique competencies.
Building collaborative, strong relationships with a surety and a professional surety agent can aid this process. Construction companies must carefully choose these relationships based on the total value these parties bring to the construction firm, not on low cost.
A professional surety agent and CPA can add value far beyond writing surety bonds and preparing financial statements. Because they are connected to other well-managed professional contractors locally and nationally, they can introduce a customer to potential joint venture partners that are a strategic fit to their customer’s capabilities and corporate culture—which can be the difference in securing new work that otherwise would be out of reach.
They also can introduce a customer to qualified subcontractors. The availability and performance of subcontractors often is the difference between a project’s success and failure. Sureties and surety agents work with subcontractors every day and can be a significant help with this vital decision. Additionally, the surety team can provide valuable advice about the risks of dealing with certain owners, how those owners deal with risk and how those owners may try to transfer that risk to construction firms.
The risks and pitfalls of the construction marketplace are difficult under the best of circumstances, but a properly selected surety, agent and CPA can add significant value as construction firms seek to take full advantage of opportunities going forward.