Contractors Must Tighten Belts, Stay Flexible to Survive the Recession
To Joseph Marois, the most difficult part of running a business during a deep recession is minimizing the pain for everyone.
Our goal is to maintain our workforce, said the president of Marois Construction in South Hadley. We feel that we owe it to our people to try to make sure theyre not laid off. They have families, and theyve been good to us.
But thats not easy at a time when a shrinking job pool, combined with a surge in competition from increasingly desperate bidders, many from outside the region, have combined to push profit margins way down.
The bids right now are marginal in terms of profits, Marois said. Its very competitive. Were getting quotes with upwards of eight to 18 bidders from all throughout Massachusetts, Connecticut, New York, and Vermont. We dont usually see all that; normally theres three or four bidders on a job. Its kind of depressing.
Its an account being told and retold throughout the Pioneer Valley as contractors try to stay afloat amid continued economic turmoil, a time when private companies and public agencies alike are pulling back on new capital projects and reducing opportunities for builders in all niches.
So instead of asking them to repeat this litany of hardship its certainly not a new story BusinessWest asked area builders a different question: how do contractors slog through such tough times? After all, theyve survived recessions before. In most cases, the answer is as simple as watching every penny until the dollars start rolling in again.
Carol Campbell, president of Chicopee Industrial Contractors, said shes not doing anything that most others in the industry arent also doing to minimize the current fiscal pain.
Were tightening our belts in every possible way, she said. Theres not a line on our income statement that we havent assessed, which continues to cause a ripple effect. We have cut costs, we have eliminated any non-essential purchases or programs, and our main focus, when spending money, is on the training and support that allows us to provide a better product and service to our customer. Otherwise, if a purchase is not job-related or a required improvement in the services we are providing, the purchase is being delayed.
Marois mentioned similar cutbacks. Weve taken some vehicles off the road, he said, and initiated other ideas to dramatically minimize our costs and overhead.
Meanwhile, Associated Builders in South Hadley has also been taking a close look at containing costs. Its been a difficult but necessary process, said Peter Wood, the companys director of sales and marketing. For starters, the firm has closely examined the number of hours its trucks and other equipment are in service, making sure resources are properly utilized and not used for busywork. And the cutbacks dont stop there.
Normally, like everyone else, we implement as many cost savings as we can in the company, Wood said, whether thats reducing the number of employees due to the amount of work or looking at energy consumption making sure that we have all the proper efficiencies, not leaving lights on, anything that has to do with energy use.
Energy efficiency is a common way to save costs, although it sometimes requires some investment up front in new materials or equipment. But with green business becoming an important consideration for companies across all industries, Campbell said, its something builders should be looking at anyway.
Our driving force, now as before, is energy efficiency and green initiatives, she said. Certainly the cost savings on our electric bill make the investment something I can justify.
In addition to cutting costs and seeking such efficiencies, many contractors say maintaining diversity in the types of projects pursued can be an effective hedge against a downturn.
We do both public and private work, Marois said. We dont have one niche right now; we bid anything.
At the same time, Wood said that contractors need to understand their strengths and not panic and chase jobs that might not fit their business model.
We try to stick directly to our core values, which is how weve tried to do business for the past 35 or 40 years, he told BusinessWest. That means looking at projects that fit our business profile strictly design-build, using our in-house engineering and architectural services.
Were broadening our area; we may be looking at going a little farther geographically from our base, looking at projects we might not have looked at in busier times, he continued, but we always keep in mind that we have a successful business plan and a reputation for not trying to do things weve proven not to be as competitive at, or are out of our realm of expertise for instance, public work, schools, bridges, etc.
According to Wood, companies that go far outside of what theyre good at for the sake of chasing down a few dollars are the ones least likely to survive a recession.
Were fortunate even in down times, when all contractors are struggling to maintain a level of profitability that we have a solid business plan and a consistent approach to how we do business, he said. Staying on the path of our business plan, though difficult, is allowing us to survive. It has allowed us to maintain a certain level of business that may not be seen across the board.
No End in Sight?
According to the U.S. Bureau of Labor Statistics, construction-industry employment has declined by 1.6 million nationally since the start of the current recession, with 53,000 of those job losses coming in December 2009 alone. What worries some builders is the idea that this period of belt-tightening and minimal profits might not end anytime soon.
I think this recession has some unique qualities that limit our ability to make a determination as to whats going to happen; its difficult to predict whether or not well continue to spiral downward, Marois told BusinessWest.
Were dealing with failures of large institutions, federal bailouts of an unprecedented nature, which is increasing our debt ceiling nationally, and thats causing confusion for business leaders and their ability to make sense of the whole thing, he added. Normally industry corrects itself, but unknown forces seem to be complicating that process.
Even if the economy does begin to rebound, he posited, builders wont reap the benefits until after businesses regain the confidence to tackle capital projects again and then proceed through architectural planning and the bid process.
From the time they decide theres some confidence in the industry, it could be three or four months before we got the job, and then two or three months before we started realizing an infusion of capital, Marois said. So the relief is not going to be immediate.
Until that relief does arrive, builders will keep grappling with those razor-thin profit margins, double-checking every budget item relieved that theyre not yet a casualty of an economic downturn that continues to be as unpredictable as it is destructive.
Joseph Bednar can be reached at[email protected]