There’s a threshold of backlog work that can make it seem as if you’ve made it into the big leagues. The number varies for every contractor, but when you hit it, you feel like a million bucks. And maybe your backlog is worth a million bucks – or more. That’s a huge milestone, and should be celebrated, but it’s not time to stop looking forward and building your pipeline. Here’s why.
Success Can Lead to Complacency
If you’re feeling flush with cash and content with the amount of work you’ve got lined up for the next few months, you could be at risk of relaxing a little too much. That multimillion-dollar backlog of yours is a precarious beast and can give you a sense of false comfort.
Don’t give in to the temptation to claim your company is too “covered up” with work to continue bidding. Now more than ever, construction projects are rife with risks, and with thinning margins, small mishaps can lead to large problems.
Mistakes Add Up
If any areas of the project were missed during preconstruction, those lucrative jobs could end up costing you instead of lining your pockets. One or two missteps can be recovered, but when the impact of past errors meets a situation in which no new work is starting up, your cash flow can dry up, leaving you vulnerable to layoffs or even closing your doors.
Supply Chain Woes
Globalization has left us all dependent on many factors out of our control, and construction isn’t immune. When it becomes difficult or impossible to access the materials you need for the job on time, someone has to cover the added costs for scheduling delays. If you haven’t covered your bases in your terms and conditions, you might find that someone is you.
Spikes in Material Pricing
Sourcing issues, increasing demand, and labor shortages affect not only availability of materials but also their raw costs. If your bid represents material costs from six months ago but prices have skyrocketed now that it’s time to order, again, you might be the one footing the bill.
Severe Weather, Illness & Other Catastrophes
You might have a force majeure clause in your contract, but how much will it cost to defend it in court? With increasing frequency and severity of natural disasters, continuing fallout from a global pandemic, and any number of other potential threats to the safety and security of jobsites, risks are becoming even more inherent in construction, even if your team does everything right.
Risk Mitigation Tactics
The above list might sound dire, but construction is not all doom and gloom. There are plenty of actions you can take to mitigate the risks.
Construction remains an industry often powered by who you know. Make it a point to stay on positive, familiar terms with GCs you’ve worked with in the past, attend trade shows and other events to extend your network, and build those relationships so your name stays on preferred contractor lists for upcoming work.
Expand Your Financing Options
Traditional bank loans can leave contractors in the lurch with long repayment cycles. You can look at bigger projects if you have the cash to fund them, so seek out financial institutions with construction-specific programs that let you pay for materials upfront and have cash on hand for other expenses.
Make Your Precon Precise
One way to avoid errors is to improve your preconstruction process. Adopt a takeoff and estimating platform that enables more accurate measurements and that makes it hard to miss sections of plans. A user-friendly software will also make takeoffs faster, so you can take your time and make better bid decisions.
Look Farther into the Future
If you’re booked up for the next few months, look farther afield and seek out early-stage projects that aren’t quite up for bidding yet but that you can get involved in during the design phase or that you can keep on your radar when bidding season begins.
Just Keep Bidding
Implementing as many of these ideas as possible will help your company grow and succeed, but the most important thing you can do as a contractor is just to continue bidding. No matter what you do, you can’t predict every problem or added cost in a project, and you never know when you’ll need that next project to bail out the unprofitable job you’re finishing now. With no pipeline of new work, there’s nowhere to find the cash flow needed to cover yesterday’s struggles.
Never stop building the pipeline of new project opportunities so you can stay in the black. But not just to stay afloat – when you’re comfortable and not desperate is the time to hone your strategy, reach a little farther than you’ve done in the past, and really stretch for bigger, better projects. Now is the time to see where you can branch out, or how much more margin you can build into your bids with a little more attention to accuracy and detail.
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