Right now, it seems that the only constant in the construction industry is change. When you bid on a project, it’s hard to tell if you’ll be able to get the supplies and labor you need to finish, at the price you bid. Although it may feel like an impossible situation, it’s not uncommon to have to deal with unpredictability in construction. You have options to make it easier. Here are five ways that you can handle it.
Update Your Contracts
When you start a contracting business, you may invest time and money into creating contract language that you can use more than once. If you haven’t had a chance to update your contracts in the past couple of years, now is a great time. A regular state of unpredictability may make it harder to adhere to contract language that dictates that you follow a certain pricing or timing strategy. You may need to build in new terms that allow you to negotiate with the client when circumstances change outside your control. It’s a good idea to hire a lawyer to review your contracts.
Change Your Estimate Process
There are many ways of estimating costs for a client, and the one that you’ve been using may not be the best one for the industry at present. It’s common to set a flat rate for the cost of materials and labor, especially when the cost of either of these is unlikely to go up. But in this environment, your rate may turn out to be higher than you expected or far too low. If you want to avoid cutting into your profits because the cost of materials went up, you need to take a different approach. For example, some contractors set a markup based on the cost of supplies, which could be useful for projects you won’t be starting right away.
Order Materials First
Many businesses rely on a just-in-time inventory. This means that you order supplies just before you need them so that you don’t have to store them beforehand. Of course, when the price of those materials fluctuates dramatically, you may need to rethink the cost-benefit analysis of that strategy. It may be cheaper and less complicated to order the materials first, because you know what the price will be and you can take advantage of immediate availability. The price could always go down, but you don’t have to worry about sourcing supplies that suddenly become hard to get.
Be Realistic About Timing and Prices
If there ever was a time to give yourself extra room for completion dates and cost estimates, this is it. It’s common in construction to say that you can complete a project in less time and at a lower cost, as a way to secure a bid. Many businesses have done this, only to overrun the project in time and expense. While that can be annoying to clients under any circumstance, it is particularly irritating right now. If you have a habit of over-committing yourself, you should take a hard look at your methods and revise them. You may have to renegotiate a contract with a client, but it’s better not to operate as if you have no choice.
Choose Predictable Projects
There will be times when you can take on a challenge or stretch your business to meet the needs of a client in an unexpected way. If you try to do that now, you’re more likely to end up with obstacles that cause you to delay or even cancel the project. Instead, it’s a smart move to select projects that you know you have a higher likelihood of completion. Similarly, you may prefer to steer clear of projects that limit your options in terms of finding qualified workers or sourcing materials. Giving yourself the most flexibility makes it easier for you to make decisions that provide the best possible result.
The construction industry is fairly unpredictable right now, but that doesn’t have to make it impossible to run a business. To learn more about what you need to be a successful contractor, visit CSLS today!