Virtually every sector of the construction industry is going through some level of downturn or anticipating a downturn in the future. This may be a good time to thin the herd for the good of the industry. It is already happening. The Razor-Thin Margins article at ENR.com illustrates the thinning has begun. This thinning may be just what is needed in the construction industry.
In good economic times there is a tendency to build up contractors that don’t fail in spite of themselves. They usually bid the margins lower than their competitors. They may make money, but not enough to cover “responsible” business objectives. They may have bid below the market rates by mistake but still make a profit because profit margins were good enough to cover most of the mistakes at bid time. While demand was high this could work. Demand is now low, the bidders do not have the luxury of making mistakes in their bids but they still do.
This leads to another thinning of the herd. Demand was so high that the construction industry had to hire lesser qualified personnel. This ranged from CEO’s that directed the lesser bid margins or elimination of training, to project managers that could not manage a project, to clerical help that could not file. It even carried over to craft workers. Yes, even with laborers doing shovel work there is a right way and many wrong ways to use a shovel! This system worked during the high demand period as long as there were enough profits to cover the mistakes or areas that could be cut, like training or support services.
Right now, the economic conditions are such that a thinning of the herd is occurring. Perhaps it is time for some contractors to call it quits. Perhaps it is time to sort out some personnel that should be in other careers.
This is a natural selection process that the construction industry has been through many times before. It can improve the survivors. We will go through it again. Who knows, it could even hit me!
