Contractors, both primes and subcontractors, are slashing prices in a desperate attempt at staying in business. They will take work at practically any price to get just another dollar of revenue. Never mind that this attitude is hastening them into oblivion.
The market today is rife with contractors taking work at pricing that is too low! They are bidding work that is 30% to 40% below their cost. What does this mean? The immediate effect is that some suppliers, subcontractors or employees are not going to get paid in full for their supplies or services. The state or federal government may not get their taxes.
These contractors are ignoring a basic business fact – a profit is needed to stay in business, not just to grow a business! Sure they can cut costs.
- They can hire staff and craft for lower costs but what happens? Contractors hiring lesser qualified people because of the low wages. Higher wages attract better qualified people. What person is likely to go to work for a firm that is not making money? I would again say it is not the higher qualified people. They would like the ability to continue with a firm that is going to be in business.
- They can cut expenses by purchasing used construction equipment rather than new. But this equipment tends to have higher operating expenses than new equipment. Equipment can be rented but it takes cash. These cuts in the expenses can deplete the resources at a higher rate that not cutting costs. What about if the equipment that may not be the right piece for the task at hand? Productivity will be lost.
Lower revenues, lower qualified personnel, poor equipment is not a recipe for success in the future. Contractors that find themselves in this death spiral would best serve themselves and the industry by closing their doors – now. Don’t prolong the agony or try to postpone the inevitable.
