Is This Really Possible In Construction?
The economists call the recession that is underway a “cleansing” recession. This is a polite way of saying “thinning the herd” of the weaker firms or putting the poor business operators out of business. But is a cleansing recession really possible in our industry? I would like to think it is. A recent conversation with another estimator is giving me some second thoughts.
We were discussing the difficulties in bidding for the past two to three years. Work is being bid at or under cost. The cleansing effect was brought up due to these practices. My counterpart stated that it was impossible to get rid of the poor business operator. Thinking I was the bright one I said, “Oh Yeah?”
Well his point was each poorly run firm would continue until they had to get out of their market or out of business. There would be a multitude of reasons – unprofitable projects to unsuccessful in bidding. A swift analogy would be for a home builder to liquidate their holdings in bad times and start building decks where only the tools of the trade and a pickup truck were required. Once the times started getting better it would be back into the former market they served – likely under a new name but following the same old practices that got them out of the market in the first place.
Another point was the employees that are laid off from companies oftentimes start up their own companies. These start out with a pickup truck and the tools. While many of them may be excellent craftsmen, they can be the worst businessmen. Too many do not have the education or knowledge to determine what a billing rate should be for their time and equipment. If they make enough for a living, they are content. Never mind making enough for a business to succeed or that profit is not a dirty word. These then put pressure on the low end of the market, forcing companies to move up or get out.
The companies that move up may bring the same poor business practices in to the next larger market. A break even approach to bidding will not keep a company in business. These business operators and firms must learn that it takes profit to stay in business.
Oh, By the Way… The late Peter Kiewit always liked point out his company’s projects and say they were paid to build it. He was not in the business to pay the client to build his project. His company has succeeded since 1884 by following this practice!
