Things to Consider in a Booming Economy
May 2006Can you believe this economy?
Unemployment below 5 percent and more work than you can even bid. How could there possibly be a black cloud looming over us? I don’t want to rain on your parade by being too pessimistic … but look out, I hear thunder.
Yes, the economy is great right now. And if you’re not making money during this time, you probably should consider going into a business that is unrelated to construction. I don’t know if we will ever again see times that will equal our current construction economy.
Unfortunately, the escalation of material prices is really heating up. Gypsum board has had an increase of more than 40 percent in the last six months and continues to climb. Acoustical ceiling products, steel and insulation prices are also rocketing upward. We have not even begun to see the effect Hurricane Katrina will have on the price and availability of construction materials in the coming months.
I would not be surprised if by the time you read this article, some of these building materials will be on allocation and will become difficult to get.
What should you do in times like these?
1) Make sure that you obtain job specific material quotes and use these prices in your estimates. I would not gamble by thinking you’re going to out-guess the supplier and use lower material prices to help you win the job.
2) Get price protection for the materials on your upcoming jobs.
3) Have language in your proposal (that will be incorporated into your subcontract) that states something similar to "Our bid is based on material prices as of the date of this proposal. Due to the volatility of material prices, we cannot provide a firm price until a contract is written and a specified date for material delivery is provided.”
4) Increase your markup above the percentage you would normally use.
5) Target your jobs. Try to pick a "cherry”—the job that looks like it has the most potential for your company to make a good profit.
6) Don’t take on more work than your company can handle. You could be putting your company in serious jeopardy if you don’t recognize that you are about to exceed your limitations.
a) You could tap out your labor supply and have to hire workers that are unproven.
b) Your supervision could get stretched too thin and become ineffective.
c) The lack of sufficient operating capital could keep you from paying your material bills, labor and taxes on time.
The "cherry” as mentioned in item 5 should be easily recognized by the seasoned estimator. This "cherry” is the negotiated project or one with invited bidders. Some items to consider are the general contractor’s expertise and pay record, quality of the documents, level of complexity, workable schedule and the level of efficiency you can expect. These jobs can and should be pursued when you have a sufficient backlog of profitable work and the availability of a top-notch crew.
Item 6 can only be left up to the management—the decision-maker in your company. It is up to this person to make sure the plate isn’t too full to enjoy a small helping of those delicious "cherries.” Bon appétite!
About the Author
Charles Mahaffey is president of Accuest, LLC, Marietta, Ga. Accuest provides estimating and consulting services for commercial drywall subcontractors.