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Business Management: Everything Under Control?

Contractors are finding their way through the disruptive COVID-19 pandemic.


Mark Nabity, CEO of Grayhawk in Kentucky, completed an ownership succession plan for his company in February 2020. Now, almost two years later and well into the COVID-19 pandemic, he says operations are under control. The succession plan is on track.

    

“Business has been good,” Nabity says. “But we lost some opportunities due to the pandemic, so there was a little shock initially.”

    

The lost opportunities included projects being put on hold and others being canceled. And, Grayhawk’s prefabrication operations took a big hit, at least early on.

    

“Projects we had commitments for, like hotels, just didn’t happen,” Nabity says. “Our prefab business fell off the table for six or seven months. Then, we started filling the hole with other opportunities.”

    

Of course, the challenges presented by the COVID-19, including long-term supply chain problems, may take time to resolve. That’s what we’re focused on here—the shortage of labor, the shortage of materials and the increasing volatility of building material prices.

    

“They are making a difficult job even tougher,” Nabity says.



Control Despite Challenges

Contractor confidence in the market’s ability to provide new business in the next 12 months is rising.

    

Nine of 10 contractors report having growth expectations for the year ahead, according to the U.S. Chamber of Commerce Commercial Construction Index, Q3 2021, report. In addition, the report pegs the average months of backlog at 9.4 months, a decent number.

    

For the past year, however, Association of the Wall and Ceiling Industry member contractors have seen material prices outstrip the input prices they have used for their bids, putting their bottom lines at risk.

    

“Construction materials costs remain out of control despite a decline in some inputs last month,” said Ken Simonson, chief economist at the Associated General Contractors of America. “Meanwhile, supply bottlenecks continue to worsen.”

    

Such problems have been further compounded by COVID-19 distancing regulations—now standard on many government and health care projects. And as always, a shortage of labor makes it hard for subcontractors to staff their projects.

    

The AGC newsletter, Data Digest, reported in late October that construction employment still had not recovered from a February 2020 peak in construction employment. According to Simonson’s analysis of Bureau of Labor Statistics data, seasonally adjusted construction employment in September 2021 trailed the February 2020 level in 35 states, exceeded it in 14 states and the District of Columbia, and was unchanged in Connecticut.

    

Does this suggest that wall-and-ceiling-industry crew deployments are out of control in most states? Not according to AWCI leaders contacted for this article. Their firms are responding in stride to today’s challenges. They are finding ways to adjust.

    

“We have always said that it benefits production to get crews to separate and work more one-on-one, instead of always needing a helper to just stand there and hand you something,” says Chip McAlpin, AWCI immediate past president and division president of the Jackson, Miss., and Louisiana offices of F.L. Crane & Sons. “Social distancing just helped us to implement it—what we call, One Man Per Task.”

    

The One Man Per Task program has helped F.L. Crane to work more efficiently, McAlpin says. It allows the company to achieve the same level of quality with a lower crew count.

    

Finding ways to work with fewer people on a job site is important these days—if not for the bottom line, certainly for the general contractors who are strict about pandemic distancing and other regulations.

    

But, what happens when crews won’t wear masks or get vaccinated?

    

“It hurts. When someone tests positive, you lose them to quarantine, or the whole crew may be exposed and shut down for 10 days,” McAlpin says. “It was horrible to manage when the pandemic began, but it seems to have settled down in our location.”

    

One help with the crew management process is more GCs showing themselves to be understanding.

    

“We have an excuse,” McAlpin says. “A few years ago, if we didn’t have people to put on a job, we’d get some nasty emails and letters. Now when we can’t get a crew on site, we have a legitimate reason—COVID-19.”

    

McAlpin adds: “The biggest threat right now is bidding jobs that may require vaccinated-only employees. A job that will not allow unvaccinated employees will cause us trouble because not all of our employees are vaccinated. We’re in central Mississippi.”



Control of Materials

Once the pandemic ends, and we don’t know when that will be, managing volatile material prices could remain a part of doing business.

    

“We’ve had the perfect storm of the pandemic and natural disasters—flooding, freezing and hurricanes—that have affected raw material manufacturers and product availability,” Nabity says. “Eventually those problems, you would think, will go away as the supply chains get repaired. But, the problems may be more frequent than they were in years past.”

    

Some in the industry have suggested a material price indexing system to help reduce the impact of volatile prices on bids. Is there a need for that kind of protection, and could it be organized?

    

“There’s certainly the need, but there is not much willingness out there to accommodate,” Nabity says. “General contractors are not allowing escalation clauses, and I’m not sure that we as an individual contractor have enough clout to operate on an index base with a manufacturer. As a group, in a concerted effort, you might swing some of that, but I don’t see it happening right now.”

    

Nabity speaks frankly, and to the heart of the matter, in saying that recent supply chain issues have challenged long-standing business relationships.

    

“The relationships we’ve had for decades with manufacturers didn’t do us much good,” he says. “I mean, their hands have been tied, because they’ve had trouble getting steel coil.”

    

“But often we don’t have control,” Nabity says. “There’s absolutely no adjusting the bid price. We bid eyes wide open, and we listen to what our suppliers tell us about pricing. But they’ve changed the rules. The price is the day they ship the material. So, in many cases we are putting steel orders in months and months earlier and stocking that material to protect our availability and our pricing.”

    

McAlpin says F.L. Crane also orders materials sooner than actually needed on projects.

    

“In the past, we may have shorted the order a little bit because we knew we could get it in a couple of days,” McAlpin says. “But that’s not an option now. We have to order earlier and with better planning.”

    

However, ordering material earlier doesn’t necessarily mean receiving it sooner. Rather, it means having to adjust how the crews work.

    

“Placing the orders earlier means we don’t get the field measurements we have gotten in the past,” McAlpin says. “If the metal stud we need is 11-foot 6 inches, we might order 12-foot studs and just cut it on site.”

    

Will F.L. Crane stock greater quantities of cold-formed steel and drywall to meet its project demands?

    

“No, we will just order material earlier,” McAlpin says. “We have always inventoried for the quick jobs. We just weren’t prepared when the availability changed from four days to 14 weeks. Next time, we’ll be more prepared.”

    

“But it won’t be more inventory,” he adds. “If we had one bundle of something all these years, we’re not going to start inventorying two bundles. We’re just going to start ordering one more often.”



Control Through Education

Some AWCI member contractors believe training is the key to maintaining control of the business during these challenging times.

    

Shawn Burnum, AWCI president and vice president of operations at Performance Contracting, Inc. in Kansas, says the key to having control is to invest in people.

    

“As management invests in training and developing talent, you spend dollars maybe you haven’t historically spent, but your people learn how to get up and running and do the installations and deliver a quality product,” Burnum says.

    

With the current labor shortage and as pandemic-related regulations for job sites spread, Burnum says it’s important to help individual workers become better at their jobs.

    

“I love to find ways to make someone better versus trying to find another person,” Burnum says.

    

At a strategic planning session held in July, several AWCI thought leaders representing contractors, distributors and manufacturers split into teams to answer the question: Where should AWCI be putting its efforts?

    

“At the end of the day, the groups had developed virtually the same script on what to do,” Burnum says. “That shows there is strong alignment in AWCI about what we should do.”

    

One recommendation that came from the July meeting involves plans to get more members invested in the association.

    

“We want to push the tools AWCI has to get more technical training further down into organizations,” Burnum says. AWCI already has a lot of educational content ready for business leaders and management, Burnum says. The goal is to develop content that appeals to more individuals within member companies.

    

For example, Burnum would like to develop AWCI’s safety programs to reach a greater swath of safety directors, superintendents and foremen.

    

“Drywall carts sometimes tip over. Is there a better tool we can use?” Burnum asks. “What if our safety folks hammered that out? That would give us all good information and create another touchpoint for members to participate in the association.”



Control of a Succession Plan

In 2020, when Nabity signed on his new partner, Grayhawk President Bill Ford, he sold a 49% stake in the company. Did the COVID-19 pandemic affect the agreement?

    

“It’s progressing through a five-year buyout nicely,” Nabity says. “Bill is probably ahead of schedule. We’ve been profitable enough that it has allowed him to do pretty good things in paying off his notes.”

    

Despite business being put on hold, and some projects being canceled, Grayhawk ended 2020 in the black, Nabity says. Business was good this year, and he expects 2022 to be positive for his business.

    

Maintaining control during the pandemic is challenging. But most AWCI member contractors have the right perspective.

    

“We’ve gone through this little cycle where the ability to perform is rising back to the top of the decision chain,” Nabity says. “For general contractors, it’s not all about the lowest dollars, but about the best value.”

    

He adds: “We went through a period where low cost drove things. But [sub]contractors who low-balled work got into trouble. They didn’t have labor or material, and prices escalated. Now, we’re back on top.”

 


Mark L. Johnson writes for the wall and ceiling industry. He can be reached via linkedin.com/in/markjohnsoncommunications.

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