How Construction Contractors Can Succeed Despite Labor and Materials Shortages
Economic instability from the COVID-19 pandemic continues to disrupt the construction contracting industry. Staffing issues, materials shortages, price volatility, and inflation are conspiring to make this a difficult spring. When these factors cause delays on the job site, they further cut into a firm’s profitability.
Creative Workarounds for Material Procurement
Dealing with these challenges has required contractors to get creative with workarounds and problem solving. To help alleviate the uncertainty around procurement caused by supply chain disruptions and material price volatility, some owners are implementing strategies such as:
- Obtaining purchase orders before contract negotiations are complete and holding the completion date open until they receive materials
- Reusing pieces of equipment that they would normally discard, such as old doors and lighting fixtures, and sourcing materials locally
- Manufacturing their own materials such as steel molds and custom joists to lessen reliance on premanufactured materials
- Adding escalator clauses to contracts to protect profit margins if material prices rise drastically
- Requiring a significant down payment and using the funds to order necessary materials in advance
- Proactively forecasting material needs and then buying materials in bulk and stockpiling them until they’re needed
- Expanding their supplier base by building relationships with potential new suppliers
It can be helpful to reframe the conversation from a contractor problem to a project problem. This can help foster a collaborative mindset with clients and subcontractors toward addressing these kinds of challenges.
Employee Recruiting and Retention Strategies
The construction industry lost more than one million workers during the height of the pandemic in 2020. Though it had recouped nearly 80 percent of them by the middle of last year, it’s estimated that the industry will need to hire an additional one million workers over the next two years to keep pace with demand.
Here are some recruitment and retention strategies:
- Adopt a hybrid work model. After having spent much of the past two years working remotely, many employees have no desire to go back to a traditional office environment. Some contractors that have implemented hybrid work models are seeing improved productivity, faster response times, and more flexible employee availability than with a traditional office model.
- Offer in-house apprenticeship programs. The best employees often want to learn new skills to advance their careers. Look for opportunities to train employees so they can grow with your company, not with one of your competitors.
- Take care of injured employees. Worker’s comp plans usually don’t start until after the first week of affected work and only pay two-thirds of the full wage. You can set your company apart by offering wage continuation to affected employees, along with benefits like telemedicine and transportation for rehab and doctor’s visits.
- Offer a competitive compensation package. It’s difficult if not impossible to recruit and retain the best employees if your compensation is lower than what your competitors pay. Do some research to determine what kinds of comp packages (including salary or wage, health insurance, bonuses, and vacation days) other contractors in your area are offering so you can make sure yours is as good or better.
Meet the Challenges
Unfortunately, there’s no telling when supply chain and labor issues will return to their pre-pandemic normal. Yet thoughtful efforts to minimize disruptions, streamline your operations, and make your business more nimble will pay off in the long run, no matter what the future brings.
Dembo Jones has decades of experience helping construction contractors navigate economic and industry upheaval and meet the challenges. Contact us today to take advantage of our experience in industry benchmarking, cashflow analysis, and proper tax planning.