The Bottom Line is The Bottom Line
This past year and a half we have all been subjected to a stress test. We have been trying to keep ourselves and our loved ones safe from one of the deadliest viral pandemics in human history. We are struggling to understand the first insurrection in America (we just don’t have such things in our democracy) that attacked our capital building and unsettled us about the future of our country. Suddenly we’re learning the hard way what a “supply chain” is and wondering where all our workers have gone? Are they at home? Have they left the country? Are they working for the competition? Did they win the lottery? Our jobs are slowing to a crawl, and profits are evaporating in the delay. I see a lot of construction professionals leaning back in their chairs, wondering – “Where do we go from here”?
In the past, recovery has always meant an increase in revenues. We survive troubled times by getting the next job. With the President signing a $1.2 trillion infrastructure bill that will deliver $550 billion of new federal investments in America’s infrastructure over five years, touching everything from bridges and roads to the nation’s broadband, water, and energy systems, we will be inclined to take the same course of action. Many are thinking that this new work will lift us out of this pandemic disrupted market.
Now, while I agree it is good news for the construction industry, I caution it is not salvation. $550 billion over five years is not as much as the politicians like to make it appear when you factor in the size of the US construction market at around $1.36 trillion as of the end of 2020. The top three companies alone, Turner Corp., Bechtel, and Fluor, did a combined $38 billion domestic in 2020. So, $100 billion a year is positive, but it is not everyone’s salvation.
Bottlenecks in the supply chain leading to material shortages, unexpected and dramatic materials cost inflation, and skilled labor shortages are not problems that will be solved by an increase in revenues. In fact, an increase in revenues at this time and under these conditions may exacerbate our problems by increasing costs and slowing down job completions. These market conditions force a strategic adjustment.
Now is the time to shift our focus from top-line growth to bottom-line preservation. Traditionally, construction professionals have sought solutions by growing their companies out of problems. If a job was slowing down, costs increasing, and cash tightening up, most would go out and find a bigger job to revive cash flow and kick the can down the road. In this unique post-pandemic environment, however, this tactic will not work because the problem is not the top-line but rather the bottom-line. Adding more delayed unprofitable work will eat cash, not supply cash.
The Bottom Line is the Bottom Line
My research indicates that it is going to take at least two years for this post pandemic marketplace to stabilize. In the meantime, survival will depend on our ability to preserve capital by protecting the bottom line. It is time to shift our focus to:
- Attempting to negotiate new projects (and to the extent possible projects in progress) to account for unexpected material inflation and labor shortages. We need to try to convince owners to face this reality together rather than making believe the problems do not exist or will evaporate shortly. Denial on the part of either party will only lead to litigation down the road.
- Begin the process of converting fixed corporate office overhead to flexible overhead costs. I have written extensively on these techniques\ and the material is available on the website–https://simplarfoundation.org/blog/.
- Meet with sureties and bankers frequently to keep them informed of your business plans going forward as the economy emerges from this disruptive pandemic business environment.
- Engage with your skilled labor force more frequently to answer any of their concerns and reinforce their commitment to your company’s goals. You can stabilize your skilled labor force if they trust that you have their interests in mind.
- See the construction industry’s labor shortage as a long-term structural problem, not a short-term blip caused by COVID-19 or government stimulus payments. Acting now to recruit and train a new generation of skilled labor over the next five years will stabilize your company for many years to come.
I’m reminded of the poem by Rudyard Kipling that goes something like this:
“If you can keep your head when all around you
Are losing theirs and blaming it on you…
If you can trust yourself when all men doubt you
But make allowance for their doubting too…
Yours is the earth and everything that’s in it…
The rarest virtue among construction’s “men of action” is patience. Be patient and let this unstable market play itself out.
Nest Week: Builder or Businessman.
For more information on the bottom line and its importance during these times, read more at: https://simplarfoundation.org/?s=bottom+line
For a broader view on retaining employees, read more here: https://simplarfoundation.org/?s=employee+
To receive the free weekly Construction Messages, ask questions, or make comments contact me at email@example.com.
Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.