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We all know the construction industry is facing tough times. We have all heard the comment, “When the going gets tough, the tough get going.” That’s great but what do we need to do to get going?

First I would suggest the industry stop whining about how poor the construction economy is. That does nothing except get people upset. Instead, people should focus on the fact that the United States construction market is still a $753 billion industry according to May figures. That’s plenty of work for any contractor. The question is how do you get your share at profitable rates?

Let’s start with the profitable part first. Look at your company’s vulnerability. Are you avoiding taking work too cheaply? Are you taking work from people who might not pay? In other words, you need to requalify your clients. Manage your cash flow. Do everything you can to reduce your costs. However, that doesn’t mean cutting manpower to the bone. One of my clients reported increased company profits despite less work and being forced to accept lower fees by assigning more people to project preplanning. Preplanning eliminates problems and increases profitability. You should always be doing this, but in this market, it’s essential. Are you managing your logistics? By properly managing your logistics, you can save up to 20 percent on the cost of your supplies; that is significant at any time, but today it’s huge.

To compete today we must focus on adding value. Again, this is always the best approach, but today it is essential. If you are in a highly competitive bid market, it still applies. Another client that happens to be a road builder has higher than average earnings as a general contractor. I was surprised to see those kinds of figures from a contractor that is forced to bid competitively for its work. They explained, “We only bid jobs where we have a competitive advantage because we can add value to the process.” His competitors have to add money to their bids because they can’t do what he can, so his cost is cheaper. On top of that, he then adds extra profit because he knows he can get it. We need to do everything possible to lower costs because by lowering costs, you increase value. However, there is a huge difference between lowering your cost and just lowering your price. Cost is what it costs you; price is what you collect. If you lower the cost enough, you can increase the difference between cost and price and make a higher profit.

The key to this aspect of the process is to think how you can do it better, not cheaper. Better in this content is equal or better quality for less cost. The biggest obstacle is the attitude that we can’t reduce costs. It’s amazing what can be achieved when everything is on the table. Toll Brothers reduced a house’s cost from $170 per square foot to only $100 per square foot. One project built the most energy-efficient office building in North America at the 25th percentile in cost with technology that was at least ten years old. Stop arguing that the other guy can do it but our situation is different. You need to tailor the idea to your specific situation. Otherwise, that attitude will drag your business down in this marketplace. Only those that are innovative will survive.
The flip side is doing more for more. Obviously in this marketplace this is a harder sell than normal, but there are still people out there who are willing to take advantage of this opportunity. Studies show that only about 27 percent of consumers are totally price driven; that means 73 percent are value conscious. The problem is if they don’t understand the value proposition, they will take the lowest price because that appears to offer the best value. It’s your job to explain your value proposition.

However, sometimes you can give the client more without costing more. Three contractors were bidding on a factory. All three of their first prices came in over budget. Two of the contractors went back to their offices to value engineer the design. The third thought that was a waste of time. He hired a lean manufacturing expert to go through the client’s factory. He came back with a report that said the client didn’t need 100,000 square feet; he needed 90,000 square feet. This resulted in a huge construction savings, but it also increased the factory’s operating profits going forward by making it more efficient. The point here is that contractors need to stop thinking of themselves as builders; they need to think of themselves as providing solutions that require construction. Construction is what they do, but it’s not where they add the greatest value.

To sell value, you must understand what is important to the client. If the schedule is absolutely critical, then prove to the client you can deliver the project on time. If risk of poor quality or cost overruns is critical to the client, then prove to the client that you can deliver in that area.
If you are going to compete on value, you must reprioritize your opportunities. You should be chasing only projects where you can add more value than your competition. Anything else is a waste of your time because you will not win the project.

One major obstacle to competing on value is dealing with the client’s personnel who care about only the lowest project cost. When you sell value, you must speak with the “C” level people because they have total responsibility for the bottom line, not just the project cost. A perfect example is when Schuff Steel proposed changing a concrete design to a steel structure on Steve Wynn’s Venetian hotel because it would save six months on the schedule. While construction costs increased by $20 million, the revenue for Wynn increased by $480 million due to the earlier opening. It became a steel building.

The greater the competition, the greater the need to focus on value because trying to do it cheaper in such a hypercompetitive marketplace is a formula for disaster. You can’t take work at below your costs for very long, but if you can lower your costs or convince a client to increase his budget, you have created opportunity.