by James Benham
November 2, 2011

General contractors today are experiencing the most challenging economic environment in a generation. The tightening of the economy leaves construction projects grinding to a halt or shelved indefinitely.

Figures recently released by the federal government found that initial construction of U.S. homes in September fell to a 17-year low. One recent article, in the Sarasota Herald Tribune noted that "Construction of single-family homes-the bulk of the housing market-were at a rate so low that one would have to look back to February 1982 to find a comparable figure."

Other reports have been similarly bleak. According to recent construction industry data recently reported in The Wall Street Journal , the value of new construction projects will fall to $515 billion in 2009, down 7 percent from 2008 and 25 percent from its peak of $690 billion in 2006. Cutbacks in the construction of hotels, office buildings, warehouses and factories will lead the decline.

The story also reported that nonresidential construction-which had remained fairly strong in comparison to residential- "will drop 10 percent next year to about $220 billion. In terms of square feet, the country will build 12 percent less nonresidential space-including stores, offices and warehouses-than in 2008."

In other words, the construction industry is facing a significant and prolonged contraction, and it will be necessary for general contractors to adapt in order to survive.

Adapting "Digitally:" Getting Lean, Doing More with Less

In challenging market conditions like these, winning competitors need to "create their own luck" by creating efficiencies that not only cut costs, but also optimize complex processes.

In the construction industry, the estimating process-labor intensive, time-intensive and data-driven-is a key battleground for general contractors (particularly when involved in tenant improvement bids, which require extremely fast turnarounds).

By moving to an entirely online, digital communication and plan delivery process, contractors can save time previously spent manually processing paperwork, printing and mailing out invitations and plans. Needless to say, cost savings are also significant, particularly since a general contractor may have 15,000 to 50,000 subcontractors at any given time.

One business that has been realizing significant operating and cost efficiencies is Dallas-based DAVACO, a provider of retail services, specializing in the quality management and execution of high-volume rollouts, retrofits, resets and remodels.

"Migrating to a digital platform has not only helped us dramatically cut costs, but has helped us become much more nimble throughout the bid response process," said Jerry Zemanski, director of cost management at DAVACO."

Many developers and owners are moving from negotiated work to hard bids-and the pressure on general contractors to produce more estimates has never been greater. This pressure is compounded by the fact that many construction companies now have to produce more of these estimates without having the luxury of immediately adding professional staff.

"With the latest generation of online technology, we're able to work much more efficiently with our network of subcontractors," added Mr. Zemanski. "New technologies don't charge subcontractors to work with us online, which allows a much greater level of participation-and ease-during the estimating process.

"In addition, new contacting filters allow us to be totally precise, so that we can narrow down subcontractors based on their location or particular specialties. This provides us with more and high-quality proposals, and therefore a better chance at winning the projects for which we're bidding."

He continued, "As important, the savings in printing costs, electronic downloads and man hours is major. We've realized savings of $28,000 this year just by eliminating printing costs, and each proposal now requires literally hundreds fewer phone calls to subcontractors. By factoring in the savings from eliminating FedEx and other shipping costs from the estimate process, the financial benefits have been significant."

In fact, larger general contractors who have moved their estimating operations online are already realizing cost savings of, in some cases, hundreds of thousands of dollars annually.

Value of Moving Online: The Proof Is in the Performance

General contractors who have moved their estimating operations online are at a distinct competitive advantage in today's tight market. And with general contractors across the nation expecting a marked decrease in new projects, the benefits of such competitive advantages become clear.

By bringing the estimating process online, general contractors greatly improve their chances of producing winning bids and spending less.

Producing winning bids, especially in a contracting market, is the sole metric of success-and survival-for today's general contractors. 

 

Construction Business Owner, January 2009