Compete on Price to Get Construction Work by Reducing Overhead
Ways to reduce your overhead and to lower your prices and win more work.
Q:
We are a design-build mechanical and electrical contractor specializing in commercial projects. It is getting tough to land any new work in our area. Over the last 10 years, we have focused on doing work for a few general contractors who gave us plenty of negotiated work. We are known for our service and quality. Now, even these good customers are getting more and more bids on every project. There are often up to 10 or more bidders and some of them aren’t qualified to do the work. I have met with my customers, but they tell me they have no choice. What should we do?
William Dougherty
WD Services
A:
In order for general contractors to get their share of the small amount of available work, they are now competing on price instead of their reputation. The customer is in charge and demands an extremely low price. Unfortunately, your old negotiated full-service, design-build approach will not get you much work now. In order to compete in this new market, you will have to lower your costs of doing business. You will not need as many design engineers on staff because most jobs are now bid per plans and specifications. I recommend you get your key managers, superintendents and foremen together for a meeting to explore how you can reduce your overhead by 50 percent and your field installation costs by at least 25 percent.
Cutting your overhead involves taking a hard look at your fixed expenses. As your revenue decreases, look at what can you do without. All those “nice to have” comforts must be eliminated as you change how your company operates in the future. Reducing your field production costs will make your bids more competitive. Look at how you operate in the field and if your field employees are currently motivated to work faster to meet the productivity goals. Develop a scorecard to track manhours for each task you perform against the budget. Then, create an incentive for the crew to meet or exceed the goal.
Construction Business Owner, August 2010
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