{"id":5,"date":"2012-10-29T17:12:09","date_gmt":"2012-10-29T17:12:09","guid":{"rendered":"http:\/\/localhost\/working\/afpg\/blog\/?p=5"},"modified":"2019-06-03T21:44:34","modified_gmt":"2019-06-03T21:44:34","slug":"the-changing-nature-of-business-in-the-construction-industry","status":"publish","type":"post","link":"https:\/\/www.afpgusa.com\/blog\/the-changing-nature-of-business-in-the-construction-industry\/","title":{"rendered":"The Changing Nature  of Business in the Construction Industry"},"content":{"rendered":"<p>The nature of <em>the <\/em>construction <em>industry \u00a0is changing, <\/em>and a major <em>driving \u00a0<\/em>force for <em>this change is what is <\/em>often referred to as the <em>commoditization <\/em>of construction services <em>resulting in margin compression <\/em>for construction firms. <em>Whether <\/em><em>evolutionary <\/em>or <em>revolutionary in <\/em>nature, these forces <em>will drive <\/em>some contractors <em>out <\/em>of <em>business. Those who thrive in <\/em>the next <em>generation will <\/em>not <em>just <\/em><em>survive; they will <\/em>master <em>change <\/em>and <em>remodel \u00a0<\/em>the <em>industry.<\/em><\/p>\n<p>A few years ago, we heard everywhere about the &#8220;Perfect Storm&#8221; that had come down hard on the economy and tossed the ships of the construction industry around like so many toy boats. We sud\u00addenly &#8211; it seemed sudden, \u00a0anyway &#8211; learned the housing market was overbuilt, oversold and over\u00ad leveraged. We learned, whether we wanted to or not, about short selling, subprime lending, hedge funds, bundling, credit default swaps, margin calls, quants, derivatives and Ponzi schemes, all with the amazing abilities both to make money and to make money vanish into thin air. The bubble was so big, it covered the globe. Until it burst, most of us thought\u00a0 things were going well- we were in the &#8220;good old days&#8221; of the construction industry \u00a0In hindsight, \u00a0we were watching \u00a0the buildup \u00a0of forces that would unleash an economic tsunami, the Perfect Storm that left the Great Recession in its wake. If that was not enough, \u00a0there were real tsunamis, earthquakes and major storms to deal with that cost lives and the global economy untold billions of dollars, yen, Euros and Yuan. To this economic \u00a0epic, add political grandstanding and deadlocks, leading to even greater uncertainties in the markets and the future of global currencies and debt. Real-life experience in this economy seems more than enough to put action movies out of business.<\/p>\n<p>If the story of the beginnings of the Great Recession are starting \u00a0to sound \u00a0like modem \u00a0history, that is a good \u00a0sign. \u00a0Nonetheless, \u00a0we are still living through \u00a0it. The forces that ripped \u00a0through the economy \u00a0will continue \u00a0to reverberate across the globe for some\u00a0 time to come. The world is forever changed. Yes, there are signs that things are improving, but we still have continuing \u00a0high unemployment despite more people finding jobs. Banks are making loans again, but only to the best, lowest-risk customers with more stringent regulations and equity demands. The construction industry \u00a0has shrunk 30% or more since its highs in 2007 due to loss of employees and less avail\u00ad able work. Some companies have gone away; most have just gotten leaner and meaner in order to survive a highly competitive, tight market. The economic outlook calls for continued slow growth, in large part because most of the problems that made headlines in 2011, including the global debt crisis, as recent downgrades \u00a0of Euro-zone credit ratings indicate, are still with us in 2012. Global financial markets are still precarious.<\/p>\n<p>Owner \u00a0organizations \u00a0have also downsized \u00a0their internal \u00a0engineering \u00a0and \u00a0construction depart\u00adments to accommodate \u00a0more moderate \u00a0corporate expansion \u00a0plans as we discovered in the &#8220;FMI\/ CMAA Eleventh Annual Survey of Owners,&#8221; 2010:<\/p>\n<ul>\n<li>More than half of all owners say they expect to either resume hiring in 2012 (10%), 2013 or later (14%), or never (28%).<\/li>\n<li>28% of responding owners say they expect never to resume hiring. However, a significant minority do report plans to hire in 2010 (20%) or 2011 (22%). In the view of more than half of all owners, diminished staff resources are a permanent condition.<\/li>\n<\/ul>\n<p>The result is that owners expect greater support from construction service providers, and they want the lowest price possible. That often means changing construction delivery methods:<\/p>\n<ul>\n<li>55% of owners describe their approach to construction \u00a0execution as &#8220;most like design-bid\u00ad-build&#8221;.<\/li>\n<li>24% said they took &#8220;a blended approach,&#8221; and about 18% said their approach was &#8220;most like design-build.&#8221;<\/li>\n<li>For large projects, however, the dominance of design-bid-build \u00a0seems to be eroding, with only 47% of owners reporting using that method, compared \u00a0to 24% reporting a blended approach, \u00a0and 21% saying their approach was most like design-build. (Ibid.)<\/li>\n<\/ul>\n<p>For owners, it is a buyers&#8217;-market bonanza where purchase of construction services is beginning to resemble online purchasing, \u00a0like Amazon, Groupon\u2122, eBay\u00ae or even the Chicago Mercantile Exchange. The information \u00a0revolution has given purchasers more information than ever, and large owners are more sophisticated, with a ton of technology at their fingertips. Thus, there is growing pressure to look at construction as a commodity purchased on the open market for the lowest bid.<\/p>\n<p>Is it the future \u00a0of construction to battle it out in bidding \u00a0wars or to become another \u00a0product sold on eBay? Likely not in the near future, but there is a growing sense that the road out of the Great Recession will not land us back in some imagined &#8220;normal&#8221; state. The Perfect Storm and its aftermath \u00a0have changed \u00a0the course of the future for the world and for construction. \u00a0We are not going back to the market of 2007. There are a number of economic forces coming together to put increasing pressure on margins and, in many cases, change how construction gets done. Whether one thinks \u00a0of these changes as evolutionary \u00a0or revolutionary \u00a0is academic, but \u00a0to ignore change in favor of &#8220;doing what we&#8217;ve always done&#8221; is naive and dangerous \u00a0for a company&#8217;s continuing existence.<\/p>\n<p>The industry \u00a0upheavals \u00a0have put \u00a0a severe strain \u00a0on contractor \u00a0profit margins, \u00a0which in better times typically range between \u00a02% and \u00a05%. More recently, studies \u00a0have shown \u00a0sharp \u00a0drops \u00a0in profitability \u00a0for contractors, \u00a0approaching a meager 1% , and \u00a0negative numbers \u00a0becoming \u00a0more frequent. Those results are unsustainable for the health of the construction industry. The question at this point is not whether \u00a0or not contractors \u00a0will go out of business in this economic environ\u00adment, but how many and how soon? Then there is the other side of the coin; even in these tough conditions, there are contractors making money. How do they manage this counter-trend? For one thing, they are firms that are not content \u00a0to sit on the shore and watch the world go by.<\/p>\n<h2>Is Construction a Commodity?<\/h2>\n<p>Although we don&#8217;t expect to see construction procurement go the way of eBay anytime soon, there are already reverse auction sites for construction procurement. To say the least, this practice has not been endorsed \u00a0by major contractor \u00a0organizations. Savings to owners have not been demon\u00adstrated, \u00a0and there are a host of problems associated with the open-bid \u00a0approach. \u00a0Construction is different from products and services sold online. Most contractors, \u00a0and even most owners, would say construction services are not \u00a0commodities. \u00a0Buildings and \u00a0the construction process are too complex to be considered \u00a0commodities. \u00a0Construction is a professional service requiring different mixes of skills, capabilities and technical specialties that make each service provider unique.<\/p>\n<p>A commodity \u00a0is defined as a product \u00a0or service that is relatively the same no matter the source or provider. Commodities \u00a0are &#8220;fungible&#8221;; that is, one product \u00a0can be exchanged \u00a0for another. \u00a0Most commodities \u00a0are \u00a0traded \u00a0on \u00a0an open \u00a0market \u00a0where \u00a0the \u00a0price is largely decided \u00a0by supply \u00a0and demand. \u00a0(However, speculators \u00a0temporarily boosting demand \u00a0or suppliers \u00a0reducing output \u00a0until the price goes up can artificially influence both supply and demand, \u00a0for instance.)<\/p>\n<p>The contractor&#8217;s perspective includes the fact that each contractor \u00a0is unique with services dif\u00adferentiated from its competition. For instance, contractors \u00a0have different experience levels, safety records, abilities to get the project built faster, or better customer \u00a0relationships and communica\u00adtion systems, to name just a few areas of differentiation. The owner looks at the project and says, &#8220;Here are the bid \u00a0package and \u00a0drawings.&#8221; The contractor \u00a0that can deliver on the details of the contract \u00a0for the lowest price wins the job. That simple, \u00a0right? No, of course not, as anyone who has entered into a construction contract will tell you. Otherwise, \u00a0it might look more like a simple purchase order -x bushels of wheat at current market prices for May delivery:<\/p>\n<p>One major area of choice for owners\u00a0 with a project and contractors \u00a0offering services is seen in \u00b7 the area of delivery \u00a0methods. The \u00a0choices and \u00a0variations \u00a0of delivery \u00a0methods \u00a0have increased considerably \u00a0over the last two decades. If low bid\/design-bid-build appears to be more prevalent these days, it may have more to do with lack of information \u00a0or just the idea that owners are going to take advantage \u00a0of a desperate \u00a0contractor \u00a0market \u00a0and \u00a0push \u00a0for the lowest price. Multiple op\u00adtions exist, including \u00a0design-bid-build (D\/B\/B), design-build \u00a0(D\/B), construction manager (CM), construction manager-at-risk \u00a0(CM\/GC) with a guaranteed \u00a0maximum \u00a0price, or, the more recent addition, \u00a0integrated \u00a0project delivery (IPD). Optimally, the owner will make an educated choice to address the specific need.<\/p>\n<p>One of the reasons there are so many delivery methods available is that the more traditional D\/B\/B approach \u00a0was not yielding the desired \u00a0results. D\/B\/B has a tendency \u00a0to be contentious, \u00a0pitting owner against contractor \u00a0as one tries to outsmart \u00a0the other, often ending in court cases. This may not be the situation \u00a0with every D\/B\/B project, but the current cut-price \u00a0market has greater poten\u00adtial for contentious change orders, poor quality and unsatisfactory \u00a0results.<\/p>\n<p>Over the past few years, we have heard contractors and even some owners caution against blindly focusing on low price for construction. Responding to our recent survey on construction delivery methods, \u00a0one contractor \u00a0commented:<\/p>\n<p>Bidding has become stupid with contractors \u00a0pricing at extremely low levels. Why? To keep their men working and maintain cash flow.<\/p>\n<p>Owners are very aware that this is a good time to get the lowest price for projects, but some are cautious:<br \/>\nEveryone is doing more with less, less human \u00a0resources as well as lower profit margins. The economy \u00a0has produced \u00a0a great bidding \u00a0environment for owners relative to pricing; however, it does not come without \u00a0risks- mainly quality of work and subcontractor sol\u00advency A significant value is placed on contractor \u00a0pre-qualification with the hopes that the subcontractors selected\u00a0 will last throughout the project. \u00a0(Owner \u00a0Project Manager, large university system, responding \u00a0to the &#8220;FMI\/CMAA Eleventh Annual Survey of Owners&#8221;)<\/p>\n<p>According to William Terrasi, director, enterprise \u00a0project management, \u00a0DTE Energy, just getting more bidders does not assure getting the best contractor \u00a0for the job:<\/p>\n<p>You&#8217;ve got to be careful what you wish for. To put it simply, sometimes \u00a0you are exposed to a real gem that you never knew about, and other times you get a lot of pretenders, and we don&#8217;t need more pretenders. \u00a0Whatever \u00a0their niche was, they need to stay there. (FMI &#8220;Win\/Win Project Delivery&#8221;)<\/p>\n<p>Despite what most owners know by experience and, for many, what their favored delivery method would \u00a0be, we have found \u00a0more owners, at least temporarily, have returned \u00a0to something \u00a0more like D\/B\/B. According to our 2010 survey of owners, nearly 55% have gone that way for project execution. \u00a0(See Exhibit \u00a0l) However, when asked which construction procurement method \u00a0they used, nearly the same amount selected low bid compared \u00a0to select bid, and 29% still chose negoti\u00adated project procurement. (See Exhibit 2) These figures indicate that the majority of owners still recognize some differentiation \u00a0among \u00a0delivery methods \u00a0and contractors. \u00a0Low-bid procurement does not guarantee best value or even lowest price at project completion.<\/p>\n<p>The pressure from owners to treat construction procurement as a commodity continues in struc\u00adtures that are characteristically \u00a0not as complicated \u00a0to build, have more or less standard \u00a0designs and prototypes, \u00a0and many builders \u00a0have the capability and expertise to build them, thus making the market highly competitive. Examples include:<\/p>\n<ul>\n<li>Housing (residential and multifamily)<\/li>\n<li>Warehouses<\/li>\n<li>Chain stores\/retail<\/li>\n<li>Office buildings (excluding high-rise, skyscraper)<\/li>\n<li>Lodging<\/li>\n<li>Schools<\/li>\n<\/ul>\n<p>To say that \u00a0the above list more closely fits the definition \u00a0of a commodity \u00a0is to say all housing, warehouses, \u00a0etc., are the same or nearly so. However, building structures in each of these catego\u00adries can have a wide range of special designs and features. Owners can also have different needs, like scheduling concerns \u00a0or site requirements. \u00a0Some contractors \u00a0will be more experienced \u00a0and capable than others, depending \u00a0on the special requirements.<\/p>\n<p>Even those owners wanting to treat construction services as commodities when in the purchasing phase want unique \u00a0buildings, \u00a0something that sets them apart from the competition. \u00a0That&#8217;s the case for community schools and housing. Commercial owners want their buildings to be differen\u00adtiated from the competition \u00a0to offer their own unique \u00a0experience or support their brand in some way. But need and\u00a0 price can alter some \u00a0of these differentiators. Sometimes a good, serviceable building will suffice when a community is facing a sharp increase in student \u00a0population \u00a0without a significant increase in tax income. \u00a0A store chain may be able to modify vacant buildings to suit its needs. Companies \u00a0keeping expenditures low may decide that this isn&#8217;t a good time to build a building with marbled \u00a0halls and customized \u00a0offices. In tough times, owners may be willing to modify their needs and desires in order to get the building at a price they feel is affordable. First, they want it all, and they will try to get it by looking for the lowest bid from contractors.<\/p>\n<p>Construction projects \u00a0that \u00a0would \u00a0not \u00a0readily fit any description \u00a0of commodity \u00a0might \u00a0include those \u00a0that are characteristically \u00a0complex, \u00a0have unique \u00a0designs, \u00a0include \u00a0innovative \u00a0technology, present difficult building conditions, or are mission-critical or significantly large in scope, such as:<\/p>\n<ul>\n<li>Medical buildings<\/li>\n<li>Research facilities<\/li>\n<li>Power plants and other utilities<\/li>\n<li>Bridges<\/li>\n<li>Oil platforms<\/li>\n<li>Chemical plants<\/li>\n<li>Stadiums<\/li>\n<li>Museums<\/li>\n<li>Concert halls<\/li>\n<li>Water and wastewater plants<\/li>\n<li>Highways and roads<\/li>\n<\/ul>\n<p>Building types not as likely to be treated as commodities are still subject to owners looking for the lowest bid, but the bidders must be pre-qualified. Savvy owners are looking for best value. Among the reasons for this include \u00a0the cost of poor quality and \u00a0missed schedules \u00a0for large projects. \u00a0If a contractor \u00a0fails in the middle \u00a0of a stadium \u00a0or power \u00a0plant \u00a0project, \u00a0the cost in lost box office receipts or production \u00a0is extremely high. Structure \u00a0failure in any of these projects is potentially catastrophic. \u00a0The risks are too high for owners to take the chance that the lowest bid is not the best-qualified \u00a0bid. Owners building \u00a0most any type of project should \u00a0feel the same way. But when times are tough, they are willing to take the chance that the contract will protect them from risk; and contractors \u00a0hungry \u00a0for business will cut prices even at a loss.<\/p>\n<p>Reducing cost by soliciting the lowest bid in a design-bid-build delivery method is not the only way owners are seeking \u00a0to reduce \u00a0the cost of construction, but \u00a0it still predominates, \u00a0according to comments \u00a0received from panelists of FMI&#8217;s Nonresidential \u00a0Construction Index Report. In the first quarter \u00a0of 2012, \u00a0we asked panelists what \u00a0they are seeing owners do to reduce and control project costs. There are a range of things owners are doing to reduce costs, but most of the comments \u00a0from construction industry \u00a0executives focus on changing \u00a0delivery methods \u00a0and pressuring contractors to get the lowest price possible. Among the most questionable methods, \u00a0several contractors note \u00a0the increase of bid shopping. The following is a sample \u00a0of comments \u00a0on what owners are doing to control costs:<\/p>\n<ul>\n<li>Cost is not an issue to owners. Bids are coming in well below estimates due to excessive competition \u00a0and lack of backlog from some contractors.<\/li>\n<li>Rebidding multiple times to shop contractors.<\/li>\n<li>Bidding in the street so they get low numbers.<\/li>\n<li>Becoming CMs themselves and using multiple primes.<\/li>\n<li>Change comes slowly in the Northeast. We are seeing more competitive lump-sum bidding and less CM-at-risk.<\/li>\n<li>It has become a much more mixed result where certain owners who are more inclined to seek true life-cycle value are staying with or going back to the value proposition and quality-oriented \u00a0contractors who can demand a fair margin on the work. Otherwise, \u00a0there are still many developers and owners who know that contractors are desperate; and if they look diligently, they can get these contractors to compete to get all subs driven to a bottom number \u00a0and the GC themselves to bid with a zero fee, sometimes less, in hopes they can bargain more from the suppliers and subs after award. This has resulted in GCs defaulting, and I suspect we will see more of both GCs and trade contractor \u00a0defaults this year. Buyers, beware!<\/li>\n<li>The greatest frustration is that there appears to be only nominal consideration \u00a0of the risk they are accepting when they award work to substandard \u00a0trades. The concept of paying for value and workmanship have gone out the window, and low price wins 99 out of 100 times.<\/li>\n<li>We are seeing the public sector in our areas finally get onboard with early selection of the CM\/GC.<\/li>\n<li>We have seen a huge increase in bid shopping.<\/li>\n<li>We have seen several clients that have traditionally hired CMs for CM-at-risk work, based on qualifications only, go to a system where qualifications are the first step. Then, providing fixed fee and general conditions percentages or lump-sum amounts is ultimately the deciding factor. Others are hard bidding work vs. selection and negotiation.<\/li>\n<li>We are seeing heavier use of BIM and prefabrication.<\/li>\n<\/ul>\n<p>Is the construction industry \u00a0returning to the dark \u00a0ages where \u00a0relationships, \u00a0collaboration \u00a0and the idea of value are retreating into the shadows? Certainly, contractors and owners are taking on more risk when low price is the only criterion \u00a0for awarding the contract. \u00a0As commented \u00a0above, &#8220;Buyers, beware!&#8221; We should \u00a0also add, \u00a0&#8220;Sellers, beware.&#8221; Owners \u00a0may be buying \u00a0a Yugo when they wanted \u00a0a Ford \u00a0or a Lexus. The result is potentially \u00a0a great increase\u00a0 in legal disputes \u00a0and contractor \u00a0bankruptcies, which is good for the legal sector, but not the best construction delivery process.<\/p>\n<h2>Return of the Master Builder Concept<\/h2>\n<p>Not all owners are moving or regressing to design-bid-build or low-bid methods of procurement. According to our recent NRCI survey, the move to design-build delivery is more prevalent; yet owners still push for the lowest price. However, owners are also more willing to consider alter\u00ad native materials and methods to save money, especially as material costs have continued to rise throughout the recession-one more concern that reduces profit margins for contractors. Inter\u00adestingly, there is another trend, especially for midsize and smaller contractors; owners are involv\u00ading CMs and contractors earlier on in the project in the design or even pre-design phase. Along with the move toward integrated project delivery (IPD), some have likened this to a modem ver\u00adsion of the ancient Master Builder concept.<\/p>\n<p>The use of qualified owner project managers (OPM) to serve as clerk of the works-mandated on large public projects in Massachusetts, for example-adds an upfront cost that increases ini\u00ad tial price to reduce final project cost. Further, the OPM challenges the contractor to validate all elements of a project budget, the contractor&#8217;s margin and the project cost structure. The savvy contractor is learning to anticipate project audits, pre-audits and onerous review of margin oppor\u00adtunities. The construction industry is challenged to come to terms with an acceptable level of risk and return for the contractor to preserve long-term industry health. Without attractive margins and profits, ultimately the financial health of contracting is in question. There are limits to the margin compression squeeze being applied by buyers of construction services.<\/p>\n<p>In response to the need for cost certainty and best value, the industry has developed robust and sophisticated pre-construction services. The delivery of high-quality, professional pre-construc\u00adtion is mandated for the owner to attain project objectives at maximum value and the E&amp;C pro\u00adviders to earn respectable margins. Onerous, abusive and punitive contractual terms and pricing schemes are unsustainable. Effective &#8220;free markets&#8221; must arrive at an equilibrium.<\/p>\n<p>The real risk in the low-bid squeeze play is that, even though \u00a0owners are taking advantage of a highly competitive \u00a0market, \u00a0those providing construction services will play the game and do the best they can to make up for winning the bid with negative profit projections by cutting comers, increasing \u00a0the cost and number \u00a0of change orders and billing for any extras possible. Some cost recovery methods \u00a0will be legitimate, some not, but \u00a0the contractor \u00a0wants \u00a0to make money on the project. Contractors \u00a0that do not play the game well risk going out of business. This type of atmo\u00adsphere of contentiousness and deception is bad for business and something \u00a0the industry \u00a0has been working for years to improve. Therefore, there is some real potential of the construction industry returning \u00a0to the dark ages.<\/p>\n<p>On one hand, \u00a0the return to something \u00a0more like the Master Builder concept protects owners from process inefficiencies and contractors \u00a0playing games that add cost to the project and the risk of going over budget \u00a0and schedule. \u00a0At the same \u00a0time, the move to using more design-build, CM\/ GC and IPD, and generally bringing \u00a0the contractors \u00a0and all service providers to the table prior to design and construction can reduce risk and improve project success for all involved. Not all own\u00aders, nor all contractors, \u00a0are ready for this, but for larger, complex projects, this is the future-or what appears to be one of the best possible futures-for the industry \u00a0and one that ultimately can be more effective in reducing costs.<\/p>\n<h2>Changing for the Future<\/h2>\n<p>As we work our way out of the Great Recession, owners that have projects to build will continue to want the lowest price and best value. There appears to be a growing bifurcation in the market, just as we see in the economy in general. Those in the middle will be squeezed the most. So what can contractors \u00a0do to survive and thrive in this future? The fact is that there are contractors \u00a0mak\u00ading reasonable profits even in the downturn.<\/p>\n<p>The following is a list of areas that are yielding benefits for contractors:<\/p>\n<ol>\n<li style=\"list-style-type:none;\">\n<ol>\n<li><strong><em>Become more strategic: <\/em><\/strong>If owners have more information about the contractors and construction process, contractors need to have more information about their potential customers. At the same time, contractors need a deeper understanding of their own processes, methods and all costs.<\/li>\n<li><strong><em>Build closer relationships \u00a0with customers: <\/em><\/strong>This isn&#8217;t just a matter of a salesperson\u00a0 taking the customer out to dinner or playing golf anymore. Buyers need to have confidence in their contractors. \u00a0They need better ideas of how to accomplish their goals. Contractors must understand those needs and more, long before estimating and bidding a job.<\/li>\n<li><strong><em>Develop IT as a profit center: <\/em><\/strong>The goal here is to make the IT department a profit center, not just a group that fixes computers and installs new software. Project management, productivity tools and tracking software for job progress and cost reporting will help<br \/>\nget waste out of the system and reduce costs. Understanding and using BIM has become a necessity rather than just a nice-to-have gimmick. Improved communication in the form of software and hardware from smart phones and tablets to jobsite cameras and regular discussions among project managers, the field and clients will not only help build relationships, but also reduce the time it takes to get things done. Even installing and making full use of a CRM system will help track business development efforts and customer information.<\/li>\n<li><strong><em>Be specialists in strategic market niches: <\/em><\/strong>To avoid being more like a seller of commodities, become best-in-class specialists. Best-of-class contractors know their customers&#8217; business and add value. While most forecasts and market discussion consider broader construction \u00a0markets, there are many submarkets and market niches that can<br \/>\nbe profitable. Thinking strategically, a contractor may even be able to carve out its own market niche with few competitors.<\/li>\n<li><strong><em>Self-perform more work: <\/em><\/strong>Self-performing contractors are often the most profitable. They offer benefits to customers in having more control over schedule, price and quality and,<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<p>if they are productive, can make greater margins with their own labor. As labor shortages return with the economy, those companies \u00a0that can best recruit, manage and mobilize labor will have the edge.<\/p>\n<ol>\n<li><strong><em>Know how to innovate, accept and manage risk: <\/em><\/strong>The modern \u00a0trend in business has been to avoid as much risk as possible by shifting it contractually or otherwise to others-who in turn move it on to others and so on. While it is important \u00a0to avoid risk, the cost of shifting risk can be expensive. More contractors are working to get a deeper understanding of all the sources of risk in their work and, wherever possible, accept and manage the risk themselves. When done effectively, risk management can become another profit center.<\/li>\n<li><strong><em>Embrace change: <\/em><\/strong>Most of the firms that were surprised \u00a0by market changes were either not paying attention or ignoring what they knew was happening. Sometimes one has to believe his or her own eyes and data and make the necessary changes to adjust to market forces. In a recent paper by FMI, &#8220;Adjust, Adapt, Act: Winning Stories from the Post-<br \/>\n2007 Construction \u00a0Industry,&#8221; Michael Vickery, senior vice president of BakerTriangle, is quoted as saying, &#8220;If as a company we were positioned today the same as five years ago, we were either wrong then or are wrong now, because the market is uniquely different.&#8221; It is important \u00a0to have a company culture and a reputable company history, but if the firm is to have a great future, it has to make changes. Recognizing those needed changes early can mean the difference between a competitive edge and falling in line with the low bidders.<\/li>\n<li><strong><em>Become productivity experts<\/em><\/strong><strong><em>:<\/em><\/strong>The construction industry is often chided as being unproductive and behind \u00a0the curve of high-tech manufacturing \u00a0sectors. However, more contractors are breaking out of that mold and looking for ways to employ technology and processes like BIM, prefabrication and modularization \u00a0to gain on productivity, safety and workforce changes.<\/li>\n<li><strong><em>Be greener: <\/em><\/strong>It is not only important \u00a0to understand owner needs and wants for more sustainable projects, but it is also time that contractors learn how to be more sustainable in their own business. Reducing waste and carbon footprint will not only provide a good example for others, but also reduce cost in a world where key materials are becoming scarcer and regulations stricter.<\/li>\n<li><strong><em>Be collaborative and service-oriented: <\/em><\/strong>While it seems to go against the grain of low\u00ad bid, price-slashing markets, \u00a0thinking more like partners and service providers will be an advantage over time.<\/li>\n<\/ol>\n<h2>Conclusion<\/h2>\n<p>Be the Future of Construction not the Past<\/p>\n<p>It does not \u00a0take a crystal ball to see that \u00a0the world \u00a0will not \u00a0return \u00a0to pre-2007 \u00a0conditions. \u00a0It has been and continues \u00a0to be a tough \u00a0recession, and memories are not so short \u00a0that we will see a credit-fueled building \u00a0boom anywhere \u00a0on \u00a0the horizon. \u00a0There are many \u00a0trends \u00a0and \u00a0economic forces that are here to stay: sustainability \u00a0and green construction, reduction of energy use, indus\u00adtrial technology \u00a0use, consumer \u00a0buying power and the Internet \u00a0consumer \u00a0market, scarcity of raw materials, \u00a0and growing populations.<\/p>\n<p>The beginning of the recession saw many companies \u00a0hunkering down to try to wait it out; others saw opportunities for change. Competition will continue to be fierce, especially for those who fol\u00adlow the crowd and get in line. Owners will continue \u00a0to be demanding, although \u00a0we expect more will return \u00a0to best value based on qualifications and experience rather than just low, low prices.<\/p>\n<p>The thriving contractors of the future are dynamic innovators in all aspects of their business, mak\u00ading them attractive partners for the owners who need, want and value professional construction services.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The nature of the construction industry \u00a0is changing, and a major driving \u00a0force for this change is what is often referred to as the commoditization of construction services resulting in margin compression for construction firms. Whether evolutionary or revolutionary in&hellip; <a href=\"https:\/\/www.afpgusa.com\/blog\/the-changing-nature-of-business-in-the-construction-industry\/\" class=\"more-link\">Continue Reading <span class=\"meta-nav\">&rarr;<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-5","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Industrial Sprinkler Systems<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.afpgusa.com\/blog\/the-changing-nature-of-business-in-the-construction-industry\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Industrial Sprinkler Systems\" \/>\n<meta property=\"og:description\" content=\"The nature of the construction industry \u00a0is changing, and a major driving \u00a0force for this change is what is often referred to as the commoditization of construction services resulting in margin compression for construction firms. 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