Tackle labour and material challenges, and prepare for growth
The market is back. Residential, commercial, and government contractors are all massively busy amid a huge influx of work. Despite the labour shortage and rising costs of materials, the construction industry is poised to grow more than 15 percent in 2021. Alongside this, there has been a surge in construction technologies in recent times, driven by strong investment figures into the sector.
But with the construction industry labour shortages and the cost of construction materials rising amid so much work, how can contractors ensure that they’re always ready for shovel-ready projects? It will take planning, calculation and honesty.
Focusing on these six factors can help:
Through the Investing in Canada Plan, launched in 2016, the government of Canada has committed over $180 billion over 12 years for infrastructure that benefits Canadians—from public transit to trading ports, broadband networks to energy systems, community services to natural spaces. To date, the plan has invested over $96 billion in over 73,000 projects, 95 per cent of them completed or underway.
This legislation has created and will continue to create big opportunities for companies across the contracting ecosystem.
“The opportunities are big, however, so are the risks,” says Douglas Kroetsch, government industry leader for RSM Canada. “It is important to understand the requirements of the request for proposal and assess your ability to deliver. It is critical to involve attorneys and consultants who can help you navigate the regulatory environment and contractual requirements.”
Some quick tips for contractors who want to bid on a government contract:
- Don’t assume the low bid always wins. Design considerations or other specifications of the request for proposal often take precedence over cost.
- Understand the contract and know exactly what the project scope entails, including whom to speak with for contract changes.
- Document everything and keep thorough records. Working with the government requires more transparency than most contractors are used to.
You can’t profitably work a job without knowing your costs, so contractors must monitor prices of products such as lumber and steel.
One way is to keep up with industry indexes, such as the Building Construction Price Index, Raw Materials Price Index, and Investment in Building Construction Indicator. For example, in the July 2021 release of the Investment in Building Construction Indicator, total investment in building construction reached $18.1 billion, a 1.7 per cent drop from the month prior, stemming from higher material prices and the industry’s workforce shortage.
While this information may not be happy or hopeful, it will always be true. And truth drives good business practices. As U.S. Adm. James Stockdale once said, “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
According to a new report, construction employment is expected to rise by 64,900 workers over the next decade. However, the report notes the “industry may be short as many as 81,000 workers by 2030.”
“And that’s not new,” says Cyndi Mergele, a senior director in the RSM US national construction practice. “You've got an aging workforce. You've got jobs that are never filled. And the labour demand is driving wages higher.”
But the labour shortage may be helped by some creative thinking, says Mergele. “What makes people say this is a good job?” is a question she believes contracting business owners must ask themselves when recruiting new talent. She suggests some simple steps to appeal to younger employees, including:
- Offer stronger pay or benefits for people in the field, including more paid time off.
- Consider recruiting high school students into the trades.
- Show employees a clear path to growth and advancement, something she says is often missing for young, newly hired contractors.
It’s important for contractors to have good cybersecurity measures in place, especially now.
In a 2021 special report on cybersecurity, RSM found that 28 per cent of middle market executives believe their company experienced a breach last year—and 64 per cent believe that unauthorized users will attempt to access their data or systems by the end of this year.
Even small businesses must have cybersecurity protection in place, as one in five are victims of cyberattacks.
Many contractors need to improve their cybersecurity, but that’s especially true for government contractors, according to Brandon Maves, construction practice national leader at RSM US. Government contractors face “a higher level of scrutiny” than their counterparts in the private sector, says Maves.
Misconceptions often hold contractors back from fully embracing technology. Some believe digital transformation is best left to large enterprises, while others worry they’d have to do too much work or replace too much of what already works. But bringing in digital tools, whether to the front office or the back, can happen gradually. Contractors can digitize their accounting process, for example, without making everything else digital at the same time.
An incremental approach can help with another frequent roadblock: the belief that a business has inadequate resources to adopt new technology. But technology, when well implemented, is more likely to save a company time and resources in the long run. Even a small investment in digital tools now could set a company up for vast savings in the future.
Every contracting business has risks, but not every contractor knows how to mitigate those risks using controls.
During an RSM construction webcast series, David Luker, a director at RSM US, said contractors need to first spend time identifying their risks—and then match each risk with possible control mechanisms, including automation.
Examples of effective controls in the realm of payment include:
- Invoice review and cash controls to prevent disbursement of cash to unapproved recipients.
- System access controls to stave off unauthorized changes to a master vendor file.
- Time sheet and payroll register review controls to avoid paying employees for time or benefits they didn’t earn.
MIDDLE MARKET INSIGHT: A pending boom in construction will continue to present challenges for contractors as prices for materials continue to rise, supply chains remain fragile and labour shortages become exacerbated. Middle market contractors should take steps to help reduce the impact of these uncertainties on their businesses.