work is at its lowest volumes and then
rent everything else. That way, when
it’s time to shrink, the contractor can
shed the weight of that yellow iron and
much of its cost as well. Renting may
cost a little more when times are good,
but the flexibility it provides will pay
massive dividends in down times.
Determine Core Competency. It is
surprising how many contractors don’t
know their core competency or choose
to stray far afield from it. A good example
is a contractor that is traditionally a
specialty subcontractor but, lured by
the prospect of higher profits, takes on
the role of general contractor on a new
project. Many mechanical contractors
and electrical contractors alike have tried
to make this jump with poor results.
Just because a contractor knows how to
execute projects well doesn’t mean that
it can effectively manage multiple trades
like a large general contractor does.
Instead, a contractor should identify
what it excels at and the teams of
employees that are critical to executing
that core competency. It should avoid
taking on work that is traditionally
outside its core competency simply to
try to make a quick buck or increased
profit. Before branching out, a contractor
must make sure it has the proper staffing
and capabilities to handle a new job that
is outside its traditional scope of work.
If a downturn occurs, the contractor’s
turnaround plan should involve quickly
getting back to its core competency to
ride out the cycle doing what it does best.
Maintain a Healthy Span of Control.
A contractor must understand the
capabilities and limitations of its
management and employees. There
is only so much a person can handle.
In an industry like construction, where
attention to detail and timely decision
making is required to bring a project in
on time and within budget, overstretched
resources can become a major liability.
As a contractor expands, placing
excessive burdens on top performers
is quite common. The contractor’s top
performers should be identified and
consistently relieved of unnecessary
burdens. If no one else can do the
additional work, then it’s not a good
idea to take it on in the first place.
It’s more important to have available
and capable resources to perform.
An organization’s structure should be
scalable so that it can retrench into a
smaller and effective unit quickly. It’s all
about people. Managers on staff should be
evaluated to determine if they can operate
in a leaner, more efficient environment.
Continuous improvement in the area
of information technology is essential.
However, a contractor shouldn’t
get bogged down by major system
rollouts. Having an effective process
in place is more important. Quicker,
easier systems can assist employees
in improving their span of control.
The Test of Time
The old saying that what goes up
must come down applies particularly
well to the volatility inherent in the
construction industry. The contractors
that succeed endure the test of time,
Mother Nature’s surprises, and the perils
that can arise from their own exuberance
while continuously planning and
preparing for what may come next.
Being flexible and identifying
business risks in advance of the
next looming crisis are critical to a
contractor’s survival, growth, and
prosperity. Because contracting is a
late-cycle industry, the indictors tend
to be everywhere. The next round of
economic volatility will undoubtedly
identify its share of contractors that
didn’t plan ahead and heed the signs. J
Michael Correra is a managing director with
Conway Mackenzie Inc. in New York. With almost
two decades of experience in restructuring,
reorganization, and bankruptcy advisory services,
Correra also opened Conway MacKenzie’s New
York office in 2007 and currently leads the firm’s
Engineering & Construction Group. He has a
bachelor’s degree in both finance and accounting
from New York University’s Leonard N. Stern School
of Business, is a CIRA, and holds a Certification
in Distressed Business Valuation (CDBV).
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