When projects stalled across the country during the initial weeks of the COVID-19 pandemic — some indefinitely because of lost funding — the construction industry became increasingly nervous about backlog.
Construction backlog seems to be rebounding, though projects in some areas are still being postponed or canceled for various reasons. During these uncertain times, you can better prepare for what’s to come by monitoring not only your own company’s backlog, but also that of the industry.
We all know how important backlog is to a construction business. Having a healthy amount of work scheduled but not yet started is a key indicator of financial strength. A diminished backlog, on the other hand, implies the contractor is running out of work.
The fact that backlogs are falling industrywide indicates that fewer projects are coming to market. Many contractors may respond by bidding on more projects than usual or bidding on those outside their normal scope of work. With more contractors vying for the same projects, some may feel forced to bid jobs at lower margins, which in turn negatively impacts profitability.
It’s possible to maintain or even grow your backlog in a slowly recovering economy without lowballing bids. Here are a few strategies to consider:
Watch market conditions. To get on the right bid lists, pay attention to construction backlog in the regions or sectors in which you typically work or could work. Doing so will shed light on where demand is high and which market sectors are healthy.
Explore diversification. Look into the feasibility of diversifying the construction services your company offers. This is, of course, not a risk-free strategy. You may need to bring in new talent or invest in additional equipment.
Focus on relationships. Regular communication is key to keeping relationships fresh with partners and those who make important decisions on potential jobs. Key contacts can include general contractors (especially if you’re a subcontractor), consultants, architects and engineers, and developers.
Sell your unique value proposition. Identify what you do better than anyone else. First and foremost, promote your approach to the safety of your workers and the general public — including measures taken to prevent the spread of COVID-19. Plug other demonstrable advantages of your business, such as stellar customer service, niche expertise and experience, and speed of work.
Bid first. Among the easiest ways to win more bids is to submit first. This way, your proposal becomes the standard against which others are compared. To get early leads on projects in the pipeline, tap into your professional networks regularly and visit online construction bidding marketplaces.
When competition for projects heats up, some contractors feel pressured to bid on every job they can find, just to have work and keep staff on board. However, your company should bid only on projects that you have a high chance of winning and that will likely be profitable.
Avoid projects that are outside of your niche or in locations where you won’t have the workforce or resources to feasibly fulfill the requirements. Above all, avoid the temptation to bid too low and potentially lose money if you’re awarded the work.
As the pandemic continues impacting construction jobs, count on Doeren Mayhew’s dedicated Construction Group to guide you through managing business disruptions and financial controls. Contact our construction CPAs today for assistance.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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