Let’s start with the good news: As we begin 2012, the U.S. construction industry exceeds $835 billion and is trending upward. Demand for trade contractors still will be significant. Also on a positive note in the new year, construction remains a people business and relationships with customers still count.

Overall, however, industry consultant FMI’s recently released “2012 U.S. Markets Construction Overview” predicts a long and slow recovery this year. “No one at this time expects a normal rebound from this recession, and the current pattern of small steps forward alternating with jolts backward, is widely projected to continue for at least the next year,” the report states.

Of particular interest to Plumbing & Mechanical readers is a section of the forecast dedicated to trade contractors. It predicts that while you may see an uptick in business this year, the market is not going to return to the good times many of you experienced between 2005 and 2008.

Among the challenges you likely will face in 2012 are:
  • Difficulty securing financing for public and private projects;
  • Limited construction demand in many sectors;
  • Difficulty finding superstar talent in spite of the limited demand and high unemployment; and
  • Hypercompetitive and emotional pricing practices.

Although relationships still mean something, price will be the basis of more buying decisions. For many contractors, this will mean finding ways to become more efficient to lower their costs. “Being a low-cost producer is not as easy as simply being cheap,” the report states.

To improve their productivity, more contractors will have to implement practices that a number of you are doing already. These include:
  • Integrated project delivery;
  • Building information modeling;
  • Prefabrication;
  • Lean project delivery methods;
  • Investment in equipment, tools and technology that drive productivity;
  • Formal leadership development programs for field managers; and
  •  Strategic approaches to buying material.

“To prepare adequately for these changing times and what many refer to as the ‘new normal,’ the most successful trade contractors will be the ones that realize they must make serious changes to the way they manage and run their businesses,” FMI states. “While it is easy in times like this to pull in your horns, go into a bunker and stop spending money, this is a time where change and investment in change are essential.”

Making these changes will not only lower your costs, but they will position your firm to take advantage of market sectors that are growing. A number of building owners and general contractors in these sectors are looking for construction partners that are adapting to new technologies and business practices.

As an example, FMI points to hospitals and health-care facilities that use integrated project delivery in their construction projects. In an environment where projects are large, schedules are tight and risks are high, traditional contracting methods have failed - at least in the eyes of building owners. IPD offers a collaborative approach where designers, the GC and trade contractors share in the success as well as the risks of the work.

Hospitals also are using more prefabricated bathroom pods, as are college dormitories, FMI points out. The prefab work is being done at temporary facilities near the jobsite, or even in manufacturers’ factories. Once on site, the pods are lifted into place where contractors make the electrical, piping and HVAC connections.

Although contractors have been utilizing IPD, prefabrication and BIM for a number of years, these practices now are translating into real improvements. Building owners are reducing construction schedules and thus generating revenue earlier. Contractors are increasing their productivity as they reduce rework. They’re experiencing fewer conflicts in the field with their construction partners as their collaboration increases.

“Trade contractors that choose to operate in this environment must be very progressive in their business development efforts, as securing this type of work will require a deep understanding of marketing, strong presentation skills and the ability to create professional presentations that clearly differentiate unique capabilities,” FMI states. “In most cases, the owners on this end of the spectrum will be serial buyers who continually buy construction services and see the value that a progressive trade contractor can bring to the construction process.”

Even though FMI forecasts overall construction growth this year at 6%, it adds that progressive contractors - capable of adapting to changing market conditions - will get their share of the work. What hasn’t changed is that you, as a contractor, control your own destiny by the actions you take.

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