Whether in the concrete or walls and ceilings trade, most small contractors are on the hunt for their next project. With razor-thin profit margins and competitors popping up overnight, it’s easy for contractors to lose sleep as they struggle to stay in the game and grow their business.
Compared to small firms, large construction firms have deep pockets, tons of connections, and lots of extra hands on deck. Smaller contractors often wear many hats—from scouring local plan rooms for projects to hunting down plan details to polishing their final estimate and bid. Even in boom times with the seasonally adjusted annual rate of construction spending surging past $1 trillion monthly, it can feel like the playing field tilts in favor of larger construction players.
What’s at Risk for Smaller Construction Firms?
As small firms hustle to find, bid, and win as many profitable projects as possible, it can seem like an uphill battle to survive and thrive. With only 35% of small contractors making it through their fifth year of business, tight profit margins mean more pressure to do more with less. According to the latest FMI/AGC Risk Management Study, the average general contractor only earns a net profit margin of 1.46%, leaving little wiggle room for error.
With so much stacked against small firms, it’s critical they find ways to work smarter to compete with larger firms. Here are some of the risks contractors face daily.
- Incomplete design documents are commonplace. More than 90% of contractors report receiving design documents that are less than complete, according to the Managing Risk in the Digital Age survey by Associated General Contractors of America Management and FMI Corp. Having to chase down incomplete plan details takes precious time away that contractors could be finalizing their bids.
- Winning the wrong projects can put a firm out of business. While a large construction firm can take a few hits, smaller firms may not see another year of business if they win a project with bad numbers. Nobody wants the last 5% of any job to drain 50% of a project’s profits, but it happens—even to the most experienced contractor. When a contractor can be more selective in their bidding, they can minimize risks without getting in too deep.
- Manual processes and spreadsheets add undue risk. The Willis Towers Watson Risk Survey noted that construction firms continue to operate the same way they did 10-20 years ago. For example, many small contractors have a love-hate relationship with spreadsheets. Even knowing that experts point to a 90% or higher probability that all spreadsheets contain errors, many small contractors can’t quit them. Instead, they use them for everything from accounting to estimating. With manual data entry, contractors end up going slower without a searchable historical database.
Overcoming Resistance to Technology
As pressure mounts to bid and win more, many small construction firms still resist adding the very tech tools that could help them compete and win the right projects for their business. For example, the FMI Survey notes that contractors are only innovating “around the edges” and adopting technology in a piecemeal fashion (or not at all) so they are not fundamentally transforming their business approaches.
There are many reasons to embrace new takeoff, estimating, and production management technology—from omitting duplication of effort to minimizing errors to allowing for quicker communication between the field and the office. But even with these benefits, many contractors are unsure where to begin or question whether adding new tech tools are worth the risk. Sometimes, it comes down to a lack of time to invest in researching new tech tools or being trained on them.
Technology Can Help Contractors Compete
In today’s hot construction market, adding new tech tools may help smaller construction firms compete for the most profitable projects. But taking the leap into tech does not have to involve the most complicated and futuristic tech available. It could be as simple as reducing the amount of paperwork by digitizing and automating administrative processes.
For example, some contractors are giving up paper time cards for automated time tracking software and apps. When crews can enter their time from the field, the office, or their home, it’s a lot simpler to review, edit, approve, and upload time cards directly into the accounting software.
When subcontractors make their time cards part of an integrated accounting software, they can begin to track productivity and financial data for each project. With an all-in-one package, firms can track job costs, labor, and quantities to specific project activities. Then, a contractor can take a deeper dive to isolate framing vs. finishing or materials costs vs. equipment costs.
There is a lot for small construction firms to be excited about. Whether a contractor wants to leave manual processes behind for takeoff and estimating software or just add an enterprise resource planning (ERP) system to automate the back office, new tech tools can help level the playing field so more firms can stay in the construction game.
Conley Smith is a senior business writer with ConstructConnect. She has been writing about technology and its impact on business for more than 15 years.