Contractors and subcontractors face an increasingly difficult challenge: skyrocketing inflation is bleeding their bottom lines.
General inflation is raising the cost of everything, from food to fuel to office supplies, maintenance, and rent. Inflation and economic uncertainty are having a particularly pernicious effect on the construction industry, including:
- Record construction material price increases and volatility.
- Ongoing supply chain issues continue to drive scarcity of key materials.
- Many macroeconomic indicators are hinting at a recession in 2023.
How construction professionals manage these challenges could be the difference between a bright future for their businesses or a bumpy path ahead.
Inflation and the Industry
It has been a difficult few years for the construction industry. The pandemic devastated supply chains across the globe, the U.S. homebuilding boom swallowed up essential materials like lumber, concrete, steel, and more as fast as they could be produced, and now rising interest rates are further eroding construction budgets.
The cost of materials is about 35% to 60% of overall construction costs. Material cost inflation is squeezing contractors and subcontractors in a vise. This is combined with a severe skilled labor shortage and ongoing supply chain issues that are driving up costs and delaying projects.
For instance, the price of steel, a major component of data center construction, fluctuated dramatically, rising over 200% from March 2020 to mid-2021, before finally easing this summer. Overall, the cost of key construction materials has risen 19.2% year over year and 35.6% since the pandemic’s beginning. While many supply chain bottlenecks and price increases have eased, contractors and subcontractors continue to face severe material challenges.
Inflation is such a burden on contractors and subcontractors because of the nature of the industry. It leads to cash flow management problems, declines in sales volume, longer production timelines, and exacerbates other construction operations challenges.
Contractors and subcontractors must purchase materials in advance of a project before they are paid. In most cases, they must pay for those materials within 30 to 60 days of purchase, long before they are paid for their work. As costs rise, the holes in the budget get wider and wider, jeopardizing their ability to bid on and win more contracts. They do not have the cash flow to float a new project.
Construction Management Technology Can Reduce Inflation Impact
No one expects inflation to be restrained over the next year. How can contractors and subcontractors bid on and secure their next project under such volatility?
First, construction professionals must concentrate on solving what is within their control. Thankfully, innovative, simple-to-use preconstruction technology can provide greater control and productivity. These platforms improve planning, increase efficiency, and help general contractors, subcontractors, and suppliers collaborate more easily to establish long-lasting connections that enhance stability and success, particularly in preconstruction.
Preconstruction begins every project, where strategic plans are created, vendor qualifications are verified, owner communication is solidified, and needed materials and labor are sourced. The most impactful digital tools tie all preconstruction information in one place, bringing construction professionals together to share information, improve collaboration, and reduce the time required to complete traditional processes.
According to a recent study, the construction industry is finally making construction technology a priority. Over one-third of specialty contractors plan to increase investment tools that streamline functions and increase efficiency.
But construction remains “old school” and is slow to change. According to the report, nearly 40% of specialty contractors report they still primarily use spreadsheets, whiteboards, paper-based processes, or other methods rather than take advantage of construction tech platforms.
Post-it notes and paper aren’t enough in this environment. The right construction planning and management solutions digitize all the information contractors and subcontractors utilize most often. Instead of combing through old bidding documents and spreadsheets, software solutions provide quick and easy document replication, streamline bidding and other critical processes, and save time and money.
For example, digitizing estimating and material takeoff tasks reduces the amount of time needed to complete proposals. The increased accuracy also reduces the chances of cost overages and makes for easier cash flow.
The technology is particularly helpful in the bidding process. Easy access to documents and data helps create more detailed, accurate, and faster bids. The right applications also alert contractors and subcontractors to new projects in their service area and can help them place their bids ahead of the competitors.
Of course, offering the lowest bid doesn’t guarantee victory. Contractors and subcontractors need to build trust with project developers and showcase the attributes that make them a better fit than their competition. Integrated construction platforms allow construction professionals to complete extensive profiles of their businesses. These applications create and save data illustrating their success, such as completing previous projects, safety records, licenses, etc. This provides owners with a true understanding of the company’s true value and ability.
The digital revolution can help construction professionals maximize efficiencies, save money, and mitigate rising inflation. By utilizing innovative construction planning and management technology now, contractors and subcontractors can improve critical business functions, strengthen collaboration, save money, and lay the groundwork for future success.
Ro Bhatia is the CEO of PlanHub, the leading cloud-based preconstruction platform that enables general contractors, subcontractors, and suppliers to connect and collaborate on construction projects across the US. PlanHub was created by contractors, for contractors, to simplify the construction bidding process.