Construction Dive recently posted a piece about the drop in construction backlog by 13% year over year as contractors engage in survival bidding. In this article, we’re going to explore what that means for the construction industry and how accurate, efficient resource planning can help right the ship.
What is a backlog (and how is it calculated)?
Associated Builders and Contractors releases a monthly report used as an economic indicator for the construction industry. It was created to reflect the amount of contracted work that has yet to be completed and provide specificity in regards to the level of activity being done by firms into the months, and best case scenario – years ahead.
The construction backlog is calculated by measuring (in dollars) the contracted work that construction companies have lined up but are yet to complete. Then, using the annual pace of construction sales, that figure is converted into months/years.
(Current month’s level of backlog/prior fiscal year revenues) x 12 = total months of forward-looking work under contract
While the calculation may be complicated, the results are very straightforward – the more months/years of backlog, the more confident contractors are regarding their short-term economic situation. Adversely, less months/years of backlog means less confident contractors working their way through their active backlog.
What is survival bidding?
In short, survival bidding happens during times of lower economic confidence. Contractors begin to worry about finding new work and as a result, begin to bid at lower margins. Anirban Basu, ABC’s chief economist, reflected on the impact this has on the industry. “Generally speaking, during times of economic stress, it’s the smaller contractors who suffer the most.”
The concern with survival bidding is that if it continues to escalate during times of economic distress (for example, the distress that COVID-19 has caused) small to medium size firms may risk going out of business as they’re forced to bid for their survival instead of profitability.
What does this mean for construction?
The COVID-19 pandemic has impacted the construction industry in a number of ways – projects have been shut down, workers are forced to self-isolate or quarantine, entire job-sites need to be managed for risk of team exposure. However, one of the most meaningful impacts has been a significant drop in project backlog since the start of the pandemic. A significant drop that follows month after month of steady backlog growth.
The drop in backlog results in a drop in confidence regarding future work and the ability to win new projects, which results in increasingly competitive project bidding. It’s a snowball effect that impacts the entire industry.
For small to medium sized construction companies, an increasingly competitive bidding market can result in reduced project budgets and while project clients are probably happy to see lowered bids, it forces contractors to find new ways to keep projects profitable while also ensuring quality work.
How accurate resource management can help
Resource planning tools that were built for the construction industry, like Bridgit Bench, were designed to help general contractors do more with less. While that may seem like an oversimplification of what is a very complex process, the benefits that construction specific resource planning tools provide are amplified during times of economic downturn in the industry.
Full project history – When contractors are trying to do more with less, one of the best things they can do is reference successful previous projects of similar scope. This helps to identify what worked well so it can be repeated. Whether it means identifying lean project teams that can be allocated to new projects, or understanding how work ramps up and down on a project to create a tight schedule – understanding what project success looked like in the past helps to better plan for the future.
Allocation oversight – Knowing is half the battle. Any contractor that manages their resources with a series of spreadsheets or whiteboards knows the difficulties of tracking their workforce allocations accurately and optimizing them for productivity and profitability. Resource planning tools help contractors by providing a holistic view of their workforce allocations, and insight into their workforce utilization to not only identify where more work can be taken on, but also which team members are under allocated and costing them money. Read this guide to manpower planning to learn more.
Forecasting – The ability to accurately forecast projects and their workforce requirements helps to provide clarity over the impact of future bids to the project pipeline. This helps general contractors identify which projects they are able to undertake with their available resources and also identify potential gaps in their workforce plan that need to be reworked to keep their teams as productive as possible.
Collaboration – Resource planning can often fall on the shoulders of one or two members of the operations team. The time, effort, and stress required to manage a profitable workforce strategy becomes amplified during times of economic distress. Having an accessible, approachable resource planning solution allows for more team members to contribute and opens up more time for Ops Managers to fight fires and problem solve. Speaking of problem solving: enabling collaboration on resource planning can also uncover new methods of problem solving that make the difference when it comes to profitability when the project budget is tight. Read this article to learn more about the benefits of collaborative construction software.
Though a drop in project backlog can have a significant impact on project bidding, it’s also an opportunity for contractors to evaluate their current situation and identify core processes that help keep projects as profitable as possible. Resource and labor costs can account for up to 40% of a project’s total budget, meaning that strategic and efficient resource planning is one of the most impactful ways to increase profitability.
Troy is passionate about connecting with general contractors to learn about their business needs and how technology can help drive them forward. Troy has 3+ years of experience with streamlining and optimizing both construction workforce planning & punch list and inspection management processes for general contractors. If you would like to learn more about Bridgit’s industry leading construction workforce management solution, connect with Troy on Linkedin.
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