What Changes Construction Firms Should Implement During Recessions?

Paras Kela

Paras Kela

Senior editor

Parul Saxena

Chief editor

Last updated: August 25, 2021

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Over the past few years, the construction industry has enjoyed increased profitability, surplus work, and long queues of future projects. However, having a greater potential also welcomes greater risks, especially when recession emerges on the horizon. 

Recent unprecedented times have shown us that change can happen in a flash without giving any time for preparations! And with the lockdown and other restrictions, every industry witnessed a downfall. 

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It encompasses firm price, profits, etc. There has been a rise of around 36% in the construction bidding. Thus, it is crucial to know all vitals of this process.

The travel industry has declined, FMCG markets are down, most businesses are closed, schools are closed, and even the construction firms have been blown to a great extent. The recession has arrived and it is here to stay.

So, what to do? How can a small-scale or large scale-based construction firm survive amidst recessions? We’ll throw some light on it in this post!

But before we move forward, let’s have a brief overview of how exactly recession affects construction firms.

How Recession Affects The Construction Industry?

When a recession occurs, industries manufacturing goods for construction firms are closed temporarily or operate minimally. By minimally we mean that they operate with lesser manpower, lower daily targets, and lesser deliverables than before. 

This leads to the slowdown or termination of shipping processes. Due to such drops in demands and delivery delays accompanied by the economic shutdown, construction projects are subject to be either canceled or unnecessarily delayed. 

Moreover, extended project schedules will drive up the costs for the contractors. At a certain point, it even becomes difficult for the firms to pay for the labor as well as the raw materials. 

When labor is not getting paid enough by the contractor, that’s when the actual problem arises. So how can such problems be tackled? Well, let’s look into some steps that you can follow.

Top 7 Steps For Construction Businesses To Survive In Recession

Although recession brings abundant negative results, construction industries can minimize the effects by the following these steps:

1. Adapt Your Services As Per The Need of The Hour

During a recession period, a significant shift is seen in consumer demands. 

Let’s take a simple example. A car owner will prefer repairing his car rather than buying an all-new car. A house owner will prefer renovating his house rather than constructing a new one. This is all because the recession period brings a lot of unemployment as well as a downfall in incomes.  

This simply means that the demand for maintenance and repairing will increase, and so does the opportunities for the same. Therefore, instead of worrying due to the lack of construction projects, adapt and expand your services according to the repairing and maintenance needs. 

2. Stick To Your “Ideal” Criteria

Every construction firm has its ideal situation. Like a firm will perform optimally with ‘x’ capital, ‘y’ time frame, ‘z’ size, or the number of laborers. So basically, whatever facilitates excellent performance in your firm is your “ideal criteria”. You need to identify that and stick to it. 

However, in recession, many construction firms drop the idea of their “ideal project” and choose to walk a half step down. This further deteriorates the growth, quality, productivity, and sustainability. This in turn, affects the firm in the long term.

Business owners should know that the concept of an ideal project is not to decrease the budget, manpower, or deliverables during the recession. 

A truly ideal project means the right mix of resources for optimum performance, even in the dearth hours. And, this can be done by actively analyzing the past data and modifying the plans as well as budgets according to current needs. 

3. Try To Make Effective Use Of Available Resources

“Be thankful for what you have; you’ll end up having more.” – Oprah Winfrey

True indeed! Business owners should focus on what resources they have. But at the same time, they should know how to make the most out of them. Because, it’s not about what you have right now, it’s all about how you use them to make a difference.

Therefore, make effective use of your existing manpower, equipment, technologies, etc. When you try to hire people in a large number, it might lead to lower profit margins and equipment shortages. 

On the other hand, if you are deciding to lay off some laborers from your construction firm, resources will not be efficiently used to raise the profit margins.

4. Review Claims & Agreements To Avoid Future Disasters

The recession period increases the prices of construction materials and slows down the shipping processes. 

Therefore, review each claim and agreement that your firm has previously made. To tackle the price fluctuations, including a specific section of the escalation clause in your contracts is a great move. 

For delays, you can add a ‘Force Majeure’ clause. This can explain the unforeseeable circumstances preventing your construction firm from completing the contract. 

Any unpaid invoices should be handled strictly. If you decide to charge fees for the same, then set the amount and period for it. Making such modifications in your agreement can protect you from liability, especially for delays and price escalations. 

5. Go For The Faster-Paying Processes

There are a plethora of processes that can help you to get paid faster. Let’s have a look at them!

  • Fulfill the deadlines of the project.
  • Send a preliminary notice on each project you get, even if it is not legally required in your region. 
  • For unpaid or delayed invoices, send frequent reminders. You can use invoice tracking tools for the same 
  • Always keep a copy of the laborers’ bill as well as the warranty cards of the materials used in the construction projects.
  • Set a specific period of your warranty, be it 1 year, 2 years, or 3 years.
  • Don’t hesitate to sign a bond claim or anything similar. This will help you to be safe in case you do not get paid. 

6. Safeguard Your Billing Rights

When it comes to safeguarding payment issues, lien rights and processes come as a business savior. Lien processes get both the contractor and the property owner involved in the project with the help of an effective contract. Therefore, raising an issue regarding payments becomes extremely challenging for anyone. Only one notice to the lien is enough to prompt a strict action. 

The main method to protect payment rights is done by sending preliminary notices to the property owners and charging fees on the delayed payments. This helps in minimizing the risks of being unpaid or exploited. 

7. Keep The Costs Down

Lowering down your costs during a recession can bring relaxation to your firm. Here are the following ways through which you can cut down the costs:

  • Negotiate and renegotiate with the suppliers.
  • Select suppliers offering discounts or try to buy materials in bulk to save money.
  • Try to reuse materials if it is possible.
  • Try to mitigate any kind of rework because it will lead to late deliveries.
  • Embrace efficient technologies that can automate many processes, which would otherwise require huge manpower. 

Bottom Line

Your current smart moves will decide whether you will survive in the recession period or not. The above-mentioned 7 steps will provide you with the best possible protection from worsening conditions. If you might not be able to follow them all, start with at least one. 

No matter how small it is, every step or move counts, and it might save you from unpredictable disasters!

Paras Kela
Paras Kela is a web developer turned content writer who holds writing expertise in multiple niches. The strong cocktail of his English-medium schooling, passion for writing, and vast industry experience helps him create information-rich, engaging content. In his spare time, he enjoys binge-watching drama series & documentaries, gardening and spending time with loved ones.

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