The construction industry is expected to experience healthy economic times. Construction spending, for one, continuously grows according to the Department of Commerce. In fact, construction spending grew to $1.257 trillion late last year.
Not only that, the Bureau of Labor Statistics confirms that the construction industry is generating substantial employment by opening 30,000 new jobs.
That’s great news for many contractors.
Small-scale contractors, however, still faces constraints that may negatively affect their chances of benefiting from the so-called construction boom.
But before we go through the problems, let’s first define what a small-scale contractor or construction business is.
Small-scale construction businesses are classified by the U. S. Small Business Administration (SBA) according to the number of employees and annual turnover.
These are businesses that have less than 500 employees and have the following average annual receipts.
- General building and heavy construction – $36.5 million in average annual receipts
- Land subdivision – $27.5 million in average annual receipts
- Dredging and surface cleanup activities – $27.5 million in average annual receipts
- Special trade contractors – $15.0 million in average annual receipts
Small-Scale Contractor Problems
Doing business in today’s highly competitive world is difficult, and small-scale contractors continue to feel this dilemma year after year.
Staying ahead of the competition has become a big problem for many small-scale contractors.
For one, winning a bid comes few and far between for these contractors. And then there’s the problem of not having enough opportunity to compete according to the House Committee on Small Business.
Lack of skilled workers
Every construction boom comes with a downside: a shortage in construction workers. This is one of the biggest hurdles in bidding for a specific project for many contractors.
The Associated General Contractor of America has reported that as much as 75% of contractors are struggling with this problem.
This issue that has been haunting the industry is not a recent development. In fact, the problem dates back to as early as the 1980s.
Economic change, laborers shifting to a different industry, immigration dilemma, and lack of people enrolling in vocational courses are all cited as contributing factors.
If the client is not conscious about the cost of delay or if there are complex bureaucratic procedures, there’s a big chance that the contractor will not get paid on time.
A delay in payment compound the problems of small-scale contractors to a whole new level. It hurts their profitability which in turn affects their ability to meet a deadline.
Limited working capital
Unlike large construction companies, small-scale contractors operate on shoestring budgets. They don’t have the financial pull to counteract operational challenges, expand their operation, or hire full-time experts that can help them fix deficient parts of their businesses.
This is the reason why majority of contractors prefer a construction bond over alternatives such as a letter of credit.
Since surety bonds are fairly inexpensive, small-scale contractors will be able to stretch their working capital in order to ensure that they will finish the project and keep their businesses afloat.
The contractor will only pay a small fraction of the bond amount rather than tying their entire savings or real estate property as a guarantee.
Moreover, not only can surety insurers provide financial assistance, they can help contractors in managing their construction projects as well.
And with the Surety Bond Guarantee program of the SBA, acquiring bonds has become much easier.
The SBA guarantees construction bonds issued by qualified sureties to small-scale contractors that don’t have the capacity to meet the minimum surety bond requirements.
Hurdles that besiege small-scale contractors can be conquered. To start with, the technical side and business fundamentals should be given equal footing. This will help the contractor control cost, find innovative ways in dealing with pitfalls, and produce a great outcome.