Top tips to navigate economic downturn in civil construction

In the best of times running a civil construction business is challenging.  Among Varicon’s customers we are hearing more and more that civil contractors are increasingly uncertain about the health of the industry – private and government contractors cutting budgets, more contractors tendering for less work, costs resign and margins being squeezed.

It is still possible to not only survive, but to thrive.  Our industry is cyclical – this is not the first down cycle, it won’t be the last and it won’t last forever.

Despite short-term challenges, IBISWorld predicts growth of 2.5% for Australia’s civil construction industry for the next five years. It is possible for contractors to position themselves for long-term success with the right cost management strategies

Now is the time to get back to cost management basics that we should be doing in both good times and bad times.  The difference is that is a hot market it’s easier to get away with wasteful practices.  In this article we will share some simple civil construction cost management tips that can help you maintain your margins and get to the other side with a healthy, lean business.

Tip 1: Ensure your business structure aligns with your work

If you have the wrong business structure, you will struggle to be competitive against other contractors with the right structure.  Typically small jobs require less support resources (lower overheads), and larger jobs require more support resources (higher overheads).  Often this will be a major factor in what opportunities you go after.  In some cases you may need to do some restructuring to ensure you have a competitive cost base, while having the right resources for effective project delivery.

A McKinsey study found that companies whose structures vary according to project scale are more efficient and profitable. A proper cost structure helps ensure you remain competitive, particularly when tendering for new projects..

Construction tendering is predominantly determined based on price, so if it costs you more to deliver projects than your competitors, you will be at a disadvantage.

Tip 2: Play to your strengths

As the saying goes, “jack of all trades, master of none”.

If there is a niche that your business excels in, you can get a competitive advantage by focusing in it.  By mastering a smaller niche, it is possible to get very efficient and drive down your costs.  You may also be able to deliver value to your customers other than lowest price (eg, unique solution, shorter delivery time, etc) that can improve your tender ranking.

Tip 3: Know what you’re signing up for

The devil is in the details.  When considering a request for tender, ensure you check the contract terms.  If the terms are unfavourable to the contractor, your options are to make provision in your pricing, declare an exclusion in your proposal (it may not be accepted) or decide to not respond.  Some time the latter can be the best option!

A handy final check is to upload the tender documents into ChatGPT and ask it to give you an assessment.  Note, do not rely on this as your primary check – sometimes it hallucinates!

Tip 4: Ensure you have proper governance systems in place

In the absence of proper governance systems, you are almost certainly spending in a wasteful way.  You can easily blow your budget with unnecessary purchases, purchases from more expensive suppliers and overtime costs.

Many of our customers started with us without a purchase order system in place.  This is a simple safeguard for you to ensure that (a) the purchase is necessary in the first place, (b) the best price is obtained and (c) it is approved at the appropriate level.  This process alone can reduce your costs substantially with minimal additional effort.

Avoidable overtime can have a huge impact on your project budget.  Having an effective system in place to minimise overtime, and ensure any overtime worked is properly improved will significantly reduce your project costs.

Tip 5: Have an organised system for managing your project

Half the battle is before project award.  The rest is in project execution.

Having an effective system for project delivery ensures that you are delivering in a cost effective manner, that cost overruns are identified early, Variations from scope are identified and claimed, and that revenue slippage is avoided.

This can be managed by well designed Excel templates, or using a dedicated construction cost management solution like Varicon.

If you don’t have the time to create a system in Excel, or you would benefit from implementing industry best practice structure, get in touch with us to discuss your cost management needs!

Streamlining Processes with Varicon at Victoria’s leading Sports field builder: Joslyn Group

As a leader in their industry, Joslyn Group recognised the need to streamline their cost management processes and improve visibility into their individual project costs. Seeking a solution to enhance their operations, Joslyn Group engaged Varicon to reduce costs and improve visibility into their financial performance.

Read Case Study
Author: James Baker

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