Construction work is back, but so are backlogs

When work projects stalled across much of the country during the initial weeks of the pandemic — some indefinitely because of lost funding — the construction industry became increasingly aware of inevitable backlog.

That’s not to say tracking and managing backlog wasn’t a concern before the public health crisis, but the impact of the sudden economic shutdown of 2020 offered new perspective. Now, with demand for construction services on the upswing, builders are racing to complete previously stalled projects and move on to new ones.

Assess the situation

Of course, backlog is important to any construction business. Having a healthy amount of work scheduled but not yet started is a key indicator of financial strength. A diminished backlog, on the other hand, implies the contractor is running out of work.

When backlogs fall industrywide, it indicates that fewer projects are coming to market. A contractor might respond to a low backlog by bidding on more projects than usual or bidding on those outside their normal scope of work. With more contractors vying for the same projects, there’s more temptation to bid jobs at lower margins, which in turn negatively impacts profitability.

Build backlog

It’s possible to maintain or even grow a company’s backlog in the current environment of struggling supply chains and scarce skilled workers. A few strategies could help.

Watch market conditions. To get on the right bid lists, pay attention to construction backlog in the regions or sectors where you typically work or could work. Doing so will shed light on where demand is high and which market sectors are healthy.

Explore diversification. Look into the feasibility of diversifying the construction services your company offers. This is, of course, not a risk-free strategy. You might need to bring in new talent or invest in additional equipment.

Focus on relationships. Regular communication is key to keeping relationships fresh with partners and those who make important decisions on potential jobs. Key contacts can include general contractors (especially if you’re a subcontractor), consultants, architects and engineers, and developers.

Sell your unique value proposition. Identify what you do better than anyone else. Promote your approach to the safety of your workers and the public, including measures taken to protect public health and the environment. Plug other demonstrable advantages of your business, such as stellar customer service, niche expertise and experience, and speed of work.

Bid first. Among the easiest ways to win more bids is to submit first; it helps your proposal become the standard against which others are compared. To get early leads on projects in the pipeline, tap into your professional networks regularly and visit online construction bidding marketplaces.

Don’t just survive, but thrive

When competition for projects heats up, contractors can feel pressured to bid on every job they can find just to have work and keep staff on board. Instead, bid only on projects that you have a high chance of winning and that will likely be profitable. Avoid projects that are outside your niche or in locations where you won’t have the workforce or resources to feasibly fulfill the requirements. Above all, avoid the temptation to bid too low and potentially lose money if you’re awarded the work.

We can help you identify, calculate, and track key metrics related to backlog. Contact me or any member of our construction industry team for answers.

© 2022 KraftCPAs PLLC

Photo by jcomp / www.freepik.com

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