It was sad to read in the NZ Herald today that a roading contractor wins an industry award one day and the next day is put into receivership. What’s up with that!? How could an obvious industry best practice operator get it so wrong? Also, how could the judges of the awards get it so wrong too, but that’s another story.
The owner (second generation) of the business blamed the “systemic problem” in the industry. That problem? The tendering process that awards the job to the lowest price operator, thus forcing the contractor to take on way more risk than is fair and reasonable for the price being achieved. Profit margins and cash flow are screwed down to the floor and eventually it catches up; and the company cannot meet its day-to-day expenses.
This scenario has been repeated in the contracting world time and time again. There is no easy answer, but a smaller operator really needs to ask themselves some hard questions and decide if another path is a better one to follow. Even sitting on the beach doing nothing is probably preferable to going backwards into significant debt and affecting the lives of so many. Playing with the big boys can be very tough and until the owners of projects (often the government) take a longer term view of how they choose their contractors, we will see more small to mid sized operators struggle.
Contracting is like any other business. You need to find a niche where you can build a competitive advantage and differentiate yourself from your competitors. Maybe that will mean you don’t grow as big as your ego would like, but if it means you make a better profit percentage and stay in business longer, then maybe it’s a better way to go.
I wrote a short guide last year on 5 strategies to implement that will help you avoid the race to the bottom. I think it is as relevant now as it was then, maybe even more so. Download it here: The_Race_to_the_Bottom.pdf
Andy Burrows – The Trades Coach