Serving Your Customers During a Time of Inflation

The list of things that get in the way of me doing my job is extensive: personnel issues, budget constraints, unreasonable customer expectations, unforeseen existing conditions and the weather. Add inflation at a 40-year high, material cost escalation, protracted delivery times, labor shortages and safety protocols. If only these distractions would go away so I could focus on my job.

Wishing my circumstances were different is easy. But owning my circumstances as part of my job and rising to the challenge is productive and rewarding. What if we approached every challenge with creativity, focus and determination and framed every problem as an opportunity? Both individually and collaboratively as teams? 

Our markets are changing. Understanding how we can deliver value in today’s market will be the largest opportunity for contractors to differentiate themselves over the next few years.

Every aspect of our business and every phase of the project life cycle is affected. Let’s start by considering the different construction phases.

Pre-opportunity phase

The pre-opportunity phase should focus on laying the foundation for future phases. Invest time and resources in monitoring regional and global factors affecting material and equipment price escalation and supply chain bottlenecks. The more we understand, the better equipped we are to develop strategies that improve the bottom line. Knowledge is the fuel for formulating the value proposition at every stage of the project. 

Consider how you will approach relationships with your subcontractors and suppliers. Over the past 18 months, it is likely you have made an appeal to a customer for additional time or money. It is equally likely you have had a subcontractor or supplier ask you for additional time or money. How did you respond? 

While there is not one right answer, the short-term benefits of holding the line may not be the best business decision when you need a bench of trusted subcontractors and suppliers to go above and beyond on the next project.

Educate owners and general contractors on the benefits of design/build and all forms of early contractor involvement. Constructability input and up-to-date pricing and availability are critical to a project’s planning and success. These are core competencies of trade contractors. Give them an avenue to provide input during the early planning phase of a project. 

Industry acceleration to project delivery methods that include collaboration between design teams and construction teams is encouraged. Securing project subcontract labor and ordering equipment and materials early are essential approaches to overcoming labor shortages and material escalation.

Be realistic about your manpower capacity and avoid overcommitting. In volatile markets, success requires our employees to do more. Growth at the expense of gross margin during a period of inflation is a sure-fire way to erode your cash position. 

Much has been written about having contract clauses to address material escalation in an equitable way. Additionally, ensure you are protected should the project be canceled after resources have been committed. Terms and conditions of master purchase agreements should be evaluated, and a framework should be developed to identify projects of size and duration that warrant a project-specific purchase agreement. 

Conduct time studies for off-site manufacturing so the proper labor multipliers are developed prior to bid time. Estimating assumptions should be updated with increased frequency.

Preconstruction phases

Imagine that every overbudget project has a secret way to maintain quality and performance, achieve budget, and improve your gross margin. Your challenge is to discover that secret. While this may not be possible all the time, a significant number of projects include hidden opportunities for substantial cost savings without compromise. 

The inertia of a completed design and a contractor’s unwillingness to assume design responsibility late in the game can hamper the implementation of value-added solutions. I believe today’s competitive environment will motivate better designs and overcome inertia at every phase of a project. 

I recently reviewed a project in which our team was able to reduce the pounds of sheet metal by 54 percent and labor hours by 55 percent, all while delivering the same cooling capacities to the same locations. The features implemented included swapping vertical distribution shafts, modifying rooftop air-conditioning unit orientation to minimize large return air duct, reducing overall supply air volume with lower temperature supply air, and optimizing duct aspect ratios through coordination with the structure. 

Oh, and even the architect was happy because the size of the overhead duct was cut in half. These savings were dramatic. More typically, smaller but still significant savings can be achieved.

The previous example illustrates the benefits of packaging multiple modifications that compound for dramatic results while not changing the intent. Many times, the opportunity lies in changing the approach altogether. Take, for example, elevator lobby hoistway opening protection required in many high-rise buildings. Satisfying this code requirement can be met with large pressurization fans and vertical duct, visible fire-rated doors or hidden automated fire-rated doors. 

The first cost and delivery lead time for each of these methods is very different. Understanding alternative approaches and staying abreast of which best meets the project’s particular needs will win you a project. A market that rewards creative, holistic and innovative solutions is something to be excited about.

Early equipment and material procurement is a common strategy employed to reduce escalation risk. This strategy is easy to understand but can be tricky to implement. The opportunity lies with defining and communicating the underlying assumptions. Does the entire team understand how to design the project to fit the equipment and material when design details are incomplete?

During the early stages of the COVID-19 pandemic, my company pre-purchased three floors of variable-air volume boxes at the completion of the core and shell phases of an office building. Later, when tenants were signed, we designed the tenant finish to incorporate these boxes with respect to inlet size and access orientation. This early equipment procurement would not have been successful without close attention to detail and coordination. 

Early in the design is the time to understand opportunities for prefabrication and modularization. A contracting firm that has done its homework understands off-site labor and material efficiencies and is prepared to properly estimate cost and demonstrate value. 

Construction phase

The construction phase should focus on the basics: communication and planning. Follow your procedures and do not take shortcuts. Equip the project management and field leadership teams with all relevant information at this handoff. Consider the concept of an integrated project leader with end-to-end ownership of the project to avoid the handoff all together. 

Think of the field team as rapid installers of prefabricated assemblies; do the job once and do it right. Increasing productivity and eliminating rework is a neutralizer of material and labor escalation.

Understand the schedule to coordinate the installation of prefabricated assemblies at the right construction phase. Brainstorm construction workflows with the general contractor to increase efficiencies. Identify float in the schedule for any materials and equipment missing their target arrival dates. Approve multiple suppliers for supply chain robustness. 

Service and facility operations

On the service and facility operations side, periods of inflation squeeze both capital budgets and operating budgets. We owe it to our customers to articulate the benefits of extending the useful life of assets through proactive planned maintenance. 

Furthermore, consider more advanced technologies such as fault detection and diagnostics. This technology can prompt maintenance to reduce equipment wear and identify leading indicators of equipment failure so you are not left in the dark while waiting for replacement parts. 

Through data analysis at a large campus, my company has validated a 30 percent increase in major equipment useful life after implementing a proactive planned maintenance plan. 

Recent market changes have placed additional responsibilities on our workforce. We must not overcommit our teams. The market changes represent opportunity and a catalyst for positive industry change. 

Now is the time to re-evaluate our value delivery models and lean into the things we know deliver positive results: treating others the way we wish to be treated, updating estimating assumptions frequently, involving contractors early in design, challenging ourselves to deliver the best design and educating on the value of planned maintenance agreements.

This was originally posted at PHCP Pros.