In 2022, the construction industry experienced headwinds, backwinds, and crosswinds. The Inflation Reduction Act includes hundreds of billions for clean energy, transportation, and manufacturing. Contractors will be busy in Florida and South Carolina on the heels of damage done by Hurricane Ian, with early estimates of $50-75 billion in insured losses. However, as commercial construction companies jump into rigorous competition for contracts, they must also grapple with continuing high prices, supply chain challenges, and a labor shortage. Further, questions abound with regards to whether a rumored recession will materialize and how the Federal Reserve’s rate hikes will impact industry growth. Having a clear view of financials allows contractors to be agile in moving forward with projects accordingly despite challenges. Harnessing the power of technology is the most practical action contractors and construction companies can make in 2023 to alleviate multiple pain points in an environment plagued with uncertainty.
GET DIGITALLY TRANSFORMED
It is safe to say that most contractors are already aware that digitization is not a matter of if but when. Moving away from manual, paper processes and using digital technology is a gamechanger as it transforms an uncertain environment fraught with complexity into a simpler environment with a greater sense of certainty. Contractors need to be able to appraise their financial situation on demand. Digital tools are available that can help a contractor have a clear and constantly updated view of financial statements, credit scores, bids history, and open bond liability. In the contract business, leaders need fingers on the pulse of their surety lines, work on hand, claims and standing—every day and in real-time.
Construction executives already leveraging tech solutions to create more certainty may go next-level in 2023 by pursuing advanced data analytics solutions to create more predictability in their business operations.
TECH FOR PRODUCTIVITY
The construction industry, which has been one of the most reticent to move toward digitization, has coincidentally shown only slim growth in productivity of about 1% in the last two decades. McKinsey & Co. suggested that digital transformation can result in cost reductions of 4% to 6%. Now a new breed of younger tech savvy construction professionals is looking at their businesses like a business, and not only at the direct costs associated with the brick-and-mortar, wood, and hammers. They’re looking at their internal office structure and asking how they can be more productive. Supply chain delays can lead to a disrupted timeline, so construction executives are turning to project control and cost management software that can crunch the numbers in real time so leaders can eliminate surprises and make informed decisions. Additionally, the younger labor force, which the industry is struggling to acquire and retain, have a certain expectation that their employer is not steeped in obsolete, manual systems.
SWITCHING TO DIGITAL
The manual process to get bids and performance bonds involves a tedious process of sending the bid invitation letter, job specifications, and bid request forms to their insurance agency, which would get an offer from a surety bond company after credit and lengthy background checks. If the contractor wants to submit another, higher bid, the agent will request more information, resulting in an endless back and forth. The faster a contractor can get qualified and obtain a bid bond, adjust bids, update work in progress, obtain additional credit, and order performance and payment bonds, the better position they are in to win jobs. Technology platforms now make it possible for contractors to go online and swiftly and accurately acquire, control, and keep track of bid, performance, and payment bonds. Since most contractors operate on slim margins in a highly competitive marketplace, contractors must master the bidding process not only by submitting winning bids but also accurate bids in line with fluctuating costs. Incorrectly building future costs into bids can be potentially catastrophic.
ISSUING THEIR OWN BONDS
Digital technology enables contractors to be agile in executing a competitive bid in an atmosphere in which bids need to come in up to the 11th hour and razor-thin margins determine wins and losses. Previously, the insurance agent would have power of attorney, know what the bid is (and sometimes see competitors’ bids too), and issue the bond. New software solutions allow insurance providers to grant power of attorney directly to contractors, enabling them to issue their own bid bonds and order performance and payment bonds instantly online. When you’re online, nobody knows your bid except you and the company; there’s no intermediary. Contractors with their own powers of attorney can move faster in getting bonds and seize more control of their own destinies instead of ceding power to middlemen who may be motivated by commission.
In this era of exceeding complexity and competition in construction, technology is the key component to satisfy the urgent need for finding competitive edges, greater speed, and certainty. According to the Dodge Construction Network Q3 Report, commercial construction starts will fall in 2023. The passage of the CHIPS Act is a transformative piece of legislation aimed to re-shore our manufacturing capabilities and our supply chain of critical materials away from China, leading to more manufacturing facilities being built in the US. With this and other macro-forces like the Russia-Ukraine war and increasing sustainability expectations affecting the materials and energy supply chain, the construction industry faces even more uncertainty on the horizon. Technology is the most effective way to make informed decisions from so much disparate information.
About the Author:
Wayne Nunziata has been the president of Colonial Surety Company since 1986. Colonial is a direct and digital insurance company rated ™A Excellent∫ by A.M. Best. At Colonial, Nunziata leads a team that developed a simple online system to write surety, fidelity, and insurance products in all 50 states. For more, visit www.colonialsurety.com.
Modern Contractor Solutions, January 2023
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