Annual Holiday Party & Toy Drive

December 1, 2022 flexibility” during downturns, one respondent observed. Earlier research by Tummalapudi also showed that surety bonding companies focus disproportionately on financial stability when choosing whether to underwrite projects. And, of course, a strong cash position helps companies recover faster.

For the past three years, Terence Curran, chief operating officer at The Amphibious Group, has put together a charity Christmas parade. He goes to four communities collecting toys and food to donate to a local group in Orange County, FL. Last year his efforts collected $3,000 worth of toys for kids, $1,000 worth of dog and cat toys, and $25,0000 of food.

This year ABC CF partnered with The Amphibious Group to fully support local community efforts that impact the areas in which ABC membership serves. The holiday party was held at Gatlin Hall Brewing. Terence and his team exceeded the toy donation goal of $10,000 with the chapter’s dedicated members and their support!

But several of the highest-rated strategies centered on strengthening and maintaining ties with owners, bankers, sureties, CPAs, vendors, customers and subcontractors. One financial officer pointed to the role of company culture in retaining valued employees during tough times. For their part, the researchers encouraged contractors to engage in “honest, forthright discussions with bankers, CPAs, lawyers and surety agents … hiding true financial conditions can damage those relationships.”

Context Matters

While the nine highly effective strategies elicited the broadest consensus, differences of opinion related to contractors’ varying needs and perspectives could account for the moderately effective rating of the remaining 31 strategies.

Indeed, some of those moderately effective strategies could be workable options depending on the contractor’s size, financial resources, cash position and other fundamentals.

An estimated 92% of the 850,000-plus U.S. construction companies have 19 or fewer employees and annual revenues of less than $36 million, according to the paper. But larger construction firms that bring in annual revenues of at least $200 million tend to be more resilient, the researchers note. Greater capital reserves and access might also allow these larger companies to avoid recession strategies with costly downsides, such as bidding on low-profit jobs.

As explained in the paper, when contractors drop fees to “buy work” in this way, the goal tends to be to maintain cash flow, keep projects rolling and retain personnel. Some contractors may even try to “find” that missed profit by submitting more change orders.

While Tummalapudi and his coauthors caution that taking low-profit jobs “creates chaos and has significant repercussions,” some of the respondents appeared to be open to this approach. Indeed, one advised contractors to “reduce profit margins as necessary to maintain a reasonable backlog of work.”

In response, a surety participant commented that “buying work is a precursor to failure; it never works.” Based on the ratings, though, the 61 respondents were divided on this point: Only a slight majority, 52.6%, down-rated the idea of pursuing lowmargin work to stay busy.

This divided opinion makes sense, given that the respondents hailed from companies of all types and sizes. Similarly, another common strategy during downturns—laying people off—may be more avoidable for some firms than others. As observed in the paper, layoffs can help companies survive but tend to be costly over the long term. Thousands of laid-off construction experts left the industry for good during the Great Recession and its aftermath, a contributing factor in historic labor shortfalls that continue to this day.

Additional “moderately effective” strategies covered in the paper related to areas such as:

• adopting Lean construction;

• selling underused assets;

• restructuring equipment and capital loans to turn equity into cash and reduce the burden on monthly equipment debt payments;

• seeking advice from mentors;

• training employees and managers to watch expenses;

• ramping up supply-chain and operating efficiency;

• retaining talent by formulating creative incentive and compensation plans, such as reducing the base wage and increasing bonuses;

• cutting back on non-essential expenses such as travel, meals or consulting; and

• confirming all financing on private jobs prior to signing contracts.

The Right Mix

In their conclusion, the authors offer some additional advice, such as paying more attention to economic trends and principles and avoiding situations that could overextend the company’s capacity.

On this latter point, many contractors responded to the Great Recession by trying to diversify and pursue wholly new markets and verticals. But doing this during a downturn, the researchers contend, “is risky and often leads to failures … the time to diversify markets is during sustained growth periods and while the company has cash reserves to invest in the costly learning stage.”

Ideally, the U.S. construction industry will be able to dodge a severe or protracted recession in coming months—along with the onerous risks that can include, as noted in the paper, “cash-flow problems, legal disputes, low-profit margins and marketing difficulties.”

But as construction veterans know, the prudent course is to prepare for a downturn—a message that is particularly important for newer companies that have never been through a recession. As Tummalapudi and his colleagues see it, all construction contractors can bolster their odds of surviving and thriving by “adopting a mix of effective strategies that mitigate the risks associated with economic cycles.”

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