What Happens When Construction Jobs Get Smaller?

JobType Demands Have Changed

When new construction slows down in a bad economy, builders often end up changing the kind of work they perform. Unfortunately, they may not make equivalent changes to the ways that they estimate, manage, or price the job.

Customers Want Smaller and Less Costly

In recent years, prospective customers are finding credit more challenging to get. This means that they’re stuck using their own money for projects, which in turn means they have learned to scale back on their expectations and count their pennies. Customers won't thank you for encouraging them to think about what they could have for more money; they'll thank you for showing them how to get the biggest bang for their buck using more utilitarian products.

What Are the Implications for Contractors?

Many home builders who downsize to remodeling work continue to estimate and price the new remodeling work just as if it were the same as new construction. Remodeling and new construction aren’t the same! For example, in general,

• The proportion of preparation, setup, and cleanup time increases as job size decreases
• The amount of overall project management time increases when job size decreases
• The need for worker flexibility increases as job size decreases
• Down time increases as job size decreases

How Does Job Size Affect Pricing?

Let’s look at an extreme example. Assume that Company A used to build custom homes with an average job length of 8 months. Now Company A has started doing handyman work with an average job length of 5 hours. When estimating the 8 month new home, allowance has to be made for initial setup and daily cleanup. Let’s allow 1.5 hrs per production day. This drops the total available production hours per worker from

1280 hrs (8 hrs/day x 5 days/week x 4 weeks/month x 8 months)

to 1040 production hours (6.5 hrs/day x 5 days/week x 4 weeks/month x 8 months).

For the new construction, that puts the worker’s productivity at 81.25% (1040 actual production hours:1280 paid hours). If we allow 1.5 hrs for the handyman, then his 5 hour job will actually take 6.5 hours, leaving a theoretical 1.5 hours remaining for him to start the next job.

Now there are two things to consider: If his productivity is only 77% (5 productive hours:6.5 paid hours) and you keep the same pricing strategy, you’ll be losing money. But wait! Do you really think you’re going to get another 1.5 hours of productivity out of that worker? Does it really make sense for him to drive to another job site and start getting set up? Or is it more likely that he’ll use the remaining 1.5 hours for other tasks, such as organizing the van, gassing up the truck, entering his timecard information, etc.? So maybe it’s more realistic to calculate his productivity at 62.5% (5 productive hours:8 paid hours).

Monitor the Results

If productivity tends to drop on shorter jobs, and the need for management (more jobs = more subs = more scheduling and communication) increases, it’s critical to price as carefully as you can and then monitor, monitor, monitor. Abiding by the same old rules when the game has changed can put you in a very bad place pretty quickly.