Profile of a Profitable Contractor

The author discusses the most important characteristic for being a successful contractor.

By Matt Stevens

Many contractors entered the construction business without much capital, trained people or management expertise. Today, some of these same contractors are leaders in building infrastructure, residences, office buildings, schools and the like. They are the "go-to" people if you want to construct with quality and safety at a fair price and in a timely fashion. Personally, these same contractors have attained financial security and a professional reputation without a superior.

NASA has quantified many of the qualities needed to be an astronaut. To be accepted in the space program, candidates must have the "right stuff."

What is the "right stuff" to be a successful contractor? I can think of all the successful contractors and it seems they have little in common. Some perform commercial work while others focus on residential and still others work in the industrial field. One is union, another is not. Some prosper in metropolitan areas and some in a rural location. Some have autocratic styles of management while others use a participatory style.

To be frank, there is no profile and I would be wrong if I suggested one. However, successful contractors are better than average at one thing.

Managing Resources

Construction is a cost-side business. Containing cost is the only place of focus to deliver margin. As readers well know, most contractors cannot receive a premium of even 1% over their peers. They have to price work at the market while delivering the same quality of those peers.

This means that there is little cushion for inefficiency or mistakes. Added to that is the demand for speed. It is no secret-clients want the finished product faster than just a few years ago.

The contractor has to rely on (mostly) the same labor pool. Also, he is limited to using the same local material suppliers that everyone else uses. So there is no great advantage there.

The contractor has to be excellent at managing resources to meet all these demands, because it is the only variable. Keeping cost, especially labor, well managed is a critical area.

What is the key activity to being a superior resource manager?

Gathering Accurate Information

Whether it is labor productivity, project leads or return on working capital, timely and correct information is crucial to making the right decisions. Without it, he is no better than the average contractor. So, seeking and confirming information is a key skill. Some of this data comes from the market and some of it from inside the company.

A contractor will always have a better result and more confidence knowing he made an informed decision.

Computers help in gathering and analyzing information. However, this does not mean computers are the only tool to being informed. They are an important one but, they are only as good as the data received and the analysis model used. In some cases, paper and pencil calculations are far better.

Take for instance, labor productivity. A contractor is far ahead if his field manager can quickly compare labor efficiency on a time sheet form daily rather than to wait on a multi-page computer report from the office.

Bidding models are based on accurate information. Practitioners know that using them consistently leads to added profit margin in the long term. Some people use electronic spreadsheets while others use a paper method. All beat the competition.

I could cite many other examples. However, my observation of the industry is that excellent contractors are also superior resource managers who make decisions using accurate information, no matter what tools they use.

Matt Stevens is a management consultant who works with construction contractors. His new book, Managing a Construction Firm on Just 24 Hours a Day, is published by McGraw-Hill. He may be reached at mstevens@stevensci.com.