SMACNA Premier Partner Procore recently collaborated with Dodge Data in a survey of specialty contractors, focusing on specific challenges they are encountering within their businesses. The report, Top Business Issues for Specialty Contractors, examines topics such as productivity, process management, and the overall state of the workforce.
Some of the primary findings from the report:
Key Findings: Profitability Trends
Margin Erosion Plagues All Specialty Contractors: While the average annual profit margin across all specialty contractors surveyed is 21%, their margin on individual projects is eroded by an average of 5% during construction.
Only 1% report never experiencing margin erosion while nearly one third report typical erosion of 7% or more.
42% cite materials challenges (shortages, delays or price fluctuations) as a top cause of margin erosion, and almost one-third (31%) point to a lack of skilled labor.
29% report that inaccurate estimating is a leading cause of erosion.
large/very large companies cite internal process causes more often than small/medium ones. Examples include inefficient procurement (26% versus 11%) and poor reporting between field and office (29% versus 14%).
- Poor Resource Management Drives Unplanned Rework: Rework is a key drain on productivity, schedule management and cost control as well as profit margin
- Specialty contractors identify poor resource management (labor, materials, equipment) and poor client communication as top drivers of rework.
- One third of the large/very large companies say it accounts for half or more of their margin erosion.
- Unbillable Change Orders Represent Major Lost Revenue, Especially for Large Companies: On average, 32% of project revenue is lost because of change orders that go unbilled and unpaid.
- 31 %of large/very large companies lose over half their total project revenue, compared to just 14% of small/medium organizations.
- 38% of UK companies and 36% in Australia/New Zealand report losing half or more of their revenue to unbilled changes versus just 12% in the US and 24% in Canada.
- Nearly One Third of Payments Are Made 60+ Days After Invoicing, Highlighting the Need for Better Financial Control and Solutions: While 49 days is the average payment time across all trades surveyed, 29% report their typical period exceeds 60 days. Contractors’ top recommendations for how to get paid faster with less conflict include:
- Better financial management software
- More process automation
- More efficient invoicing/logistics
- Larger Companies Leverage Far More Debt to Finance Materials Purchases: Large/very large companies use credit card debt (73%), supplier loans (70%) and bank loans (65%) far more frequently than small/medium organizations (47%, 39% and 17%, respectively).
- Supply Chain Disruptions Force Specialty Contractors to Absorb Materials Cost Increases and Drive New Approaches: On average, 31% cannot pass materials cost increases on to owners on half or more of their projects. This is highest among steel contractors (43%), who face a very volatile cost market. Approaches to deal with these challenges include:
- Nearlyhalf are raising their prices, especially concrete trades (56%).
- Steel contractors are most frequently procuring directly from manufacturers (46%) and turning down work if they cannot procure materials (40%)
- Regionally, the fewest UK companies are raising prices (33%) or turning down work (22%). Canadian companies are most likely to turn down work (42%).
Key Findings: Workforce Trends
Labor Shortages Will Continue to Afflict the Industry: Over 90% of specialty contractors report that their projects are negatively affected by a shortage of skilled labor.
- On average it impacts 40% of specialty contractors’ projects.
- The hardest hit are steel contractors, half of whom report impacts on 50% or more of their projects.
- Among the effects being experienced, half or more report project delays and/or cost impacts, and about 40% identify worker health and safety issues, quality problems and more rework.
- The Retiring Workforce Will Worsen the Labor Shortage, Especially for Larger Companies: The current shortage will be made worse by pending retirement of many experienced workers.
- Trade contractors report that on average, 33% of their current staff are likely to retire in the next five years.
- The average is 26% among small companies but 39% among large ones.
- Inefficient Time Use Is Most Prevalent Among Large Specialty Contractors: On average, companies report that about 20% of workers’ time is currently spent on low-productivity tasks, such as tracking down information, documenting information on paper, etc.
- Large/ very large companies report the highest levels, with one quarter saying their staff spends over 30% of their time unproductively, compared to only about 10% of small/medium companies.
- U.K. and Australia also report above-average productivity issues, while the US is notably below the multi-regional average for unproductive time.
- Technology, Jobsite Automation and Offsite Construction Are Active Tactics to Augment Workforce Recruiting and Retention Efforts: While specialty contractors are focusing on attracting and retaining workers, many are also actively engaged in tactics that will enable higher productivity with limited resources.
- More construction technology investments to improve team productivity are planned by over one third of all specialty contractors, led by mechanical contractors (48%).
- About the same number across all trades plan to increase their use of jobsite automation, led by steel contractors (43%)
- A similar percentage plan increased use of offsite construction (e.g., prefab, modular, pre-engineered, etc.), once again led by steel contractors (43%). Small and medium-sized companies are planning to increase their current levels of offsite construction by about 50% over the next 12 months.
- Larger Specialty Contractors Lead in Leveraging Technology for Jobsite Safety: 29% of large/very large companies have already implemented site cameras and drones, onsite sensors, wearable sensor devices and/or artificial intelligence/machine learning for analysis of imagery. Another 50% of them are planning adoption or actively considering it. Fewer of the small/medium organizations are either already using these technologies (about 21%) or say they are planning or considering it (about 23%).
- Regionally, Canada leads in current usage, averaging 30% across all four technologies while US companies lag with an average of just 19%.
Key Findings: Construction Technology Trends
- Many Specialty Contractors Still Rely on Methods Other Than Construction-Specific Software for Key Construction Activities: 39% of specialty contractors report that they are still primarily using spreadsheets, whiteboards, paper-based processes or other methods instead of a construction-specific software solution for important construction functions including preconstruction, project execution and construction analysis.
- Among trades, concrete contractors generally have the lowest engagement with technology and steel contractors show the highest.
- Significant regional variations are found with the use of technology for project execution where the UK leads (69%) and US companies lag (56%).
- Lack of Standardized Processes Hurts Field-to-Office Communication: Nearly 30% of specialty contractors rate the quality of communication between the field and office at their company as less than either good or excellent, negatively impacting the effectiveness of key project processes.
- Almost half of small companies report this low quality of communication.
- Lack of standard methods of communication and lack of technology or mobile tools to streamline communication are cited as leading causes of communication issues, especially by steel contractors.
- Low Adoption of Construction Technology Makes Access to Reliable Workforce-Related Data Difficult: In spite of the severity of the workforce shortages specialty contractors are experiencing, several key tasks related to labor are among the most frequently cited as still handled primarily with manual processes. Those include labor planning and forecasting, labor scheduling and safety reporting.
- Regionally US companies most frequently handle each of these manually, while Canadian companies are the least reliant on manual methods for them.
- Among the trades, plumbing companies report the fewest that are primarily using manual methods for these activities. Mechanical and concrete companies show the most.
- Field Adoption and Training Are Top Obstacles to Increasing Tech Implementation: Specialty contractors identify a wide variety of factors that pose challenges to adoption and implementation of technology solutions and need to be addressed in order to expand their programs.
- Resistance from field staff is cited by over one quarter (26%) of all companies. This varies regionally,with one third (32%) of Canadian companies reporting it compared to just 20% in Australia/New Zealand. It is also more frequent for steel (32%) and plumbing (29%) contractors.
- Concerns related to the time required for training are a factor for 27% of all companies, but especially in Australia/New Zealand (37%) and among mechanical contractors (32%).
- Relatively few cite a lack of senior management support (20%), believe their current methods are better (19%) or say that technology is too difficult to use (15%).
Download the report from Procore to learn more about these trends and their potential impact on your business.