What Does A Changing Economy Mean for Design-Build Projects; What are the Obstacles or Opportunities?

Matthew E. Cox, Partner with Smith, Currie & Hancock LLP’s Charlotte Office

Contractors are eternal optimists, as they should be. They tend to look at what is possible versus what is impossible. Contractors are generally early risers, task managers, organized and hard workers. Accordingly, when obstacles are placed in front of a Contractor, he or she figures out a way to go around it, under it, over it, or through it. Most economists are projecting that 2023 will bring about a significant recession, as interest rates continue to climb and certain materials remain volatile. As a design-builder, facing a changing economy, what are things that can be done to get ahead of the forecasted doom? Below is a list of suggestions that make business sense whether there is a recession or not, along with some things you can do to shore up liability exposures.

First, either pay down debt or increase reserves. If 2008 taught anyone in the construction industry anything, it was the companies that were the least leveraged that survived. Having a strong financial position now will ensure bonding or buying capacities, the ability to keep top-level employees and the ability to weather slower streams of income.

Second, secure relationships. Make sure that you have good working relationships with your subcontractors, owners, suppliers, bankers, and insurance and bonding agents. Having your team focused and ready to compete or present for upcoming work will be essential. As a design-builder, make sure your design professionals or partners are doing the same things. Communicate honestly about challenges that arise on a project.

Third, if you have not already or are not continually doing so, start looking at inefficiencies within your company and make necessary changes now rather than simply waiting for the fallout. If work is starting to slow down, make corrections in place of simply trying to mask the problems or hoping that it will work out down the road.

Fourth, focus your efforts on your most profitable work, rather than trying to learn a completely new area of construction and diversify into fields that you don’t know anything about.

Fifth, make sure you have adequate insurance for your areas of practice. When money becomes tight, the first inclination is to try to save money by reducing coverage areas or limits. Cybersecurity insurance is not cheap, but you cannot afford not to have it. Make sure that the limits are sufficiently large enough to cover you. More and more, clients have hackers are reaching their internal systems, sending spoofed emails to clients and redirecting payments. Do not get caught as a victim.

Sixth, make sure that you are using contracts that you are familiar with and that reasonably allocate the amount of risk you can control or are willing to assume. If you need to, have a professional review them for you, or use industry standard documents such as those provided by the DBIA.

Seventh, avoid taking unnecessary risks with an owner that has a bad reputation, simply because you need the work, and, this time, it might not be so bad. Difficult owners do not get more reasonable when money becomes scarce. Do not allow yourself to become prey to being reactive rather than proactive.

Obstacles, in an economy, will leave those who are prepared with opportunities. Opportunities to show how a design-build project can come in under budget, with less risk and exposure to the owner. Opportunities to coordinate and collaborate to avoid material supply problems, by value engineering and providing substitutes when possible. Opportunities to show how a design-build project can come in faster than scheduled and more efficiently than a design, bid, build project.

Adequate preparation now will ensure and enable you as a design-build Contractor to be a front runner and uniquely positioned to tackle the many projects that are essential for this Nation’s infrastructure. The funding for these projects is already in place, and these projects will continue to be built, even in the midst of a recession.

Adjustments may be necessary. Adaptation is at the center of every successful business. Adapt or die. Simply continuing to do something the same way, because that is the way it has always been done, when it is no longer working is not a viable option in a recession or in a competitive industry. However, knowing what you do best and marketing what that is, even in a recession, will ensure your continued success.

About the Author: Matthew E. Cox is a law partner in the Charlotte office of Smith, Currie & Hancock LLP. He focuses his practice in the areas of Construction Law, Commercial Law and Government Contracts, with his emphasis on litigation and compliance. He represents a variety of private clientele in the Construction Industry from design professionals to owners and developers, to general contractors and subcontractors. He also represents business clients from formation to advice or litigation such as software development companies, restaurant owners, chemical companies, energy companies, and the telecommunications industry. He also has experience working for insurance companies, including sureties. He can be reached at mecox@smithcurrie.com. Learn more: www.smithcurrie.com.

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