What is the best way to alleviate inflation in your construction business? That’s a difficult question to answer for construction companies and contractors alike. Unfortunately, inflation has affected all aspects of this industry. Fortunately, there are several ways you can lessen the bite inflation is taking out of your bottom line and help you weather these turbulent economic times.
The Impact of Inflation on Construction Firms
The construction industry is being hit particularly hard by inflation. Want to see the effects? Just look at your job list. Costs are up, and construction jobs are starting to stall due to a lack of funding. With higher prices, builders are getting less for more. As a result, labor costs are rising as well, which further hinders construction progress.
Let’s look at how this 40-year high inflation is affecting the construction industry.
- Insurance premium hikes
- Surges in fuel costs
- The rising cost of labor
- Higher construction material expense
- Soaring machinery rental rates
- Supply chain issues
It isn’t much you can do personally to change the inflation rate. However, you can take steps to curb its impact on your building business. Do what you can to keep up profitability and ensure you’re situated to get more construction contracts with the following ideas:
1. Switch to Affordable Alternative Materials
All construction materials have been affected by inflation at different rates. Consider substitute materials to keep costs down. An example of this might be saving money and limiting waste by changing over to prefabricated wall panels. Timbercrete or Ashcrete might be cost-conscious alternatives to consider for ready-mix concrete.
2. Implement Lean Construction Practices
Using lean construction practices, you may be able to lower costs. Lean construction allows you to work, plan, and build in phases. This system differs from the traditional method of working through a plan from the start. This approach’s flexibility regarding timelines and managing project costs is the benefit of this approach.
3. Buy Your Materials Sooner
Mitigating inflation risk can also be done by purchasing construction materials early. You might be able to acquire items at lower prices before they go up even higher. Also, consider using payment solutions that give you access to needed funding sooner so you can get materials earlier and on better payment terms.
4. Be Aware of Possible Supply Chain Issues
While bidding on construction jobs, test potential supply chain challenges to figure out which materials you may have to change to get the job done promptly. Interruptions are causing contractors to edit deadlines and push out due dates. You should consider what to do if you can’t get the supplies.
5. Review Existing Insurance Policies
Don’t let inflation overshadow the other liabilities that your business may be facing.
Risk management is more important than ever during tough economic times. This phenomenon is because the negative impacts of a lawsuit or job site injury will hurt your sustainability even more.
Construction comes with huge risks. These can include:
- Worker and third-party injuries
- Construction or design defects
- Damage and theft of materials
- Equipment damage and theft
Analyzing your coverages regularly to ensure they are updated and providing the level of protection you need is critical. In addition, if your services have expanded, you may need to consider additional coverage.
Here’s a list of some of the policies you should consider before starting any job:
Invest in general liability insurance to protect against third-party claims against your company.
This policy covers several claim scenarios, including:
- Libel and slander
- Bodily harm
- Property damage
Were one of these events to happen at your job site, commercial general liability insurance would cover the costs of the claimant’s property repair, replacement costs, and medical bills. Read more about Home stagers near me.
Most states require contractors and construction companies to carry worker’s compensation insurance in case of an on-the-job illness or injury. This coverage shields against medical expenses and lost wages if an employee was to be hurt.
States usually require construction businesses and contractors to have commercial auto insurance for their fleets. Auto accidents can be expensive, especially if there are injuries. Commercial auto insurance covers medical bills, property damage, and legal expenses personal policies won’t if one of your work vehicles is involved in an accident.
Builder’s Risk Coverage
This type of insurance will cover any costs of damage done to a structure or building while under construction. Damages could be caused by a variety of scenarios, including:
Builders’ risk policies ensure that you or your business isn’t stuck holding the bag on ruined buildings before they are complete.
Tools and Equipment Protection
Lost tools can cost your company hundreds if not thousands of dollars in replacements. This policy covers a large variety of tools and equipment less than five years old. It covers hand tools like saws, wrenches, and hammers and power tools like drills, nail guns, and circular saws. The insurance company will cover the cost of these items or replace them up to the policy limit.
Professional Liability Insurance
Signing a contract with a client means you agree to provide quality work within a specific time period. If you can’t or don’t meet this deadline or the quality standards set for the project, you could get sued by your client. Professional liability insurance covers any cost accrued by the lawsuits, including lawyer fees, settlements, and court fees, no matter who is at fault.
A guarantee that your company will fulfill the contract terms is a surety bond. If you cannot meet the agreed-upon terms, the insurance company will reimburse the client for any losses.
6. Finish Ahead of the Schedule
Accelerating project schedules may help you manage inflation. Finishing a project before a price hike occurs is extremely beneficial to all involved and saves your company on labor costs and equipment rentals. However, be sure to notify everyone involved in the venture of the accelerated schedule, or you may find yourself in the middle of labor shortages and other problems.
7. Change Your Bidding Strategies
Inflation rates may force you to adjust bids. Estimating high or low in the past can affect price increases going forward. Be as on-point as possible with your estimates from here on out.
8. Prioritize Communication
Communication is key to good working relationships with partners, clients, and other stakeholders. Are you accelerating or slowing down a project? Make sure you communicate this to everyone involved. This mandate is especially imperative if you’re experiencing a slowdown due to labor shortages or supply chain interruptions. Clients may be less likely to file suit for missing a deadline if you tell them what’s going on in advance.
Compared to other sectors, the construction industry feels the impacts of inflation keenly because of the many variables involved in building. From labor requirements to sourcing materials and renting equipment, how your business will fare during these challenging financial times will vary depending on your current project load.
One thing, though, is for certain. The risk of being sued due to missed deadlines or suffering a major loss in construction site materials due to fire or theft can be devastating right now. The best way to prevent these liabilities from compounding on inflationary impacts is to ensure your company is adequately against these risks. Take time to review your current coverages and make adjustments as necessary to maximize your protection and ensure your finances aren’t at risk because of a lawsuit or damage claim.