What Everyone Needs To Know About The Construction Industry

Construction Industry Guide

If you’re like most people, you have times where the very thought of road construction makes you sweat. After all, those flaggers at the side of the road don’t exactly seem to care that you’re running late for work. It doesn’t matter that the kids keep saying, “are we there yet,” either. Instead of driving, you sit in traffic. Forever. And wait. When you aren’t in a hurry, you might drive through that construction zone and wonder how those workers can stand working in the hot sun all day. Or deal with the exhaust and road noise. 

Of course, there’s a lot more to the construction industry than just building roads. Construction workers make roads and bridges happen, but they also build houses, office buildings, power plants, and even skyscrapers. In fact, this is a vast industry that covers a wide variety of specialized occupations.

One of the best things about this industry is its diversity. There are many different types of construction companies out there. They can work for public or private customers, and breathe life into just about any project. 

Whether you are thinking about starting a new construction business or just curious about the industry, here are some helpful facts.

Construction is Big Business

In the United States, construction spending for new projects reached almost 1.3 trillion dollars in 2018. If it sounds like a lot of money to you, then you’re right. That figure represents 6.3% of the American economy, or about 1 dollar out of 18 generated. You only have to look at the newspapers or television to know that construction is being started everywhere you look because data shows this is a fast-growing industry. 

Since construction is such a boost to the American economy, the Federal government is placing a significant emphasis on infrastructure improvements. Keep in mind that this is an industry that creates jobs in other sectors. For example, to build a house, you need not only construction workers, but also wood, stone, bricks, glass, pipes, wire, and a whole host of other materials. Each of these components of a house has been manufactured by someone else and then shipped to the job site. In the meantime, the manufacturer has bought raw materials and then paid its employees. They have to market the product and fill orders. At every step along the way, someone gets paid, and there is a job created. For this reason, construction has an outsized influence on the economy in general. Combined with the necessity of good infrastructure, it is easy to see why the government is focusing on this industry.

Construction provides many different jobs

Construction Industry Guide

Without a doubt, construction employees are everywhere. Recent data estimates that there are 10.7 million of them nationwide as of 2019. Part of the reason for this is that many construction-related tasks are very heavy on manual labor. In the future, there may be more automation, but for now, there’s no replacement for that worker standing on the side of the road, pouring hot tar into the cracks. No matter what a company might be building, hands-on skilled workers are essential.

Here are some examples of skilled jobs in the construction industry: 

  • Plumbers: This type of profession can take several forms. Some plumbers place pipes and fixtures into new houses or commercial buildings. Others prefer to fix leaking faucets for an apartment complex, or even help install water heaters, boilers, and household appliances. Job data shows that plumbers have potential job growth almost three times the average, and make more than most other workers. In most states, you’ll need a license.
  • Electricians: Generally, this is a core construction industry job. Electricians install electrical wiring into buildings of all types. If a company builds something that will be occupied by people, chances are they’re using an electrician for part of the job. People who work in this trade also string utility lines, hook up electrical appliances, and prevent fires by ensuring electrical safety. Government data shows a 10% growth rate and a high salary for high school graduates. Licensure is generally required.
  • Roofers: These are the guys that fearlessly climb on top of a building to build, repair, or replace the roof on a building. Roofs can contain a wide variety of materials, so this type of tradesman has pretty versatile skills. Of course, this particular job is risky because of the chances of having a severe accident. In return for the risks, roofers currently enjoy a 12% job growth rate and higher than average wages. 
  • Carpenters: One of the oldest trades in the world, carpenters work with wood. It’s also a very creative profession. That’s because carpenters don’t just pound boards together. They can make decorative woodwork, build wooden parts of a bridge, or even install those brand new kitchen cabinets. Generally, carpenters enjoy healthy job growth and good wages. Often, becoming a carpenter is a step up from being a laborer.
  • Masons: Another ancient trade, masons work with stone, brick, blocks, and cement. Projects can include a fireplace or outdoor terrace, as well as extensive structural elements like brick walls for a building. Another somewhat artistic part of the construction industry, masons help contractors ensure everything looks great. Job prospects are excellent here, as well.

Construction is done by a wide variety of companies

Construction isn’t just something that large companies do. In fact, construction is a very small-business friendly industry. After all, a single craftsman with his license (if required), tools, and work van can find all kinds of odd jobs to do. Just look at the Yellow Pages, and you’ll see all sorts of advertisements for self-employed electricians, plumbers, and carpenters. When something goes wrong in the house, like a leaking faucet, these micro-businesses are often the first place we turn for help. Some of these incorporate, while others remain sole proprietorships.  

Individual subcontractors

These generally fall into two categories: the “guy with a truck,” and small construction companies with a particular specialty. For example, let’s say a contractor is constructing a large apartment building. This type of job requires a whole bunch of specialties. In some situations, the contractor might have a few plumbers and electricians on staff, and can just use the ones on hand. However, there might be a different type of skilled worker that they don’t have on hand. Or, the work required is something specialized. In this case, they will usually hire a subcontractor. 

Think about it this way: if installing a boiler in each unit is only going to take a couple of days with some specialized workers, why should a contractor pay for them to act like laborers the rest of the time? As the Bureau of Labor-Management says, skilled workers in the trades cost more per hour. It’s much better to hire specialized help only when you need it. Such specialized help can take the form of an individual craftsman or a small business that only does one kind of construction work.

General Contractors

Construction Industry Guide

If a building project were a rock band, then the general contractor would be the bandleader. Generally speaking, this type of construction company comes in when there is a significant project planned. Therefore, if you only need to get an electrical outlet replaced, hiring a general contractor isn’t necessary. However, if you’re planning on building an addition to your house, then hiring one might be a smart decision. In some states, large projects do require the use of these companies.

So, what does a general contractor do, exactly? In short, they provide comprehensive building services to the party who commissions the project. So, let’s say you’re building a new home. The general contractor does all the work of coordinating the project. They will hire any people with skilled trades who aren’t already on their staff, like plumbers or electricians.  Their own people will provide materials, equipment, supervision, and workers. Getting a building permit and other details are the responsibility of this contractor as well. The general contractor is generally who gets paid by the owner of the project, and in turn, the general contractor pays everyone else. Individuals will do business with these contractors, who take the stress out of building a new home.

Real Estate Developers

These are the companies that build housing subdivisions. They’re also responsible for building shopping malls, office parks, and other types of commercial real estate. Sometimes, real estate developers will also take old construction and either remodel it into something else or tear it down to build something new. This type of construction company will either work on its own property or contract with other companies to do the building construction on a fee-for-service basis.

Real Estate developers are essentially the powerhouses of the building and construction industry because they employ a lot of workers. One of the things that set them apart from general contractors is that they do nearly everything in-house. This in-house work includes permitting and even the hiring of attorneys to get regulatory approval for a project. Because they are also frequently the investor, running a development company is a risky business. A lot of developers go bankrupt because they are vulnerable to boom and bust periods in the market. Even riskier, they are often responsible for doing the property management for their own buildings or selling the houses that they’ve built. 

Public Works

Not what you’d typically think of as a construction company, state and municipal public works. and road departments constitute a significant part of the construction industry. Perhaps the biggest difference between public works and private construction companies is the type of projects they generally work on. For example, roads, bridges, and sewer systems fall under the category of infrastructure. It is this type of work that generally falls under the public works department. As a general rule, these projects are paid for by public funds. These public funds can include tax dollars paid directly by the community, bonds, or state and federal money that comes in as grants.

In other words, the construction workers you see on the side of the road often work for a public works entity of some sort. Market data indicates that this type of construction spending is currently higher than residential construction spending. Perhaps one reason for this is that non-residential construction is now more critical than ever. After all, those roads and bridges that people built a generation ago are in poor repair. Civil engineering experts agree that this needs to change soon. Fortunately, local and state governments are responding to these challenges with a spending increase. 

Construction Companies Face Many Challenges

Like most industries, construction comes with many different types of challenges. For example, many people do not like the noise, dust, and disruption that come from construction sites. Naturally, this can lead to a lot of complaints from those nearby. They might call the city, or complain to the local contractor regulatory agency. Often, meetings about proposed building projects are attended by people who feel uncomfortable about the idea of another build. 

Of course, opposition and perceived public nuisance aren’t the only challenges that the construction industry faces. While public opinion is an issue in any environment, other problems come and go.

The high cost of materials

Even for those who are completing small projects, the skyrocketing cost of materials is a concern. After all, the cost of materials has a significant impact on the amount of money needed to build that house or complete the remodel. Experts say that there are several reasons for the high cost of materials, and each has a different solution. 

For example, in 2019, the trade war with China had a major impact. Many types of materials are manufactured over there and must clear American customs. When there are sizeable tariffs on such goods, prices to contractors increase. Since these cost increases often happen after the contract is finalized, it isn’t always possible to pass the higher cost on to customers.  While one solution to the problem is buying domestic goods or those produced in lower-tariff countries, this isn’t always possible. For one thing, American manufacturers have limited capacity. 

Another problem affecting the cost of materials is increased demand. One of the significant effects of the overall economic recovery is that people are building again. At the same time, it is hard for manufacturers of materials to ramp production back up again. As a result, available materials will command higher prices. Many strategies are available for counteracting the effects of this problem on the construction sector. 

Labor shortages

Since the US generally has a low unemployment rate, businesses in many industries are struggling to retain workers. Industry data shows that there are over 400,000 unfilled construction jobs. These openings can be very frustrating for the building industry. After all, when there are too many job openings, sometimes work doesn’t get done on time. Naturally, delays in project completion are bad news for everyone. Customers don’t get the use of their building or other structure, contractors don’t get paid for completion, and any other businesses that depend on the project can be left in the lurch. Especially for non-residential construction or multi-family buildings, this can be a major hassle. Sometimes, the construction company may even have to compensate the client. 

Needless to say, getting the right construction professionals can be a challenge. The labor shortage is compounded by the fact that many workers in the industry are getting older. A lot of younger people don’t want a job that involves a lot of physical labor since many millennials grew up wanting an office job. Add to that the boom and bust nature of the construction industry and its tasks, and it is easy to see why worker recruitment is so difficult. 

Of course, all these issues are leading to a rise in labor costs. Wage data indicates that construction worker pay is rising rapidly. As a result, contractors often see an increased cost in this area. Naturally, this also contributes to the rise in construction spending.

Regulatory challenges

Like in many other industries, the construction sector faces a lot of regulatory challenges. For example, the choice of a building site might have problems due to the Endangered Species Act or the Clean Water Act. Both of these laws are a favorite way for people opposed to a project to object. Sometimes, they use these laws to have it blocked. Over the years, these rules have become more demanding to the point that there are lots of lawsuits involved. In fact, a lot of companies have had to hire compliance professionals. Their job is to wade through these regulations and avoid the pitfalls.

Other regulatory challenges include occupational safety concerns. According to OSHA, construction is a high-risk industry for on-the-job injuries and deaths. For that reason, there are strict occupational safety regulations that companies must comply with. Of course, being safe requires time, effort, and even money. When people are in a hurry,  they make mistakes, and the consequences can be quite severe. Smart contractors using electrical professionals, a particularly high-risk field, should consult OSHA and the IBEW local for advice on ways to set up their site safely.

Environmental concerns

Nobody questions the fact that construction sites use a lot of energy and kick up plenty of dust. It only takes a casual observer driving by to discover a lot of dirt. That’s especially true when there is excavation or demolition going on. But have you ever thought about carbon emissions? These sites require the use of all sorts of heavy machinery, many of which burn fossil fuels. Even light trucks used to transport workers and materials, run on gasoline or diesel fuel. 

To make environmental concerns even worse, there is a lot of non-combustion use of these fuels in construction materials such as roofing shingles, tar paper, and plastics. As a result, construction companies need to find ways of conserving energy and using sustainable methods. Using less carbon is a significant trend in this industry, and it also helps with regulatory problems such as the clean air act. Generally, when people use sustainable building methods, everyone wins. That includes an easier permitting process, as well as the construction and use phases. 

Competitive pressures

Perhaps one of the biggest challenges facing the construction industry is price competition. In combination with rising costs of materials and labor, it is easy to see how so many construction companies struggle to keep a healthy profit margin. For some clients, especially governments, price is king. They’re often bound by regulations to take the lowest competitive bid for any given job. When dealing with uncertain costs, construction managers frequently have trouble knowing how much to charge. 

Luckily, customers are starting to realize that the cheapest option isn’t always the best. For example, when inferior materials are used to save money, repairs are often needed much sooner than they would otherwise. Offering sustainability and functionality upgrades, however, are a great way to ensure that your bid gets serious consideration. It also offers an opportunity for markup.

Helpful Hints for Success in Construction

Fortunately for construction professionals, there will always be a market for new buildings and repairs on older structures. While this industry has its ups and downs, even in a recession, there are opportunities to make money. Especially now, when new projects are cropping up everywhere, there are great opportunities to prosper in the construction industry. Here are a few of the best tips.

Find Your Niche

It might go without saying, but bidding on everything in sight might not be the best business strategy. Do that, and you’ll end up competing for all the same jobs against every contractor in the area. Not only is this a potential waste of time, but you might end up stuck in a race to the bottom on price. Take that too far, and you could have problems paying your staff. 

One way to avoid this type of destructive cycle is to have a particular niche that you work with. For example, there are construction companies that build a lot of decks, and others that build swimming pools. In this case, there is some overlap between specialties. After all, when people build a pool, there usually is some sort of deck with it. Maybe your company doesn’t want to build pool decks. After all, there are water lines, filtration systems, and perhaps even electrical wires going into and out of the area. These items add more complexity to the deck project. Instead of dealing with these, you might decide to skip the swimming pool deck sector and just stick with the client that wants something of his backroom. In so doing, you’ve left the pool deck job to swimming pool specialists, and avoided having to underbid the pool builder. 

Specialize in “green” construction

This tip is kind of similar to the one above but works on a larger scale. One of the biggest industry trends right now is environmentally-friendly buildings. Several factors drive this trend. For one thing, being environmentally friendly is fashionable, and shows customers that you care about the environment. At the same time, environmental sensitivity can pay the building owner back in reduced energy costs, fewer maintenance issues, and better public relations. Sometimes, it even helps with the permitting process.

Another advantage of specializing in green construction is that you can charge a premium for your services. After all, this part of the construction sector requires specialized training for its workers. Being able to use LEED principles effectively makes you more competitive in the marketplace. When that happens, you can charge higher prices for your services, because this specialty is harder to find. Also, people who want environmentally friendly construction are willing to pay for it.

Lastly, if your company is a real estate developer, there are further benefits to going green. Energy costs are indeed lower, but in addition, you might be able to get a higher rent or sale price. That’s because potential tenants and buyers are willing to pay a premium for all the benefits of energy efficiency. Even better, you’ll be at the forefront of a trend that is becoming increasingly mandatory.

Build better estimates and contracts

It goes without saying that if you give a customer a firm price, and there are cost overruns, you’ll have to eat the difference. However, ensuring that you minimize your exposure to these expensive mistakes is a lot harder. For one thing, you’ll want to have a good idea of how much money you’re going to spend on labor. This includes more than just wages: it also includes payroll taxes, benefits, and other expenses. Fuel, maintenance for work vehicles, and other overhead items are important too. 

Another way to ensure that you protect your profit margin is to ensure that you and the customer are on the same page from the beginning. For example, you need to establish what happens if a customer changes the specifications of a project after you’ve started. Does this mean you can charge the customer the difference in costs, even if you have a fixed-price contract? What happens if there are delays? Neglecting these details can lead to lost revenue or even lawsuits. Be sure everything is carefully spelled out to protect your business.

Control materials costs

The rising price of commodities, uncertain tariff rates, and labor disputes worldwide have an inevitable effect on what you’re going to pay for building materials. For instance, when the price of steel rises, so does the cost of steel rebar. Oil prices influence the cost of roofing shingles and some plastics. Recently, there was a trade dispute with Canada about the price of lumber. All of these factors can hurt profitability. Certainly, you can build in an allowance for price fluctuations in your pricing estimates, but this only goes so far.

Another thing you can do is try and reduce waste on your work site. Not only will you avoid filling landfills with things that are reusable, but you’ll also save money. For example, if you’re doing a remodel and then you can move window frames from one place to another, then it may be more economical to do so than buying a new window. Pieces of reusable lumber that get taken from an old location might be able to find reuse elsewhere in the structure. In other situations, you might be able to sell the leftover materials to help make up the cost of new ones. Do it right, and both your customer and your bottom line will thank you.

Take care of your customers

Lastly, take care of your customers. They’re the lifeblood of your business, even more so than your employees. After all, they are the ones who can provide references to others who are looking to hire a contractor. In the era of review sites, reputation is critical to overall business success. Often, the construction company with the best reputation has a better chance of landing that contract.

If you’re also selling or leasing property, tenant or buyer testimonials are also helpful in generating sales or tenant leads. Maybe the new owner of that house you built will tell their friends to consider your company when relocating themselves. Or maybe the commercial tenant you have will stay in your building instead of moving somewhere else when their lease is up. Either way, you win.

What’s your best tip for success in the construction industry? Leave a comment below.