Change is inevitable, but it isn’t always good change. If you are planning on new commercial construction, remodeling, or tenant improvements, I’d like to give you a glimpse into the changes the Great Recession created in the construction industry.
After 2008, construction companies developed a survival mentality, which was appropriate given the serious challenges the recession presented. Many fell by the wayside, but even those companies that made it through are in new territory, in an environment they have never experienced before.
First, virtually every general contractor and subcontractor has multiple job openings they cannot fill. During the recession, people that could retire did. The training and career enhancement programs for existing employees were suspended due to a lack of time and money. Young people who were considering a career in construction stayed away, since the possibility of employment seemed remote.
Second, companies who are unrealistic and undisciplined take on work they cannot staff, and agree to budgets and timelines they cannot meet. This is because of what I call a “survival mentality hangover.” When reality sets in, and it is obvious even to the customer that the project is heading off a cliff, the “blame game” starts.
Some formerly reputable contractors will do, and say, whatever they must in order to get a signed contract. Once the contract is signed, they bring a list of change orders for items that “weren’t included.” They blame the architect, engineers, building jurisdictions and sometimes even the clients themselves.
Another “blame game” technique is for the general contractor to say to the client, “These subcontractors are terrible. Aren’t you glad you have us to help you make them perform?” The fact is though, the general contractor hired all those marginal subcontractors and is solely responsible for their performance.
Another trend is that residential general contractors have attempted to transition into commercial work. They get themselves into areas they know nothing about, provide unrealistic bids, and have no choice but to blame everyone and everything for the complex problems they encounter.
Meanwhile, because of the Great Recession, appraised values on new and existing commercial buildings are still down substantially from 2008 values. Due to a scarce supply of land and existing buildings, competition is fierce. This drives up costs, which is a serious problem when appraised values are down.
So, if you are a business owner who needs to expand or relocate their business, what should you do?
The best first step is to find a general contractor who will be responsible for everything on your project. This is called the Design/Build method of project delivery. From the preliminary design and budget, to the final design and contract amount, to obtaining permits, occupancy and warranty follow-up, the general contractor is responsible for everything. With Design/Build, the “blame game” isn’t even a possibility.
Next, do business only with a general contractor you trust. Spend time with them and get to know their staff, past clients, and observe how they respond to challenging situations. Share your needs, thoughts and feelings. If you wouldn’t hire these same people to work at your company, you shouldn’t select them to build anything for you.
Finally, while the Great Recession caused many changes in the construction industry, it has made the good construction companies even better. If you hire only those companies, listen to their expert advice and hold them totally accountable, your business will be more successful and you will be able to build substantial personal wealth through investing in commercial real estate.
Ron Frederiksen is the CEO of Vancouver-based RSV Building Solutions. He can be reached at 360.693.8830.