The construction industry is a dynamic segment of the economy. Contracting firms must constantly adapt to changing market conditions. Shocks like the “remote work revolution” brought on by the pandemic have caused cancellations and delays to commercial office projects. The high-interest rate environment has caused slowing of multi-family starts in some areas.
In response to market and financial pressures, many contractors are looking for work outside of their proverbial "sandbox," by either diversifying project types or seeking work in new geographic areas. While revenue growth is certainly attractive, operational expansion comes wrought with perils of risk and uncertainty. Every type of project has specific nuances, making experience paramount in successful project completion. Every region, state, and even county has differing adoption cycles for uniform building codes, their own set of subcontractors serving the area, and different labor regulations.
When thinking about expanding operations into new markets or geographic areas, consider using one or more of these proven approaches to help mitigate the risk.
Expand with your clients
The simplest way to begin to secure contracts in new areas is to leverage your existing reputation and relationships that has been built with your clients. Many contractors have success expanding into new areas by following their clients. This provides opportunity to deepen the client relationship and more easily gain a foothold in a new geography.
Bring your own subcontractors
Considering today's construction labor demands are still outpacing supply, access to qualified craft is one of the major challenges with expanding into new regions. The best subcontractors are the ones you already know and have built solid working relationships with. Reduce uncertainty in your expansion and see if your best subcontractors are willing to expand into new areas with you.
Joint ventures
Teaming up with other contractors allows you to leverage the individual experiences of each firm. This is a great way to gain valuable project experience in new markets, and new geographies, with less risk. As a fringe benefit, the combined financial strength of the firm is generally considered by owners and financiers in capacity calculations, allowing you to potentially go after larger projects.
Super subcontractors
An alternative to joint ventures, super subcontractors are a contractual arrangement whereby the prime or lead general contractor hires a local or specialized firm for their access to craft or experience in a specific project type. The super subcontractor contract can be set up for complete project delivery or just specific scopes. This arrangement allows firms to maintain their client relationships, but successfully stretch experience into new project types or geographies.
Munich Re Specialty offers a wide range of insurance solutions and services for your construction business during challenging market conditions.
Contact us to discuss your unique needs: https://munichrespecialty.com/na
Munich Re Specialty is a description for the insurance business operations of affiliated companies in the Munich Re Group that share a common directive to offer and deliver specialty property and casualty insurance products and services.
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