For many of us, the word ‘crisis’ takes us back ten plus years ago when a financial crisis spread throughout the world.
Today, we face a very different crisis. Many countries are employing a wide range of measures to keep people apart and limit the spread of a global pandemic, from social distancing to pressing the pause button on many aspects of everyday life. Construction has not been immune to this virus. While the current crisis is different in many ways, there are things we learned from the aftermath of the 2008 financial crisis that we can use to help us manage the current crisis.
We recently had the opportunity to sit down with Andy Dickey, Business Development Manager for Trimble’s Cast-in-Place Concrete business, to discuss the lessons of the previous crisis and how they might be applied today.
Andy is originally from Nashville, Tennessee, in the USA, and he has been working in various roles in the construction industry for more than 20 years. He is currently focused on delivering BIM (Building Information Modeling) solutions for use in all phases of CIP Concrete Construction to Trimble customers worldwide.
The construction industry is not a monolith in terms of what firms experience in real-time. We have always looked to architecture and engineering billings as a leading indicator for what’s in store for the market looking forward. When there is a crisis, we see design billings falling off first and then that cascades throughout the trades over an extended period of time. This is exactly what we saw happen as the 2008 financial crisis played out. The major feature of the financial crisis for my business was noticeably diminished credit availability. This made it more difficult for projects to get funded and for construction companies to make use of credit facilities for day to day operations. Despite the challenges we faced, our revenue never went to zero and that’s something to keep in mind in any crisis. The world continues to turn albeit a bit slower than we’d like.
For me, the financial crisis that began in 2008 was actually the second economic crisis that I have faced in the construction industry. Before the financial crisis that began in 2008, we faced a crisis that was a combination of the .com bubble bursting and the fallout from the terrorist attacks on September 11th. From my own perspective, the September 11th crisis was not as severe as the 2008 crisis or as severe as we expect the Covid-19 crisis to be. As an American, the current crisis feels like a combination of the two previous crises plus an added personal dimension. What we face now presents us with severe health, safety and economic challenges plus a very personal dimension all at once. Many people, including me, know someone that has been made severely ill or worse by this disease and they have to wrestle with this while we all do our best to be a good parent, spouse, coworker, etc.
On the jobsite, in addition to traditional safety procedures, we are learning how to maintain safe distances, use PPE (personal protective equipment) in situations we might not normally use it and types of PPE we maybe haven’t ever used before. In some cases, our supply chains are strained and this will surely get worse as we all ramp up at the same time. All of this while we are working to be more efficient and effective than before because of the financial pressures created by this crisis.
In my opinion, the fundamentals remain the same. A key feature of the previous crises was that we saw more consolidation - fewer companies doing more work. I think we will see this with this crisis as well. In a crisis, the work does not go to zero but there is definitely a severe decline. This means that it is essential to perform the work that remains as efficient as possible with a heavy focus on cash flow.
As we work toward recovery, there will be fewer projects to pursue. It is important to put one’s best foot forward for each of these opportunities, win the work that is lucrative, recognize the work that is not and decline it. As the recovery begins to pick up speed, the companies that survive are faced with managing the rapid growth of their business while accessing working capital and containing costs. The mix of projects being built is also likely to change.
As governments work to stimulate their economies, infrastructure will no doubt feature heavily. The way we as a society work has likely changed for the foreseeable future. This means the demand for communications and computing infrastructure like data centres will accelerate significantly. To meet these challenges head-on, striving for perfection in planning and execution of the work is the order of the day. Having constructible, coordinated information in the right hands in a timely fashion is essential.
My advice may not be a good fit for everyone as each situation is different. Some have had limited impacts from the virus while others have suffered greatly. I will try to offer some advice that is fairly universal and I hope that it helps.
This crisis will accelerate the widespread digitalization of all aspects of the industry and everyday life - including and maybe even especially the construction industry. Doing work already on the books as profitably as possible, winning work that is profitable, executing future work as efficiently as possible, the deployment of technologies like those offered by Trimble can help contractors make this a reality. The time to prepare for the recovery is now. As you navigate this crisis, keep in mind one can make investments to prepare for the recovery that are more balance sheet friendly than others. It is a good idea to consider acquiring technology on a subscription basis (OpEx) rather than perpetual license purchases (CapEx). Another thing to keep in mind, these tools do not operate themselves. They require well-trained individuals to utilize them and there is no better time than now to learn these technologies. There are many resources available (many of them free) to learn and utilize these tools in a remote work environment. (You can check our free Tekla Structures elearning). I encourage you to learn more about these tools and prepare for what comes next.