Welcome to the Design & Construction Industry….by Ron Unterreiner, PEOPLE/WBEDC

Does our industry welcome new business owners/emerging firms and do we present these business owners with opportunities to grow and succeed–or are we content with the status quo and the businesses solidly in place?

Is there a place in our industry for new trade contractors and if so, how do they get established?

I feel these are questions worthy of active discussion by industry leaders, City of St. Louis, County of St. Louis, professional organizations such as the AGC, AIA, CSI, ASA, SLC3, anchor institutions, and any other interested party that feels they could contribute to the discussions.  I suppose many reading these words will dismiss these rather simply written questions quickly and in summary fashion, perhaps feeling that the answers are evident, displayed in clear view, and practiced daily.  Certainly, that is one thought.

My work and the work of PEOPLE and WBEDC is with MWBE firms, but I want to set this section of our industry aside for a minute.  The challenges of minority-owned and women-owned businesses are many but so are the challenges of any new firm entering our industry, especially if their work is labor intensive.  So, let’s look at these questions through the eyes of any new business wanting to get a foot hold in our industry—regardless of their race, gender, religion, or political status.  Fair enough?

On Friday of last week, BJC held an informational session which was titled “Growing a Sustainable Business During Uncertain Economic Times.”  The session was part of their regularly scheduled BJC 201 classes which BJC has been faithfully presenting to new and emerging firms for several years.  These are great classes, usually well attended, and typically include many industry leaders, all orchestrated very professionally by Marvin Johnson.  I have always recommended to the MWBE crowd that they attend and learn from these events.  I commend BJC for taking the initiative for holding these classes.

In her summary of the class to all attendees, Mary Aubuchon, Operations Lead for Planning, Design & Construction for BJC, listed several points as being key take away thoughts from Friday’s class.  All were excellent points, but I was stopped by the first point, which is the cause for me raising the simple questions starting off this piece.  Mary’s first key takeaway was:

“The importance of maintaining strong financial management, cash reserves, and diverse income streams.”

All business owners, new and old, would agree with this point and would most probably list financial management and strong cash reserves as number one on any list they prepare.  Unfortunately, the challenges to accomplish either one of the three points listed in this statement are somewhat insurmountable.  Let’s look at this a bit closer.

A new firm entering our industry through the trades, including abatement, demolition, concrete, masonry, steel, roofing, carpentry, drywall, painting, flooring, ceilings, glass & glazing, roofing, HVAC, plumbing, electrical, fire protection and any other trade involving labor would require a minimum of $100K to be able to compete on any significant project and probably a minimum of $250K if they want to build their capacity, take on more than one job at a time, and grow their company at an acceptable pace. 

They would be required to have enough cash to invest the entire amount of their contract in an owner’s building before they receive any compensation for their work.  Welcome to the construction industry.  If they take on more than one job at a time, where is it that we in our industry think these funds come from?  Lines of credit of $150K to $250K are hard to come by for new business owners, at least from respectable financial institutions.  Or is it that we do not think these new firms need this amount of starting capital?  Maybe we think that new firms wanting to enter our industry should have this $250K of capital sitting in their checking accounts?

“Cash reserves” are dreams for new trade firms in the construction industry.  They have to scrape, beg and borrow heavily, to make it to the day that cash will flow on their project.  Most trade contractors will have to fund eleven to twelve weeks of payroll, payroll taxes, union benefits, and material purchases before they are reimbursed for their costs.  Often this cycle is a bit longer, rarely is it shorter.  For MWBE firms working in a second or third tier position, add another two to three weeks to the cycle. And then, a 10% retainer is held until the entire project is completed by all trades.

This is quite a welcoming message to the new firms we are recruiting for our industry.  Unfortunately, the accepted payment practices of our industry prevent most starting firms from following the other three important takeaway points listed in the BJC summary, especially the last point which was:

“A reminder to approach challenges with courage, clarity of decision making, and consistency in execution.”

When business owners have to scramble every Friday afternoon to find payroll for their workers, their ability to think clearly and execute consistently is severely hampered.  Their entire focus is on cash; all other sound business practices fall into the back seat.

I fear for the future of our industry and until we recognize and accept that cash must flow from the top in a timelier manner, we must rely on the solidly established trade contractors to carry us into the future.  And maybe that is acceptable.

Should we have further discussion or am I the only one that feels this way?