Alex M. DeCouto, past president of the Construction Association of Bermuda and president and owner of Greymane Contracting Ltd., discusses the problems of running a construction company in a difficult economic climate. *Photo supplied
Alex M. DeCouto, past president of the Construction Association of Bermuda and president and owner of Greymane Contracting Ltd., discusses the problems of running a construction company in a difficult economic climate. *Photo supplied
Unless you have been hiding under a rock, you will know that the construction industry is in turmoil at the moment. Everyone has to adjust to a ‘new normal’, which in real terms means substantially less turnover.  Obviously, in order to survive, action needs to be taken.

With less income, if a company does not correspondingly reduce costs, the drain on cash flow can quickly sink even the largest of operations.

If we go back to Business 101, there are two factors that company owners across the island are considering: variable costs, and fixed costs.

Variable costs are fairly straightforward; they are the direct costs incurred on projects, the labour and materials.

For each project, the level of field staff and materials requires ebbs and flows.

Even when times are good, you may be doing more masonry than carpentry and your staffing levels change as a result.

You are not buying materials for houses that you are not building.

Company owners are fairly used to controlling variable costs, although that doesn’t make it easy! 

There is a certain critical mass, however, which is different for every company, where the turnover that is being generated by projects doesn’t cover the company overheads (fixed costs).

If you only have one tradesman busy in the field, you probably are not making sufficient gross profit to cover your fixed costs.

Fixed costs are not as easy to curtail as the variable costs. Cutting into them is like cutting into bone. If you make your estimator redundant, who will prepare quotes for the projects that are available?

If you sell your truck, how will you service the jobs that you do have?

Cutting fixed costs is not easy; you are structurally changing the company.

Like almost everyone else, Greymane has had to do both, and it has not been easy.

Cutting back on expenses or miscellaneous materials is a fairly benign exercise.

But looking someone in the eye and telling them their livelihood has come to an end is heart wrenching, although it is worse being on the other end, I’m sure.

I make it a point of personally doing all the hiring and firing, as I do not want to be unnaturally isolated from the very sharp edge of being an employer.

It means I put serious thought into every decision, and I don’t take any of it lightly.

While the total amount of spending on construction is down significantly, there seems to be a decent number of projects out there to bid on at the moment.

This is reassuring from an economic perspective, but they are mostly small in relative terms.

In an attempt to meet turnover targets we have to do as many as we can, at the same time.

Any builder will tell you that the small projects are just as much, and sometimes more, of a pain to manage as the big projects.

As a result, the paradox is that we are as busy as ever, but we are just barely covering our fixed costs. 

On the flip side, our clients are benefiting from this ‘new normal’. Most of the projects we are doing currently we wouldn’t even have bid on two years ago. 

Rarely does a small renovation have a professional project manager coordinating the schedule and procurement, and a qualified superintendent managing the work on site, along with a host of other services that the guy operating ‘out of his truck’ is not able to provide.

Not every job goes perfectly, but I truly believe that we are adding real value to our clients’ property investments.

I made a couple of bets last year. One, that the Greymane machine was good enough to survive in the toughest of markets, and two, on a macro level, that Bermuda would ultimately pull through these stormy economic times.

I remain quietly confident that in the long run, the bet will pay off.

In the meantime, I hope we can strike the right balance between service and cost cutting.