Related Links: Beware the Recovery: What History Teaches More Room for Gloom on Recovery The unprecedented market downturn from which we are emerging has weakened some construction organizations to the extent that they may have difficulty financing the growth that will come with even a slow market recovery. That, in turn, may increase the potential for defaults. But some of the common ways of dealing with the risks may be self-defeating. Here's what I mean: General contractors and subcontractors have the same exposure—if either type of contractor fails, the entire project is disrupted, and all involved are exposed to disruption

Related Links: Beware the Recovery: What History Teaches Contractors and Sureties At the beginning of the year, I wrote that while no one liked the recession, some contractors and sureties were going to hate the recovery, too. As I said then, a new set of risks will arise as contractors price their work aggressively, profit margins lag and some companies take on too much and burn through their capital.That was pretty gloomy, but I didn't give the complete picture about what can go wrong during the unfolding recovery. Because contractors will price their work aggressively and be hungry for the

SCHLEIFER While the economy may be improving, I believe the recovery is fragile. Any trouble in the financial markets could be serious enough to force the whole process to begin again. Whatever happens, contractors should realize that while they can’t control the market, they can control their response, including making layoffs when needed. Prospering in cyclical markets and surviving a downturn in the construction industry starts with recognizing what will happen when the markets soften and backlog falls off. The same thing has happened without fail in every industry down cycle for the last 50 years. The potential for profit,

SCHLEIFER When a construction firm’s backlog falls off, the pressure on the company escalates and “recession” takes on a new meaning regardless of the actual definition of the word. Prospering in cyclical markets and surviving a recession starts with recognizing what will happen when a market softens. The result is totally predictable and has occurred without fail in every industry down cycle for the last 50 years. When there are fewer projects, competition intensifies and prices and potential profits diminish. The ideal in a shrinking market would be for each contractor to accept proportionately less work so that market share