Thought Leaders: Can prefab preserve construction margins?
By Curtis R. Olson, CPA, CCIFP, Partner and Reed Sellers, CPA, CCIFP, Partner
Demand for construction services is strong, and for many backlog indicators have improved since the start of the COVID-19 pandemic. But busy doesn’t always mean profitable.
Elevated labor and materials costs are eroding profit margins. Competition for jobs is fierce — and often focused on the lowest bidder.
Every project detail must be executed perfectly for construction firms to hold onto their hard-earned dollars.
This isn’t new. But some contractors aren’t taking it as “business as usual.” Instead of riding the waves, they’re shifting their business models.
Control what you can
With prefabrication and modular construction, building components or entire buildings are constructed in a shop or warehouse, then delivered to the job site. (Some assembly required)
Sifting the location — and environment — where construction occurs gives contractors more control over essential elements that affect performance and profitability:
- Quality and safety are often easier to manage under controlled shop conditions. Templates and jigs that might not be feasible in the field help create consistent quality. Further safety protocols are easier to follow when in the controlled shop space.
- Labor needs change with prefabrication and modular construction. Fewer people are needed to be on busy job-sites, since a portion of the work can be completed in the shop. Some firms find it easier to retain workers when travel is reduced or eliminated from the job.
- Material costs are the same for modular builders, but prefabricators can leverage their warehouse space to stockpile inputs when prices are good, instead of being at the mercy of pricing fluctuations and availability.
- Productivity increases when projects aren’t weather-dependent or restricted by other site work. Builders can schedule labor, materials and tools to maximize usage and efficiency and avoid costly downtime.
- Time-to-completion is faster. By some estimates, modular construction can cut construction schedules in half. Even small-time savings add up since they free workers and warehouse space for the next job.
All of these factors can preserve margins — and help construction firms win business and maintain profit margins. Cost and risk mitigation aren’t just favorable inside the firm; they build stability that contractors and clients value, too.
