The construction industry is in a depression (forget what the government is telling you), and just about every contractor has cut staff and expense, while expanding their field of work or looking for any type of work they can find. As a result, a lot of crazy stuff is happening in the marketplace.
Some of the potential pitfalls of the current environment are people and companies getting jobs they are not qualified to handle; contractors without adequate capital; and an increasing number of liens being filed because subs or equipment notes are not being paid. In short, margins are tight or non-existent, and general contractors do not have the time or dollars to mess around with these issues.
Look for the deals
To make matters worse, financing is still very hard to get. You hear that it is available, but only if you have the credit record and the 20% down as required by current lending terms.
That is not to say that equipment is scarce; there is plenty to buy and the prices are starting to firm up. If you have the ability to buy, it is a good time to do so if you need to upgrade what you currently have.
There are deals to be had from both dealers and rental yards. Many have some form of financing available, which may or may not work for you, but it may be better than what you can do at the bank. On the other hand, rental rates being offered in many quarters are so low that the purchase may not be worth the effort. Just use it and return it - without any future note payments to worry about.
The good news is there is a chance the bonus depreciation rules may be put back on the table. If you plan to buy new equipment, it is a great deal. But even if you don't plan to buy new, the Sec 179 rule is still available to write off 100% of new or used purchases up to $250,000 (subject to limitation provisions).
Reduce lien risks
General contractors are taking steps to minimize liens being placed against their projects by suggesting payout procedures that ensure all subcontractors are being paid when the GC makes its payment to its sub. Some are suggesting joint payout agreements. For example, separate checks are prepared for the various subs whose invoices are being submitted for payment; or the check is made out to the sub jointly payable to the sub and its vendors. Either method works and helps avoid potential lien issues.
Another method generals are considering is to take control of all equipment rental on the job so that it comes from one source; can be moved from sub to sub; cuts down on equipment movement; and cuts down the cost to the job. This can work if properly set up, and will cut the job cost while avoiding potential liens due to rental companies not being paid.
Some rental companies are even offering to set up a small on-site rental yard where subs could get the equipment they need when they need it. Since you don't pay for the equipment if it's not in use, this approach will certainly make the job work smoother without lien implications.
We all have to keep reinventing our business. It makes no difference if we are in a depression or not; making your business offering more efficient is part of the "new normal." I hate to use that phrase, but in this case it is true - the company with a tight process to get the work done will get more work and make money at it.
Garry Bartecki is the managing member of GB Financial Services LLP and VP Finance for the Associated Equipment Distributors. He can be reached at (708) 347-9109 or firstname.lastname@example.org.