Concrete contractors across the country are feeling the crunch from the downturn in the residential market. For some, a changing market is old hat - they've been through this before. Others, however, are experiencing the need for business adjustments for the first time. In response to a dip in residential work and an increase in commercial jobs, many concrete contractors are increasing the percentage of commercial work they perform. The residential and commercial markets have their differences, and being prepared for some of the nuances will help you weather the changes.

The dreaded retention
Matt Stevens, a management consultant for construction contractors and author of the book Managing a Construction Firm on Just 24 Hours a Day published by McGraw Hill, says the biggest challenge contractors have to contend with on commercial jobs, especially when they're used to the residential sector, is retention. "For the average construction company, retention costs from 20 percent to 50 percent of the firm's profit," Stevens explains. "For contractors whose profit is average, the impact is on the high end of the scale. For highly profitable firms it is less of a problem."

Stevens suggests dealing with this problem head on and asking for a reduced retention at the bidding stage. If you can't get that, then look for other ways to make up the deficit, such as getting cash flow started in the right direction at the beginning of a project. He says only as a last resort should you offer a slightly reduced price in return for retention breaks. "You have to understand what retention is doing to you financially - you need to know how much you're losing and where," he says.

Kirby Justesen is owner/president of Formco Foundations in Salt Lake City, Utah. The residential downturn in his area of the country is only about six months old, but he says years ago he recognized the need to go into commercial work and the recent market change has drug him along. So far, Justesen says there's not always a lot you can do to negotiate retention, but he's had luck dealing with it another way. "We think we hit the commercial market at a good time when there are a lot of jobs out there, so we try to bid higher prices to make up for how long they hold our money. We build it in as a cost of the job, but sometimes you don't always get it all," he says.

Justesen adds that a large increase in commercial work might also mean taking a trip to the bank for higher credit limits to balance cash flow issues created by retention issues.