By Jay Langston and James Hamilton
For many general contractors, taking on work in a new state or region can offer transformative opportunities for building a thriving business and a respected reputation. But managing projects is challenging enough – even if the jobsite is down the street and all members of the project team are familiar with the area.
New markets and remote project management introduce a new set of challenges and considerations that must be navigated to realize all that potential. This article explores how to manage construction projects in different states, including common considerations, best practices and how technology can help.
The decision to expand often depends on weighing the value of entering a new market against the challenges of taking on the task.
For many general contractors (GCs), reasons for expanding into a new state might be as simple as wanting to grow the reach of their business. Expansion can help increase cash flow, optimize resources, and increase diversification by becoming established in different markets. Some specialized contractors rely on working in numerous states to maintain a healthy backlog of work.
Expansion is also often about maintaining relationships with established clients. New markets can be challenging for owners as well, and those who get the opportunity to expand often prefer to continue to work with GCs that they have an established relationship with and who they trust to do high-quality work.
Common examples include energy companies building similar power plants in different states or a restaurant franchise expanding into a new market.
Entering a new market requires careful and extensive planning, particularly when it comes to a few key considerations.
Building codes, payment laws, environmental regulations and permitting processes all tend to vary by state. Some places adopt building codes in response to the unique challenges of building in their area.
For example, California has strict seismic design requirements in response to the state’s susceptibility for earthquakes. This might include special inspections or requirements for specific types of reinforced concrete and steel. Some states have similar regulations with key differences.
Many states, like Phoenix, Arizona, have accessibility standards that closely resemble the Americans with Disabilities Act (ADA). However, some states, like Oregon, create their own accessibility codes that align with the ADA but include modifications. GCs should ensure they have a good grasp of the laws and codes of any place they plan on doing business.
Most states require contractors to hold a license to do business. This helps with insurance, payment rights and a municipality’s ability to protect people using completed projects. However, license requirements vary by state. Some states have license reciprocity with each other, but this still usually requires a lengthy application process.
A successful project requires local partnerships, which might include vendors, subcontractors or authorities having jurisdiction (AHJ). GCs will often partner with local project managers who have experience with regional codes, permitting processes and reliable trade partners. Some GCs will hire permit expediters to help them quickly navigate unfamiliar processes. In some cases, GCs will relocate their own employees to a new area so they can build relationships and expertise.
Sourcing equipment and procuring materials locally often helps increase efficiency and manage risk. As opposed to getting resources from far away, local sourcing and procurement is often quicker, more cost effective and helps to build relationships. Some environmental certifications, such as LEED, give credit for sourcing materials within a certain distance from the project site.
Contractors should also be aware of a state’s labor laws and union rules. Consulting legal counsel and hiring local workers and knowledgeable of the laws can help bridge the information gap on local regulations, keep projects moving, and manage the amount of time a contractor may have to spend bogged down in the details.
Working in new places can also come with varying expenses. Because states have different tax rates and regulations that can apply to sales, use and income for companies and workers, it’s also important for contractors to work with financial managers who are familiar with this information.
Additionally, being knowledgeable of a state’s lien rights in advance can also prevent headaches down the line.
Louisiana and Georgia, for example, have lien requirements that must be fulfilled before work begins, or a contractor risks losing their lien rights. Contractors should start working with AHJs and lawyers early to ensure they are protecting their investments.
In many ways, effective project management is similar whether it’s being done remotely or in-person. Construction is still ultimately an industry about relationships. Projects need communication and collaboration between stakeholders, but those things can be harder to cultivate from a distance.
GCs working in a new state should have clear systems for communicating with and building relationships with stakeholders, including subcontractors, the design team, owners and the AHJs. This usually involves having project management tools to organize and share documents and make communication easier to track.
Some GCs will host remote OAC (owners, architect and contractor) meetings. Others will rely on their local PM or employees to serve as liaisons for building company culture and managing important relationships.
Either way, project executives and other stakeholders should strive to remain on the same page when working on projects across other regions so that no critical information falls through the cracks.
There are a few things that can help make expanding into a new market more likely to lead to the best possible outcomes.
Bringing on local partners can make managing a project in a new place significantly smoother and more effective. Many GCs save immense amounts of time by hiring local permit expediters to navigate the permitting process. Before moving into a new market, some GCs host meet-and-greets to introduce themselves to local trade partners and learn who might be a good fit for future projects.
Even beyond regulations, every place has its own culture and ways of doing business. Local partners can help GCs humbly enter into a new market and establish themselves in ways that ingratiate them to people who live there and help create the opportunity for future business.
Expanding into a new place is hard enough without having to find all new trade partners, especially when they do specialized or particularly outstanding work. GCs will commonly bring select, key trade partners along when expanding into new markets. This doesn’t lessen the importance of having local partnerships, but can help ensure quality, culture and efficiency on certain parts of the project.
Sourcing equipment and procuring materials locally can help with sustainability, budget management and improving efficiency. Local materials are more likely to meet local building and sustainability requirements and tend to be easier to track and get delivered on time. Some environmental grants and certifications, such as LEED, provide credit for sourcing materials from within a certain distance from the project site.
Financial management is one of the most challenging parts of expanding into a new market. GCs should work to have both a centralized financial tracking system and state-specific accounting. A centralized financial tracking system improves transparency and allows for cost and performance tracking by all necessary stakeholders. However, a lot of accounting and financial management should also be done locally to ensure compliance with local lien laws, contract requirements, payment processes and tax laws.
Technology has helped innovate the way GCs do everything from track progress, communicate, conduct inspections and collect closeout documents. These innovations have also made expanding into new states more manageable than ever.
Stakeholders should be able to access important documents, ask important questions or receive real-time status updates, regardless of where they are. Project management software helps create organized, effective workflows like daily reports, change orders and closeout documents.
Remote stakeholders like to be able to check in on a project. Webcams have made it possible to monitor progress, site security, and material deliveries in real time.
Geographic information systems (GIS) is a digital tool that uses maps to capture, store, analyze and visually share data and information related to specific locations. GIS can be used for progress updates, workflow enhancement, safety monitoring and site management, all of which can be difficult to do from afar.
The extensive considerations and challenges of breaking into a new market can feel daunting. However, the process gets smoother with each project, and every step can be part of improving the future of a business. Local trade partners can become lifelong collaborators, navigating local requirements can lead to new innovations and one happy client can be the first in a stable and thriving revenue stream in a new place.
Copyright 2022. Nathan Wechsler. All Rights Reserved.
