Government Contracts For Construction Companies: Pros & Cons

beggers February 7, 2018 0
Government Contracts For Construction Companies: Pros & Cons

The construction industry, as a whole, tends to rely on government contracts.

The reason for this is very simple: only governments tend to embark on huge infrastructure developments, the kind that construction companies can make their fortune with. Not only is there work to be had in new construction projects, but governmental contracts for general maintenance can also be lucrative and relatively reliable.

However, before you sign your construction company up to government contracts, it’s very important not to get carried away and ignore the potential issues that these contracts can cause. While governmental contracts can seem like cast-iron guarantees, they’re not quite as reliable as you might hope, so avoiding assumptions is essential.

Below are the full pros and cons to undertaking government contracts as a construction company; it’s important that you weigh these aspects fully when deciding if government contracts are right for your business.

Pros: Governments aren’t going to go out of business

One of the major benefits of government contracts is that a government is not going to unexpectedly go out of business in the same way a privately-owned firm will. If a government is struggling with their finances, it’s likely to be a news story, and you’re going to be able to exit the contract before any damage is done.

The construction industry can be variable and difficult to navigate. Jobs and projects come and go; some are conceived and never reach fruition. This nature of the industry means that government contracts are, by comparison to private firms, secure and reliable. If you sign a government contract, you can be relatively sure that they’re not suddenly going to abandon halfway through as they haven’t raised the funds they need.

CON: Governments do pull out of contracts

It’s tempting to think that because governments are so solid and dependable (or at least, seem that way) they will never back out of a contract. This couldn’t be further from the truth.

Governments have budgets in the same way that a private company does. They can, and do, decide to leave a project if they find that they cannot cover the costs. This is extremely frustrating for you, especially if you turned down other contracts to work on government deals.

So while governments are admittedly less likely to pull out of contracts, don’t be deceived into thinking that they outright won’t. It can still happen, and you’ll still be forced to pick up the pieces.

PRO: Government contracts can be huge

Government Contracts

When it comes to construction, the government of a city or country are the biggest businesses going. Their projects will be huge, on a scale that private firms just cannot conceive of.

The sheer size of infrastructure projects makes governments an extremely attractive proposition. You may find yourself expanding and growing your company, bringing in extra staff or working business-to-business with a tip truck company to meet new requirements. A large government contract has the potential to set your business up with a steady line of work for years, allowing you to reach your business goals all the faster. If you’re looking to work on large projects, you simply can’t beat government contracts.

CON: Governments are subject to political whim

Let’s run through a hypothetical to show just how difficult an issue this can be for you as a company.

A government decides that they are going to construct a new road system. They hire your company to complete an aspect of the work; naturally, you’re delighted. You start researching, planning, hiring, and doing all the preparatory work you would usually dedicate to such a huge undertaking.

Then environmental campaigners begin to picket the planned site of the development. They claim that the land is home to a rare species of worm. As this is government land, the government have to do all they can to examine the problem. This may mean months and months of contract delays, environmental examinations, and — ultimately — a massive postponement of the project.

Governments will always be subject to political will; it’s the very nature of the work. That means that your company will also be subject to political will. If you sign a contract with one administration, there is no guarantee that a newly-elected administration won’t decide to cancel the contract altogether for solely politically-motivated reasons. You could find your company being caught in the crossfire, unable to bend with the changing sentiments, and struggling massively as a result.

This issue means that government contracts are inherently unstable, despite appearing to be the exact opposite. This is why if you do choose to work on government contracts, you should always be very careful to diversify your client base, and maintain some smaller, private contracts that can keep you going if the political winds turn against you. It is unwise to rely on a government as the sole source of your work, so if you do decide to pursue these contracts, keep the need for diversity in mind.

PRO: Working with a government gives your company a sense of respectability

If you want to build a name for your company, then being involved with government contracts can give you a veneer of respectability. After all, if your company is good enough for a government to rely on you for incredibly important developments like infrastructure projects, you must be doing something right.

One tactic to consider is taking on some small government contracts, obtaining that boost to your reputation, and then using that to leverage high-paying private contracts. This gives you a short-term strategy that can ultimately lead to business advancement and growth in the future, all while cementing your company’s reputation as one that can be relied on for vital projects.

In conclusion

Government contracts can make or break a construction company. If you can avoid the pitfalls, then your business should be one of the ones to ‘make’ it. Be wary, maintain a diversity of client base, and expect the unexpected– if you can get these aspects right when undertaking government contracts, your business should be able to avoid the potential problems and enjoy healthy growth as a result.

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