Key Considerations Before Moving from Residential to Commercial Construction

You’ve done well for yourself in the residential construction industry and now are considering taking on new commercial construction contracts. However, this puts you in a whole new league and there will obviously be some major changes that need to be made within your company. Are you ready to make a commitment which will net higher profits in the long run, but will require greater investments of time and money at the beginning?

If you have been waiting for this day to arrive when you can take your construction company out to commercial contracts, there are some key considerations to be aware of prior to branching out in this new direction. The following list is by no means exhaustive but should provide a general idea of what’s involved in taking on commercial construction contracts.

Additional Equipment May Be Required

First, you’ll need to be prepared to make significant equipment investments, so financing and good business credit will definitely come in handy. While you may already have an extensive assortment of tools that you’ve been using for your residential construction projects, when you’re building a commercial structure you may need to upgrade to industrial scale tools in order to get the job done more efficiently.

Likewise, you’ll have to consider the cost of properly equipping your team with the necessary tools and safety equipment. Aside from your payroll and rentals costs, equipment purchases will represent the bulk of your spending during the company expansion. Thus, additional equipment is the primary extra expense you’ll want to plan for when transitioning from residential to commercial construction.

Additional and Costlier Insurance

After you’ve geared up with the necessary tools and resources to tackle your first commercial project, you’ll then have to consider the various kinds of insurance you’ll need to acquire. To start you’ll want to obtain a Commercial General Liability (CGL) policy as an overarching coverage that will take care of most of your insurance needs. However, those needs will be far greater in terms of property to be insured. Multilevel high rises are so much more expensive than single family dwellings, so the cost of coverage will be proportionately higher.

The CGL acts as a base insurance plan that will cover against liabilities related to property damage or bodily injury. One important factor to note is that the CGL policy will not cover the cost of having to repair bad work, but it will cover any damage that results from the bad work. For this reason, many commercial construction contractors include provisions within their terms of warranty that specify which party would be responsible for the cost of repairs.

In addition to a CGL, you may also want to consider an umbrella liability coverage policy, particularly if you’re operating larger construction sites and need higher levels of coverage than your CGL would allow for. Likewise, a Builder’s Risk insurance policy can protect any onsite equipment or materials from the risk of vandalism, theft, fire, hail, lightning, or wind damage. Finally, Professional Liability Coverage and Contractor’s Pollution Coverage are two other insurance types that you’ll want to research when building your portfolio of insurance plans.

Licensing Requirements to Be Met

Many states will require separate licenses for commercial and residential contractors, so even though you may already have a General Contractor’s License, you may need to apply for the commercial version. The most reliable way to find out the latest licensing requirements for commercial contractors in your area is to contact your local chamber of commerce. However, for a general overview of the basic licensing requirements for each state, you can use HomeAdvisor’s state-by-state breakdown as a quick reference.

It’s important to note that there are other kinds of licenses that may need to be obtained depending on the activities and duties you will be performing at the construction site. For example, if you’re going to be drilling wells you may need a well-driller’s license. Likewise, licensed professionals will be needed for plumbing, electrical, and waste disposal work as well. Typically, most commercial contractors will simply hire licensed help to take care of the aforementioned aspects, but even with that approach you will still need a Commercial General Contractor’s license to legally act as a commercial contractor.

OSHA Safety Training Is a Must

The Occupational Safety and Health Act (OSHA) of 1970 was passed to protect workers from occupational hazards in the workplace. Nowadays there are more than 2,000 federal inspectors designated with the task of ensuring that all companies have set forth procedures and policies to protect their workers according to OSHA law. Thus, it has become imperative for every commercial contractor to train their employees on OSHA guidelines in order to ensure compliance at all times.

Ignoring OSHA’s guidelines can result in significant legal and medical expenses in the event of an accident or injury. As such, OSHA training is a practically mandatory investment to consider when you’re thinking about making the switch from residential to commercial construction. You can find OSHA training here if you’re looking for services that will streamline the process of educating your workers on OSHA rules and guidelines.

Greater Reliance on Subcontractors

In addition to all of the above, you should also be prepared to work with more subcontractors versus taking a more hands-on approach to worker management in the residential sector. To complete a commercial project in a timely and professional manner you may need to bring in some third-party teams.

That being said, you’ll need to be selective and cautious about which subcontractors you work with, as choosing the wrong teams for the job can cost your company and brand image big time. Ideally, you’ll want to establish ongoing relationships with regional contractors to ensure you don’t have to run the risk of opting for a company you’ve never used before on a big project.

Of course, the negotiation and hiring aspect is just one side of the coin, as you’ll also need to factor in the cost of securing such help when you devise your fee estimates for prospective clients. This calculation can be overlooked by novice contractors making their way into the commercial space from the residential scene, as they often assume that they can get everything done with no external help, but then when the time comes to hire more people, they’re not prepared for the expense. It’s also a good idea to have backup subcontractors on call in case your first choice winds up falling through or performing the job poorly.

A New Direction in Marketing and Promotion

Last but certainly not least, adjusting your marketing strategy is the final yet most pivotal change you’ll have to make in order to break into the commercial construction market. Many residential contractors are used to soliciting business organically through listings and referrals, but the commercial construction market is much more competitive and complex. As a commercial contractor, you’ll be dealing with bigger contracts and larger sums of money, so it goes without saying that the clientele may be a bit savvier and more demanding.

To accommodate the advanced needs of the commercial sector you’ll have to become knowledgeable about the latest and greatest materials, construction methods, and design trends, and then you’ll have to package all of that into an effective marketing campaign. Furthermore, pitching projects to commercial clients is a whole other ball game, so you might need to brush up on your speaking and presentation skills as well.