The construction industry entered 2018 with expectations of robust activity, and for good reason. Market indicators pointed toward increased project volumes across residential, commercial, and infrastructure sectors. However, as industry analyst Garry Bartecki of GB Financial Services noted in early 2018, growth brings both opportunity and strain. Contractors found themselves facing a paradox: more work meant more revenue potential, but also exposed deeper vulnerabilities in labor availability, equipment readiness, and financial planning. Understanding these dynamics was essential for firms that wanted to capitalize on the boom without being overwhelmed by its demands. For a broader look at how economic indicators track construction momentum, see our analysis on Ism Services Pmi November Analysis Construction Activity Accelerates.
This article examines the key challenges and strategic responses that defined the 2018 construction season, with particular attention to workforce shortages, equipment strategy, technology adoption, and the sweeping changes introduced by the Tax Cuts and Jobs Act (TCJA). The lessons from this period remain highly relevant for contractors navigating similar conditions in subsequent years.
Growth, Labor, and Equipment Challenges
A strong construction market creates a predictable cycle. When project volume rises, demand for skilled labor and equipment rises with it. In 2018, both supply chains tightened, creating a dual bottleneck that threatened timelines and margins. Contractors who had not anticipated this pressure found themselves scrambling to fill crews and secure machinery.
The Labor Gap Widens
The construction workforce had been recovering slowly from the 2008 recession, but the pace of recovery lagged behind the surge in demand. By 2018, the industry faced a well-documented shortage of qualified workers across multiple trades. The reasons were structural:
- An aging workforce approaching retirement without sufficient younger replacements
- Declining enrollment in vocational training programs over the preceding two decades
- Competition from other industries offering comparable wages with less physically demanding work
The result was a market where experienced operators, finishers, and project managers commanded premium wages and could pick and choose among employers. Small and midsize contractors felt the pressure most acutely, as they lacked the brand recognition and benefits packages of larger national firms.
Equipment Availability Under Pressure
Equipment shortages paralleled the labor crunch. Lead times stretched as supply chains absorbed increased demand. Contractors who owned fleets faced decisions about purchases versus rentals. Those who delayed risked losing access during peak windows. The convergence of these pressures is analyzed in our piece on Construction Challenges.
The Cost Implications of Scarcity
When labor and equipment are both scarce, costs escalate in multiple directions at once. Wage rates increase, overtime hours multiply, rental rates climb, and project delays trigger penalty clauses. The compounding effect erodes margins even on well-bid projects. For contractors entering 2018, accurate cost forecasting required factoring in these scarcity premiums rather than assuming stable pricing from prior years.
| Resource Type | 2017 Baseline Availability | 2018 Pressure Level | Primary Impact on Contractors |
|---|---|---|---|
| Skilled Labor (operators, finishers) | Moderate | High | Wage inflation, project delays, quality control issues |
| Project Managers and Supervisors | Low | Very High | Overwork, higher turnover, bidding capacity constraints |
| Heavy Equipment (excavators, loaders) | Adequate | Moderate-High | Longer lead times, higher rental rates |
| Specialized Equipment (paving, grading) | Limited | High | Booking conflicts, premium pricing |
| Technology and Software Tools | Growing | Moderate | Implementation lag, training gaps |
The table above summarizes the pressure points contractors faced across different resource categories. Each required a targeted response to avoid cascading project-level impacts.
Strategic Solutions: Technology, Rental, and Training
Bartecki emphasized two primary strategies for contractors navigating the resource constraints of 2018. The first was embracing technology to improve operational efficiency. The second was leveraging equipment rental to gain flexibility without the capital commitment of ownership. Both approaches required a willingness to change longstanding habits.
Using Technology to Do More with Less
Technology adoption in construction had historically lagged behind other industries, but the pressures of 2018 accelerated the trend. Contractors who invested in digital tools found meaningful ways to offset labor shortages:
- Project management software improved coordination across teams, reducing time lost to miscommunication
- GPS-guided equipment allowed less experienced operators to achieve grading accuracy that previously required seasoned professionals
- Drones and site cameras enabled remote monitoring, reducing the need for supervisory travel between job sites
- Telematics systems provided real-time equipment utilization data, helping fleet managers allocate resources more efficiently
- Mobile time tracking and reporting tools eliminated paperwork delays and improved payroll accuracy
These technologies did not eliminate the need for skilled workers, but they amplified productivity. A well-instrumented crew of five could accomplish what previously required seven or eight people.
Equipment Rental as a Strategic Tool
Rental offered several advantages. It allowed contractors to access the exact machine for a specific project phase without long-term ownership costs, and provided a hedge against equipment sitting idle during seasonal slowdowns.
Beyond flexibility, rental agreements often included maintenance and repair coverage, shifting operational risk to the rental provider. This was particularly valuable when in-house maintenance teams were already stretched thin. Contractors who built strong relationships with rental partners secured priority access during peak demand periods, giving them a competitive edge.
Training: The Missing Link
Bartecki pointed out a critical oversight common across many firms: inadequate equipment training. Field supervisors sometimes assumed that workers would learn on the job, but this approach created safety risks and suppressed productivity. Proper training was not an expense it was an investment that paid returns through fewer accidents, less equipment damage, and higher output per worker.
Rental companies, motivated by liability concerns, often provided training as part of their service offering. Smart contractors took advantage of this, requiring operators to complete certification programs before using rental units. This approach reduced risk while improving workforce capability at no direct cost to the contractor. For a deeper dive into how professional expertise supports construction operations, read our Detailed Analysis of What Services Are Provided By engineering consultants in the field.
Understanding the Tax Cuts and Jobs Act for Contractors
The Tax Cuts and Jobs Act (TCJA), signed in December 2017, introduced major changes to federal tax policy. For construction contractors, the implications were substantial and required careful study. The provisions offered savings opportunities but also complexities that could trap the unwary.
Depreciation and Capital Equipment Incentives
Two major depreciation provisions stood out for contractors planning equipment investments:
- Section 179 Deduction: Businesses could deduct up to $1 million in qualifying equipment purchases, with the deduction phasing out once total purchases exceeded $2.5 million. This represented a substantial increase from prior limits.
- 100 Percent Bonus Depreciation: For the first time, bonus depreciation applied to both new and used equipment purchases, making it far more accessible. Contractors could write off the full cost of qualifying assets in the year they were placed in service.
These provisions created a strong incentive to invest in equipment. But Bartecki cautioned against buying solely for the tax benefit: the deduction only provided value if the business had sufficient taxable income to offset.
Interest Deduction Limitations
For businesses with average gross receipts exceeding $25 million over the preceding three years, the TCJA limited interest deductions to 30 percent of EBITDA. This change affected many midsize and large contractors who relied on borrowed capital to finance operations and equipment. Firms in this category needed to recalculate their debt strategy and consider whether leasing or rental arrangements might offer better tax treatment than debt-financed purchases.
Other Notable Changes
Several other provisions of the TCJA directly impacted construction firms:
- Entertainment expenses were no longer deductible, and business meal deductions faced new restrictions
- Net operating losses (NOLs) incurred after December 2017 could no longer be carried back to prior tax years and could only offset 80 percent of taxable income going forward
- Like-kind exchanges (Section 1031) were eliminated for personal property, remaining available only for real estate transactions
- The corporate tax rate was reduced to a flat 21 percent, while pass-through entities (S-Corps, LLCs, partnerships) received a 20 percent deduction on qualified business income, subject to wage and basis limitations
- C-corporations benefited from the reduced rate, while pass-through entities needed to carefully evaluate the new QBI deduction rules, which included complex limitations based on wages paid and property owned
The flow-through deduction, in particular, required careful planning. Bartecki advised contractors to do their homework and consult with tax professionals who understood the construction industry before making structural changes to their business entity.
Financial Management in a Busy Year
With the dual pressures of operational demand and tax reform, financial discipline became more important than ever. Bartecki highlighted a specific concern: the temptation to abandon proper accounting methods in favor of running the business out of a checkbook. This short-term approach could create long-term problems.
GAAP versus Cash Basis Accounting
The TCJA allowed more businesses to use the cash method of accounting for tax purposes. But Bartecki warned this was not a substitute for maintaining proper GAAP financial statements. Banks, sureties, and other stakeholders required GAAP-compliant statements to assess a contracting business.
The recommended approach was to keep GAAP books throughout the year and then prepare a separate cash-basis report for tax filing. This dual-track method ensured that the business had accurate financial data for management decisions while still capturing the tax benefits of cash accounting where applicable.
Managing the Cash Flow Tax Trap
Cash-basis accounting created a potential trap. In a year where receipts far exceeded expenses, a contractor could face a large tax bill even if results reversed the following year. Maintaining visibility into both GAAP and cash-basis positions helped contractors anticipate and plan for these scenarios.
Keeping Powder Dry
Bartecki offered one final piece of advice for the 2018 season: keep some powder dry. In a busy year with strong revenue, the natural instinct was to reinvest aggressively in equipment, hiring, and expansion. But the construction cycle was historically volatile, and circumstances could change quickly. Maintaining financial reserves provided a buffer against unexpected developments, from economic shifts to project disputes to weather-related delays.
Contractors who balanced growth with prudence, who invested in technology and training, and who understood the new tax landscape positioned themselves for sustainable success. For practical reference on the tools that support efficient operations, see Essential Insights On 40 Construction Tools List With images.
The construction industry in 2018 showed that periods of strong demand test a firm’s foundations as much as downturns do. The strongest contractors treated growth as a signal to sharpen every aspect of their business, from workforce development to tax strategy.