Some areas are seeing signs of life. For example, Southland Industries is having a record year by being in the right markets. “A year ago, we were unsure about 2011, but we are doing a lot of federal work in our mid-Atlantic operations, the health-care and high-tech markets in northern California are booming, and Southern California is showing surprising strength in a variety of markets,” says Ted Lynch, president. But location is still all in construction markets; the firm's Las Vegas unit still is down.
LVI Services also is seeing an uptick in activity. “Demand for our core deconstruction and abatement expertise has grown dramatically for us this year, with revenue currently up over 30%,” says Scott State, LVI's president. He says LVI has succeeded by targeting large projects among heavy-industrial clients, power companies and firms in the natural-resources sector.
KHS&S has seen some improvement in bidding and major project starts during 2011. “Although the market isn't nearly where we would like it to be, we are seeing increased activity in the medical sector as well as in gaming and entertainment,” says Michael Cannon, president, KHS&S Contractors, East Coast. However, he doesn't expect any major market changes for the next 12 months. “The world economy is still too fragile to expect major momentum changes.”
Foreign firms are finding new markets to develop in the U.S. “The banks are not lending for new projects, so more companies are looking into the market from overseas,” says Joe Vitale, president of Concrete Strategies. One example is Chinese heavy-equipment manufacturer SANY America, which is building an assembly plant in Georgia. “We are tracking overseas-funded projects and can travel to any project [because] we work across the country,” he says.
For some experts, the story behind the headlines is that the market is not as bad as many believe. “If you read the headlines, you would think the sky is falling,” says Mike Taylor, executive director of the National Demolition Association, Doylestown, Pa. Many of his larger members are finding steady work, particularly in the Pacific Northwest and in the Midwest.
Extreme partisanship in Congress certainly doesn't help build market optimism. “It is just a question of confidence in the economy, which we had at the beginning of the year. The debt-ceiling fight put an ice pick in that balloon of confidence,” says Taylor. While he does not see signs of a recovery in the short term, “I am cautiously optimistic that things are beginning slowly to get better.”
Bob Mann, CEO of E-J Electric, is another executive who sees how fear in the markets is chipping away at any kind of recovery. “With all the bad economic news coming out of Wall Street and Europe, developers and the government are afraid to spend,” he says. He hopes lawmakers can stop their partisan fighting over spending and fund needed infrastructure.
Mann says New York state has seen a positive political development as lawmakers work together to loosen policies on increased power capacity. “We have been campaigning for years about the need for more powerplants, but now Gov. [Andrew] Cuomo [D] has gotten behind the push for new capacity.” E-J is working on power projects in the New York City area.
The Direct Approach
Meanwhile, owners are mulling more green construction as an energy and money saver but are demanding that contractors stand behind their claims. “Energy performance is regularly modeled but rarely validated,” says Dean. He says more owners are including the costs of utility bills as part of the contractor's bid. As the contractors will now be responsible for the client's energy bill, they will be forced to stand behind their models, he says.
The growing market for energy-efficient facilities, especially in the retrofit market, presents a more practical problem to subcontractors: how to market directly to owners. “We are back in the energy services market and are adept at energy modeling and design,” says Lynch. However, he concedes it is a different ball game to market the firm's expertise. “It is a lot different trying to sell to an owner's chief financial officer than to work up a bid for a GC,” Lynch says.
The National Electrical Contractors Association, Bethesda, Md., is trying to address this problem for its members. “We have hired a staff person to help our members in their marketing, and some of our local chapters have, as well,” says John Grau, NECA's CEO. He says NECA's new program is not to self-promote, but to show its members how to sell themselves directly to owners. “Promoting yourself to an owner is not in many of our members' traditional business expertise, and we need to help them do this,” he says.
Many of the larger specialty contractors are facing somewhat increased competition, but not like the problems faced by smaller and midsize firms. “On bigger projects, owners are bringing in contractors and subs in earlier to take advantage of [building information modeling] efficiencies,” says Lynch. He says many of these projects are negotiated or fee-based. “But on the smaller plan-and-spec projects, competition is brutal, usually with 10 or more bidders on each job.”
Concrete Strategies' Vitale agrees, saying, “If you have several bidders on a job, there is a good chance that one of them might make a mistake and bid too low.” Vitale says low margins also are forcing contractors to become more careful. “Now, one mistake and you could lose your entire profit on the job.”
Cupertino Electric has seen an uptick in work from owners and GCs burned by subs that failed to perform after bidding too low. “Our increase in business has resulted from customers fleeing other contractors because of the poor service they have received. Customers might date the bad boy, but they're going to marry the good guy,” says John Curcio, Cupertino's chief commercial officer.
Hayward Baker has seen a slight improvement in its margins thanks to its clients recognizing the need for a reputable contractor that understands risk control, says John Rubright, Hayward Baker's president. “Many of these clients have experienced the false economy of working with contractors who price the work at desperately low levels, stumble while performing and then seek to recover their losses through claims.”
While most major specialty contractors say there have been few major contractor failures, some say there have been bankruptcies among smaller contractors. “The one group that is doing well in this market are the equipment auctioneers. You go to an auction lot, and it is wall-to-wall equipment,” says Vitale. He says his firm has been able to pick up top-notch equipment at bargain-basement prices.
Another ominous trend is that schedules are shortening. “We do a lot of prefabrication and modular assemblies, but when you are hired today to start work tomorrow, it is really hard to squeeze the inefficiencies out of the process,” says Lynch.
Clint W. Ramsey, CEO at Mission Bell Manufacturing, also is feeling the trend. “In the past, we would have several weeks to bid a project and 12- to 18-week construction schedules.” He says the firm now often has less than a week to bid a project from architectural plans that may be only 60% complete and then has to complete shop drawings, manufacturing, delivery and installation in eight to 10 weeks. “This trend is having a negative impact on the industry overall—from architectural design, materials delivery, manufacturing and construction,” he says.
Most major firms are finding ways to cut costs. They are examining their processes to squeeze out inefficiencies and finding that new technologies are helping answer the need for a more streamlined approach to the construction process. That can make technology adoption, with its promise of improved efficiencies, an easier sell.