Market Improves, But Struggles Continue for Top General Contractors
ENR Southwest's annual survey of general contractors shows that 2011 was a transition year for the industry. Many firms were still feeling the effects of the recession, while others saw revenue jump dramatically.
Contractors in Arizona fared best, with 2011 revenue climbing to $4.7 billion, a rise of nearly 16% over 2010.
Sundt Construction, Tempe, Ariz., saw revenue rise 28%. "The key to success has been our diversity of market sectors," says Eric Hedlund, chief operating officer at Sundt. The company performs civil, industrial, building and federal work.
DPR Construction's Phoenix office had a stellar year, with revenue up 68% in 2011. "We have learned to embrace the fact that all markets are never flat simultaneously," says Dave Elrod, regional manager.
Despite the improving market, contractors aren't out of the woods yet. "While volume has increased, there's no margin or profit on that new work," says Mark Minter, executive director of Arizona Builders' Alliance, Phoenix. Growth tends to disproportionately consume cash in construction because of labor, equipment and other costs, so companies may become financially distressed as workloads ramp up. "It only takes one project where they don't get paid or they get paid very slowly, and they are out of business," he says.
Another challenge will be to attract and re-train skilled craftsmen to replace the large numbers lost during the recession, says Steve Grauer, district manager of Hensel Phelps Construction's Phoenix office.
New Mexico contractors enjoyed a modest increase in revenue to $1.2 billion in 2011, compared with $1.1 billion in 2010. Brycon Corp., Rio Rancho, N.M., shot up 12 spots in the overall chart due to a 61% increase in revenue. While some contractors have been forced to slash overhead or venture into unfamiliar markets to break even, Brycon's chief financial officer, Phil Casuas, says his firm has focused on industries and clients that can weather through difficult economic cycles. However, the firm isn't anticipating overall market improvement in the coming year. "Many of our clients are cautious not to overextend themselves until the economic and political environment improves and becomes more predictable," Casuas says.
Unfortunately, the gains elsewhere in the Southwest were overshadowed by stagnation in Nevada. The state lost more than $1 billion in construction activity during 2011, bringing in just $1.8 billion of work. Just five years ago, contractors reported $5.2 billion of work in Nevada.
Tutor Perini Building Corp., Henderson, Nev., recently completed a 10-year continuous run of multibillion-dollar Las Vegas projects such as CityCenter, Cosmopolitan and the just-opened Terminal 3 at McCarran International Airport. With revenue declining 73% in the region in 2011, the firm began shifting resources geographically into New York City and California, scoring several high-profile contracts in the process. "We've been able to overcome the shortage of work opportunities in Las Vegas," says Richard Rizzo, vice chairman. He adds that the megaprojects were anomalies. "Perini was built on smaller projects; our people are comfortable in that environment. We just have to convince our clients that we can add value at that level."