Huge Revenue Drops Pummel Firms, But Brighter Year Awaits
Waiting for this year's top general contractors list was like watching a train wreck in slow motion. It was a foregone conclusion that Southwest contractors would report precipitous revenue declines. But the damage, based on 2010 revenue, was worse than many expected.
This year's 90 survey participants earned $8.1 billion in total revenue in 2010 across Arizona, Nevada and New Mexico, down more than 42% from the level reported by the top 90 firms in the year-ago period and nearly 60% below the peak market in 2008.
All three states were down in 2010 by double digits. Contractors performing work in Nevada suffered the worst decline: down almost 53% year-over-year.
“The Southern Nevada market is still in a slump,” says Brian Chesnut, vice president and Las Vegas branch manager with ValleyCrest Landscape Development, which debuted as the 12th-largest Nevada contractor on this year's ranking. With tourism finally showing signs of recovery, Chesnut says he's starting to see more design and planning activity. “But it's going to take several positive quarters of growth before the business climate in Southern Nevada can start to breathe easier and we start to see some of the larger projects and expansion plans begin to take shape.”
While many firms continue to make structural adjustments in response to economic conditions, it appears the tide has turned on staffing reductions. “Our staff has shrunk since the beginning of the recession, but is holding steady at this point,” says Robert W. Smith, owner and managing member of Glendale, Ariz.-based Smith Construction Management LLC, a midsize firm that performed nearly $16 million of government work in 2010.
Tony Dazzio, senior vice president at Las Vegas-based Burke Construction Group, says that as the recession continued, the firm had to reduce staff for the first time in its 27-year history. “It was an extremely difficult decision to lay off staff members that have been part of our company for years,” Dazzio says. “However, I am proud of how Burke has not changed in many ways, such as our corporate mind-set that 'it's all about relationships.'”
Burke has primed itself for growth in the next year through the recent opening of its special projects/tenant improvements division in Las Vegas and a new Pacific Northwest office in Spokane, Wash. “From a financial perspective, there has never been a better time to expand our company as well as construct our satellite offices,” Dazzio says.
Smith has pursued a less-is-more approach. “We have learned to be efficient with our business development expenditures,” he says. “We are more selective with our targeting and then putting more of our efforts into fewer projects that have a higher rate of return.”
Some firms are looking to hire as demand increases. “Kitchell is nothing but encouraged by what we see in the foreseeable future,” says James T. Swanson, president and CEO of Phoenix-based Kitchell Corp., which was sixth on this year's regional ranking with more than $244 million in revenue. “Our estimated projections are to increase staffing by 10% to 12% over the course of the next year to accommodate our growth.”
Few market sectors saw gains in 2010—even stalwarts like transportation were down and continue to stay somewhat stagnant into 2011. “Highway/heavy opportunities in the region reflect the rest of the local economy: some isolated bright spots but continued capacity greatly outweighing the volume of work,” says Tim Muller, Southwest regional manager with Austin Bridge & Road's Phoenix office, which performed $56 million in transportation work in the region in 2010.
“The number of bidders continues to grow while the available margin continues to fade,” he says. “There is more and more pressure for us to find the advantage—if there is one—to help win a hard bid job and decide to concentrate only on the ones where we can find this winning formula.”
The commercial and hotel sectors saw the steepest declines. “The private sector has really dried up, and negotiated work has dried up with it,” says Dick Rizzo, vice chairman of Perini Building Co. in Henderson, Nev. He says it is hard for owners to find financing and enough equity to move forward on projects. Still, the firm once again landed at the top spot of the Southwest rankings, a position it has held since 2005.