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For large general contractors, 2004 was a solid year for business. After three years of sluggish markets and uncertainty, activity picked up in most market sectors and in most regions. The turnaround wasn’t spectacular, just strong enough to keep construction firms optimistic, but not idealistic, about the next few years. "We’d been building toward last year for the past four years," says Doug Barnhart, CEO of building contractor Douglas E. Barnhart Inc., which made one of the biggest moves on the Top 400. "We plan on continuing to grow, but not at last year’s levels."

ENR’s Top 400 Contractors generated a total of $209.74 billion in revenue in 2004, a healthy 8.5% rise from $193.35 billion in 2003. Much of that growth was generated from work abroad, with Top 400 firms experiencing a 22.4% hike in international revenue last year to $32.82 billion.

Political dichotomies in the Middle East–from war-generated reconstruction to Gulf Coast economic boom–fueled the overseas revenue surge. The region became the top revenue producer at $12.20 billion, more than twice its total in 2003 and an astonishing 1,322% higher than the 2002 revenue of $922.4 million, when war fears ran high.

Much of these gains can be attributed to recovery and reconstruction work in Iraq and Afghanistan following U.S. incursions in the past few years. Perhaps no Top 400 firm benefitted more than KBR, which moved up from third to second place on the list in 2004 on the back of its huge post-war contracting stake. This drove the contractor’s international revenue to 91% of its total last year, up from 81% in 2003. KBR saw its overseas revenue rise 51% in 2004, even as its domestic share dropped nearly 30%. The firm declined to specify market segment breakouts for most of its international revenue and executives were not available for comment.

Other Top 400 firms did not fare as poorly as KBR on the domestic side, but results were not sensational. Overall Top 400 revenue in the U.S. rose a modest 6.5% to $176.9 billion, but some firms report solid growth as moves they made during the downturn blossomed into revenue recovery and growth. Douglas E. Barnhart carefully positioned itself to take advantage of the burgeoning California education and health care markets to become one of the biggest gainers on this year’s list.

Panattoni Construction is another example of growth through planning. "We had always been considered a West Coast firm," says Denny Boom, Panattoni’s CEO. "But we worked throughout the construction turndown to establish ourselves as a national firm." He notes that Panattoni went from five offices in 1999 to 18 offices now, including new ones in St. Louis, Orlando and Edison, N.J., and one planned in South Florida.

New Arrangements

Top 400 firms also spent last year rearranging who would run those offices. Sweden’s Skanska AB opted to export corporate Executive Vice President Johan Karlstrom to take over its Skanska USA operations. The former head of the parent’s Nordic operations now runs the U.S. unit in the wake of former CEO Michael Healy’s dismissal until a new CEO is found (ENR 2/14 p. 12). Karlstrom then will oversee all of Skanska’s American business. "We expect to hire someone within the next two to three months," he says.

Karlstrom also hopes to use more public-private-partnership financing. "Outside the U.S., we do a lot of PPP work with lots of short-term market financing of projects," he says. "We think there is a growing interest for PPP projects in the U.S." Skanska already is investigating several proposals, he says.

Other firms see potential for using new financial arrangements to generate more work. "We are seeing firms not just consolidating, but bringing new competencies into play," says Steve Halverson, CEO of The Haskell Co. "And these are not just construction services, but financial solutions for their clients." The company has a small real estate financing group that is seeing "increased demand from some corporate clients for off-balance-sheet financing and sale-leaseback projects," he says.

The cheap price of money emerged as a big driver of the construction recovery last year. But many worry that the Federal Reserve Board’s push on interest rates may blunt the market. "Interest rates staying low along with the federal tax cuts spurred some of the recent economic expansion," says Panattoni’s Boom.

Not everyone is sure that the Fed’s recent actions are stopping capital investments. "We have had clients who decided to put projects on hold until they had the full cash on hand or until a building is fully leased," says Tom Boldt, CEO of The Boldt Co. "Then they change their mind on seeing the price on money rise."

But other things on the rise–notably oil and steel prices–are a major worry. "The big concern is the impact that high petroleum prices could have on the economy," says R. Wayne Evans, interim president of Hubbard Construction. "We’re seeing increases in prices across-the-board on petroleum-based materials and equipment."

Higher oil prices can land a direct hit on many firms’ bottom line. "Rising prices hit us bad last year," says Robert Alger, president of heavy-civil contractor Lane Construction. "We used 21 million gallons of fuel last year." The huge jump in steel prices also took a heavy toll on firms. "Material price volatility is definitely a cause of alarm," says Thomas Goemaat, president and CEO, Shawmut Design and Construction. "Between oil and steel price surges, you can’t predict what is going to happen. Preconstruction is becoming more challenging every day."

Disappearing Work Force

Even more challenging than rising costs on the jobsite is the shrinking supply of people trained to do the work needed. "Finding people in the trades is particularly tough now, especially in the South and especially in Florida," says Alger. "We are overstaffing our crews to help train people and ensure they know how to work safely."

With more clients demanding safe jobsites, Skanska is investing more heavily in a corporate-wide safety program in the U.S. "Our goal is a zero-accident workplace," Karlstrom says.

Robert McCoole, CEO of Alberici Corp., has been campaigning for greater safety awareness for many years. "We are seeing more clients working toward an accident-free workplace," he says. "But we still see a lack of concern among some...