...upgrading capacity,” says Sambles. Refinery programs also are focusing on refining the heavy, high-sulfur and highly acidic crude coming out of the Middle East. “These jobs are $500 million to $1 billion each,” he says.

The up-and-down domestic power market may be bouncing back. After a huge build-up in capacity from gas-fired powerplants in the late 1990s, the market went into a swoon. “But we are seeing many areas of the country eating away at the capacity reserve,” says Sambles. He notes that there is a new move toward coal-fired plants that may soon come off the drawing board. For example, Dallas-based TXU Corp. announced on April 20 that it would build 11 coal-fired units at nine existing plants to generate 8,600 MW new energy in Texas over the next four years. The price tag is $10 billion.

For Bechtel, the move to coal-fired plants plays to its strength. “Coal-fired plants are much more complex than gas-fired plants, and we have a long history in clean-coal programs,” says Laspa. Bechtel is working on the 1,230-MW coal-fired Elm Road plant in Wisconsin and a 400-MW expansion of the Springerville coal-fired plant in Arizona, and is prequalified for the TXU program, he says.

The Price Isn’t Right

The biggest concern among contractors is the escalation of the price of materials and labor. “We all got comfortable with low commodity prices for so many years, but that comfort zone is gone,” says McKee of Paric. The latest commodity to show major increases is copper. “Copper is out of sight,” says Prego.

For some, the dramatic rise in some commodity prices is puzzling. “Part of it is demand based, with economies in nations around the world healthy, or even buoyant,” says Sambles. This is leading to pricing pressure. “But I don’t know of anyone who can make out an economic justification for copper selling at $8,000/ton.” Sambles thinks that commodities speculation may be adding to some price increases.

Few contractors face a bigger problem with prices than the heavy contractors. “We use about 10 million gallons of diesel a year,” says Crawford of Sukut. He says that huge gas price increases of the past year or so have many contractors worried. So Sukut is very careful about its bids, and so are most competitors. “We’re all living in fear of price escalations and bid accordingly,” he says.

It is not just the price of oil that is causing heavy contractors problems. Getting customers to understand and accept materials price increases is tough. “You put in bids on highway jobs that are way over the engineers’ estimates that were prepared months or years before and the public thinks the contractors are trying to rip them off,” Prego says.

Materials prices also are affecting owners. Some contractors are noticing is that there is a sense of sticker shock among smaller developers and  corporate and institutional clients. “The developers or institutions that don’t build that often might decide not to proceed when they realize how much prices have increased,” says Slade Opheikens, operations vice president of R&O Construction.

But it is more likely that clients will scale back their projects to meet budget limitations. “You might see a health care provider come in for an expansion and suddenly find that the project it had planned now costs $100 sq ft more than what they paid a couple years ago,” says Bolen. “Clients on every project seem to reevaluate priorities after a first view of costs.”

Subcontractor Blues

Many general contractors are more careful in vetting their subs before bidding. “It’s a cliché, but you get more sub failures in good times than you do in bad times,” says Layton of The Layton Cos. “They may be able to juggle five balls easily, but give them five more to juggle and you end up with a mess. If a sub fails during a project, it’s a major expense and a schedule killer,” he says. And litigation isn’t any help. “We never made any money going to court,” he says.

Finding qualified subs also is a problem. “Whenever the market gets this busy, everyone goes out and gets a contractor’s license,” says Opheikens. R&O’s vetting process goes beyond qualifications. “We ask what jobs the sub is working on and what they are bidding on to make sure they have the capacity to do the work,” Opheikens adds. He says some subs bid many jobs, take the one with the best margins and walk on the others, saying “go ahead and sue me.”

Subs also can be a roadblock keeping general contractors from moving into new markets. “In a market like this, subs tend to be selective and work with general contractors they know and trust,” says Wening of H.J. Russell. This means that a general contractor in a new market may find it tough to hire top subs.

There are other concerns regarding subcontractor relations. “We are seeing new laws outlawing ‘additional-insured’ clauses, and this can be a problem,” says Layton. He notes that there’s no problem if a sub remains in business after a job is done. “But if you have a sub that goes under and there are problems down the road on a project from the sub’s work, you get stuck holding the bag.”

Labor shortages are a universal complaint among contractors. For many, the shortage of people on the management side has them looking at new grads, rather than pursuing more experienced people in a tight market. “We are making a play in colleges,” says Crawford of Sukut Construction. “The problem is that the ramp-up in experience for them is a few years. So we have our experienced people help them along,” he says.

Turner Construction has been a regular recruiter at colleges, but it is increasing its program. “We are planning to visit 100 colleges this year and plan on hiring 300 new graduates,” says Daveron. Turner also has a program where students who intern at the company for four summers before and during their college years are guaranteed a job with Turner.

Daveron worries about the future of construction if young people continue to turn away from technical degrees. “You are seeing engineers starting at $50,000-$55,000 a year. That’s good money,” he says. But young people, and even schools, don’t seem to know about the opportunities available in construction. “We are constantly visiting high schools and guidance counselors seem surprised at the salaries available in the industry.”

The staff shortage is pushing young people to greater responsibilities sooner. “Our answer to the personnel shortage is to grow our own,” says McKee of Paric. “You get talented young people, train them to death, give them responsibility, and let them do their thing,” he says.

One contractor that is taking the training concept seriously is The Beck Group. “Everyone is required to take 40 hours of training at our Beck University each year,” says Frink. She says that each manager’s yearly review takes into account the training programs they took during the year and the impact it has on the job. She says the firm also has managers work in jobs outside their specialties to expose them to people and jobs at the firm they wouldn’t ordinarily deal with. “It’s a way to break down silos among disciplines and departments,” Frink says.

There continue to be new efforts to attract young people into the industry. One is just getting started in the Portland, Ore., area. “Contractors, the unions, and government have partnered together to create CAWS—Construction Apprenticeship Workforce Solutions,” says Eberwein of Hoffman, who is on the board of CAWS. The program plans to work with the schools to identify students who don’t want to go to college and introduce these students to construction through a pre-apprenticeship program. Eberwein notes that this program would also serve the health care and metals and mining industries to attract interested students at the high school level.

For many contractors, one answer to the shortages in the trades could be immigration reform. “We have a strict policy to make sure all the people we hire are legal immigrants,” says Layton. But he says that, “without immigration reform, our industry will be hard pressed to find the people to do the work.”

Technology is helping many contractor work more efficiently—both on the job and in the office. “Web-based project software is making a big difference on jobs,” says Mullen of Structure Tone. But he sees building information modeling taking a bit longer to get established. “There’s a lot there for people to buy into before it becomes a standard.”

One contractor has taken a major step on its own. The Beck Group has spent the past two years developing DProfiler software to connect estimating and scheduling software to modeling programs. The program is modeling software that can reflect changes in costs for every design change, says Stewart Carroll, director of Beck Technologies. He says an architect and owner can take the program all the way through the pro forma stage to predict project cash flow.

“Architects generally don’t have a way to accurately gauge the cost of their design. This tool not only gives the costs, but provides the underlying assumptions for those costs,” Carroll says. Beck has been using this software with its own cost database for two years, and now plans to market it to the architectural community. Beck is in final negotiations to partner with national estimating database firms to provide subscription-based access as part of the package.

Beck plans to unveil the package at the American Institute of Architects technology convention immediately preceding AIA’s national convention in June. “We think this will be extremely valuable as it gives architects the ability to know costs during the design process that they don’t have now,” says Carroll. “Using this tool, they won’t lose control of the design during the value engineering process.”

Global Prosperity

High commodity prices have led to huge opportunities for U.S. contractors around the world. “We are seeing a great deal more in mining projects both in the U.S. and abroad,” says Paul Compton, vice president of corporate marketing for TIC-The Industrial Co. For example, TIC is finishing up a major gold mining project in Ghana for Newmont Mining.

The rise in commodity prices is sparking renewed interest in Africa. “There’s a lot more activity in Africa in the natural resources arena,” says Laspa of Bechtel. “And when you have a big natural resources project in a historically underdeveloped country, it creates a cash flow for desperately needed infrastructure.”

High energy prices are leading to some unexpected project opportunities. “There is a lot of activity in the aluminum market despite an excess capacity in the market,” says Sambles. This has more to do with a search for cheap energy to run the energy-intensive smelters than it does from market demand. “You are seeing most of the work in areas where energy is cheap, such as Trinidad, where they have gas reserves, Iceland with its geothermal activity and the Middle East.” This also is leading to retirements of existing smelters, many based in Europe and the U.S., he says.

Bechtel is one of the beneficiaries of this trend, says Laspa. The firm currently is working on the Sohar smelter in Oman and the Fjardaal smelter in eastern Iceland.

For all the difficulties posed by a strong market, there are some major pluses. “With the amount of work available, contractors are getting a little smarter and not undercutting each other like in the past,” says Opheikens of R&O. He also notes that a hot market allows contractors to be more selective, lifting margins. “But at the same time, we want to make sure that we serve our regular clients. We want to be there for them now in hopes that they’ll remember us when times aren’t this good.”