Growing Revenue, Strong Backlogs Keep Contractors Buzzing
With revenue up almost 20% last year among California’s largest contractors, many observers wonder how long the boom can continue
The construction boom in California continues to widen to a scale hard to imagine just a few years ago. The 90 contractors responding to ENR California’s annual survey collectively reported $32.8 billion in 2015 revenue. That represents a 19.6% increase over the previous year. In just three years, contractor revenue has jumped more than 46%.
Many firms, including No. 1-ranked Swinerton Inc., cite unprecedented foreign investment and a growing slate of megaprojects as key factors for the revenue boost. “The potential of these opportunities is huge. To realize them, we are doing things at levels we haven’t done before,” says Eric Foster, Swinerton’s executive vice president.
In Northern California, the pace shows no signs of abating. “Despite much talk about the inevitability of the Bay Area economy slowing down, we have not seen a reduction of project opportunities in our core market segments of science and technology, education, health care and structures and interiors,” says Eric Raff, president of XL Construction. “This is an indication that construction activity for the next six to 18 months is likely to remain high.”
Many Southern California contractors also remain at peak capacity, especially due to the influx of foreign investment into downtown Los Angeles, but some question how long it can last. “Some of our large clients are reporting that domestic lenders are starting to tighten up their underwriting criteria as they fear a potential downturn in the next 18 months,” says John Thornton, executive vice president with Layton Construction Co. LLC.
Hensel Phelps, which jumped to No. 4 on this year’s list from No. 9 last year, reports strength in aviation, health care and education, but some softening in government work. “Beyond 2017, it’s more of an unknown at this point with all that is going on in the world financial markets, but we will keep morphing as needed to keep growing,” says Andrew Millar, Hensel Phelps’s project development director.
Contractors continue to wrestle with how to expand capacity to tackle the burgeoning backlog. XL’s Raff says the anticipated skilled- craft labor shortage predicted for years has finally arrived.
“Many subcontractors are resistant to take on additional work in 2016 that is not already booked,” he adds.
But the tight labor market doesn’t stop there. “We talk about a shortage of craft labor, but what about the shortage of architects and engineers? That is definitely a real concern,” says Gary Rafferty, Swinerton’s president and chief operating officer.
As a result, “clients are now asking us to be more involved in the completion of design. Modeling is a part of our business now—not a service or add-on,” he says.