ENR 2018 Top 400 Contractors: The Market Keeps on Rolling
See which companies made it to the top
The construction market is cyclical. Executives at large U.S. contractors understand this and also understand that the current booming market will not last forever. However, despite the fact that this is one of the longest domestic upswings on record, few see signs that it will abate any time soon. So they are working hard now to take advantage of the opportunities available without losing sight of what the future may bring.
The domestic market was one of strong, steady growth for large contractors. This can be seen from the results of the ENR Top 400 Contractors survey. The Top 400, as a group, generated a record $373.98 billion in contracting revenue in 2017, an increase of 2.1% from 2016’s $366.41 billion. However, the real story is on the domestic side. Contracting revenue from U.S. projects rose a healthy 4.9%, to $322.83 billion, on top of a 9.4% rise in domestic revenue last year and a 9.5% increase the year before. On the other hand, contracting revenue from projects outside the U.S. plunged 18.4%, to $35.55 billion, in 2017, with major declines noted in projects in the mining-and-metals and petroleum sectors and a falloff in the general building sector abroad.
Many contractors did not believe the market could continue to grow as long as it has, and few see any signs that this growth will taper off. “Two years ago, I said we were in the late innings of the construction boom. I am really glad I was wrong,” says Dan McQuade, group president for construction at AECOM. He concedes that this is a cyclical industry and that he has been through three major market recessions. “But right now, we’re bullish. We have our sights on $14 billion to $15 billion in projects coming up, and that could grow to as much as $20 billion if the economy holds up.”
Many contractors are using the steady growth in the overall market to focus on what they do best, rather than scrambling for any opportunities that come along. “We project the markets we serve will continue to grow in the next several years, so our strategic plan does not include any new markets,” says Larry Rooney, president of Manhattan Construction Group. However, he says the firm is increasing the scope of services it offers in its current markets.
Turner Construction is another contractor that is maintaining its focus on its primary markets. Pat A. Di Filippo, executive vice president, says Turner’s big markets, like health care, commercial, education and convention centers, are all busy. “We want to make sure first of all that we saturate those markets. We will not take people out of those sectors to chase work in other sectors. We have to make sure our credibility is based on the work we are doing now,” he says.
Many contractors credit federal actions with boosting the markets. The recent federal tax cuts as well as measures taken to reduce the regulatory burden manufacturers face “are promising steps to level the playing field and move the U.S. economy forward,” says Stephen Gray, CEO of Gray Construction.
Rufus Judson, CEO of The Pike Companies, agrees with Gray. However, he cautions that now is the time to take advantage of these federal actions. “With the tax cuts and deregulation, we hope to see an increase in manufacturing throughout the Northeast. Interest rates are going to go up, thus companies should build now rather than in the future.”
There are a few local bumps in the road for some contractors. On the West Coast, there is the reduction in Chinese foreign investment, and that will have a significant impact on some markets, as Chinese investors have been putting a lot of debt and equity into these real estate investments. “Because international money is backing out, a lot of projects have slowed down or aren’t able to get financed,” says Jeff Hoopes, CEO of Swinerton. He sees a drop-off in the overall market for multifamily, hotels, and condominiums “beginning to happen in San Francisco, and we’ll see that in Los Angeles and Seattle within the next year.”
ENR's 2018 Top 400 Contractors Chart
Top 400 Contractors: The Market Keeps on Rolling PDF
Waiting for an International Recovery
One market that has been struggling is the upstream petroleum market. The drop in oil prices at the end of 2014 and its slow climb over the past three years have stalled the petroleum sector, the biggest international contracting market. However, with oil prices now topping $70/bbl, some believe that the stagnant petroleum market is poised for a rebound.
Not everyone believes the rise in oil prices will cause a quick turnaround. “Our customers are encouraged by the rise in oil prices, but I can’t say they are changing their capital expenditure plans right now,” says Jack Futcher, president and chief operating officer of Bechtel. He says that oil companies are still basing their plans on a $40-$50/bbl price target. “Our customers in that sector are conservative in their plans, and they still see some volatility in the market,” he says.
One international sector that may be turning around is mining. “Copper prices have finally started to come back,” says Futcher of Bechtel. He says Bechtel has been particularly well positioned in that market, based on its range of skills. For example, in Chile, the government placed strict limits on how much water copper producers can draw from local aquifers. “Our infrastructure experience allowed us to package not just the copper concentrators, but also the desalination plants and pipelines to pipe water to those concentrators,” Futcher says.
One issue that has many U.S.-based international contractors worried is the continuing political pressure against the Export-Import Bank of the U.S. The Ex-Im Bank’s role in providing international loans to finance the purchase of U.S. goods and services has been severely cut as political opposition has blocked confirmation of nominees to the bank’s board, limiting the amount it can lend. This has hurt some U.S. contractors’ opportunities against contractors from other countries, such as China, that have more active export credit agencies.
“The notion that Ex-Im Bank loans are corporate welfare is inaccurate,” Futcher says. The government earns interest on loans to finance international projects, and U.S. contractors hired to work on these projects are likely to specify U.S.-made products to execute the projects, he says. “The Ex-Im Bank levels the playing field for U.S. contractors.”
While the international market for oil and gas projects may be soft, the domestic market is doing well. “We see improved market conditions in the LNG [liquefied natural gas] and petrochemical business, along with increased construction activities along the gulf coast in the second half of 2018 and leading into 2019-20,” says Farhan Mujib, president, engineering and construction, Americas, for KBR.
However, Mujib sees some problems with competition. Risk appetite has increased among contractors due to the soft market. “This will continue until the workload stabilizes, and then the contractors will start pushing back on risk and also seek improved margins,” he says.
One major driver in the domestic industrial sector is the continuing low prices for shale oil and gas in the U.S. “We see many opportunities in the LNG sector for such projects as ethane crackers and polyethylene production,” says Futcher.
There have been several announcements of new domestic petrochemical projects recently that confirm Futcher’s claim. For example, Exxon Mobil and Saudi Basic Industries Corp. announced on May 1 plans to build a 1.8-million-ton ethane cracker in San Patricio County, Texas (see p. 20). Further, Formosa Petrochemical Corp. filed permits on April 23 to begin building a $9.4-billion chemical manufacturing complex in St. James Parish, La.
Low U.S. gas prices already have had an impact on LNG export facilities. For example, Bechtel has completed four LNG export trains and is working on a fifth for Cheniere Energy at Sabine Pass, Texas, and is working on two greenfield LNG trains in Corpus Christi, Texas. “Cheniere is now looking to add a third train in Corpus Christi,” Futcher says.
One surprising element in the domestic contracting market is the high level of competition. Despite the amount of opportunities available, many contractors complain that the competition has not slacked off. “Competition is still robust and contractors are still taking an aggressive approach to quoting fees,” says Mark Luegering, COO at Messer Construction Co. He says to compete successfully, firms must be able to deliver more value-added services to their clients. “You can’t just compete on fees.”
The level of competition also is affecting fees. “Although our markets are very busy, competition remains tight with pressure on fees and our CM services or our professional services contracts. We also see new upstart companies entering our active markets, looking to establish themselves via below-market compensation,” says Robert W. Mullen, CEO of Structure Tone.
Some contractors say large firms are in a rush to hit revenue and growth targets. “A rise in mergers and acquisitions has prompted the larger firms to pursue more and more projects, in an effort to achieve greater market share and revenue,” says Ashok Patel, CEO of OHL North America.
But there also is a fear that the market will not last and now is the time to build up backlog. As a result, some contractors are bidding on work without regard to their ability to execute the projects. “People in this business have to understand their own capacity and should not overcommit. Contracting is not about getting lots of work but about understanding your skill sets and ability to execute,” says Di Filippo of Turner.
The workforce shortage in construction currently is an issue and it will continue to get worse. Some experts predict that the shortfall in the industry may reach two million workers by 2020. This has left contractors scrambling to ensure their work will be adequately staffed.
Demand for manpower and resources is outstripping capacity across the board, especially on complex projects. “Cost escalation can exceed 10% in specific trades. This trend is intensifying and will probably be a factor over the next 24 months,” says Steven F. Matt, CEO of Matt Construction. He says subcontractors are beginning to avoid smaller and complicated jobs to conserve their resources for the most productive projects.
“Staffing is a daily, weekly challenge,” says McQuade of AECOM. The firm had generally sought engineering school graduates for entry level positions. However, it now increasingly is recruiting graduates with nontraditional degrees not typically sought after by construction firms. Further, McQuade says that the nature of the firm’s work is a plus in recruiting. “The chance to work on a one-of-a-kind megaproject can be very attractive to a young person,” he says.
This shortage has led to an escalation in wages. It also has led to a struggle for contractors to recruit and retain qualified people. “Companies are offering higher pay for short-term commitments to these employees, but aren’t looking at long-term sustainability for their hires, and this is causing disruption,” says Luegering of Messer Construction. He says Messer is focusing on giving employees the professional development, mentoring and training they need to be successful and grow in their careers.
Some firms say that potential recruits are more focused on salary than long-term opportunities. “Since we are a 100% employee-owned company and we give shares to our employees, we feel we have more to offer than a traditional firm. However, we still see potential employees only focused on the wage rate vs. the long-term potential of our programs,” says Jason Seubert, COO for Garney Companies Inc.
The growth in mandatory drug testing programs is hurting recruitment in the trades. Many potential candidates are unable to gain full-time employment in the industry due to drug use. “As a result of the growing drug epidemic, more clients are instituting mandatory drug testing programs and background checks for the individuals working on their jobsites to ensure a safe work environment,” says Luegering.
Some contractors have been anticipating workforce shortages for years. For example, Turner Construction has hired 450-500 new graduates each year for the past three years and has been hiring upwards of 300 new grads for years, going back to the depths of the recession in 2009. “We are not hiring these young people for today, but for 10 years from now,” says Di Filippo.
Further, Di Filippo says Turner’s adoption of lean construction practices have helped it deal with worker shortages. “Lean is not just a process, it is a guide to treating people well on the job.” He says the willingness to listen to workers on the site rather than simply ordering them around, and emphasis on jobsite safety and a program to pay subcontractors upon being invoiced, rather than waiting the typical 45-60 days, makes subcontractors and craft workers more willing to work on Turner projects.
Many contractors are instituting programs to attract and retain employees. For example, Sundt is building best-in-class leadership development programs and offering frontline supervisor training to enhance craft experience and productivity, according to Daniel Haag, chief administrative officer. Sundt also has developed “our own Center for Craft Excellence to train our own craft workforce.” It also has implemented comprehensive training for all field positions on work processes and systems and has increased the capacity of its talent acquisition team. “In today’s competitive workforce, your retention strategy is just as important as your recruitment strategy,” he says.
Another company working on staff shortages is Gilbane Building Co. It used its work on the Wentworth Institute of Technology’s newest academic building as a “living laboratory” for students in Boston, says Dennis Cornick, executive vice president. “Gilbane has partnered with university faculty to form a hands-on educational program around its design and construction, including biweekly site tours, an evening lecture series focused on various construction and design disciplines and guest lectures in the classroom.” Wentworth students have accrued more than 4,500 learning hours in the program, he says.
JE Dunn also has started an academic partnership to help steer students into the industry. In April, it launched a program in conjunction with a local school, Metropolitan Community College, whereby high school students “can take college-credit classes and graduate from high school with an Associate of Applied Sciences degree in Building Maintenance and Construction in two years through MCC at no additional cost,” says CEO Gordon Lansford.
JE Dunn then will sponsor the program’s graduates, allowing them to start in the field and learn a skilled trade as a first-year apprentice, earning a living wage and developing invaluable skills immediately out of high school. “We not only want students to recognize construction as a career, but we also want to help get them there faster,” Lansford says.
Moss & Associates took a major step in 2017 when Chad Moss, executive vice president of Moss, announced a $10-million gift through Moss Foundation Inc. to Florida International University’s College of Engineering & Computing, the largest donation by an FIU alumnus to date, to create the Moss School of Construction, Infrastructure and Sustainability. The move was “to help educate future industry leaders,” says Scott Moss, president of Moss Construction
Moss is also providing scholarships at FIU specifically for minorities and women. “In addition, our Moss Women in Construction (MWIC) initiative is making the construction industry more approachable to qualified women,” Scott Moss says. The goal is to “recruit, retain and advance these qualified women in higher numbers.”
Major contractors also are experimenting with new technologies and approaches to help stem labor shortages. For example, Hoar Construction LLC used a robot to improve productivity and consistency on its Poff Federal Building project in Roanoke, Va. “The robot laid 470,000 bricks and really helped us [avoid] expected staffing shortages,” says Rob Burton, CEO.
A shortage of skilled construction workers continues to be a problem for the industry. “We believe that’s one of the reasons more companies are utilizing prefabrication. They can control the quality and offer full-time employment. I believe we’re nearing the tipping point for prefabrication becoming more widely accepted and adopted in our industry,” says Luegering.
Many firms are looking into prefabrication, and building techniques that lend themselves to prefab, to boost productivity. “The more you can minimize the labor in the field and maximize the shop labor, the more we can control our costs. We’ll be able to erect buildings in half the time and cut 20% off the price pretty easily,” says Hoopes of Swinerton.
Some contractors say increases in materials prices as a result of inflation or tariffs could push more contractors into prefabrication. “We are steel and aluminum consumers in the construction industry, so restrictions on materials and labor could push us to be more of an assembly business. We could end up having to import more finished products, such as prefabricated kitchens or bathrooms, and end up assembling prefabricated products,” says Moss.
One area that lends itself to prefabrication is the use of cross-laminated timber (CLT) in structures. Swinerton just completed the largest cross-laminated timber office building in the U.S., a 156,000-sq-ft headquarters for First Tech Credit Union in Portland, Ore. “We also have prefabricated type-1 multifamily systems we’re working on, including the Sustainable Living Innovation model. Everything we’re doing is gearing toward pre-manufactured products,” says Hoopes.
Swinerton is not alone in using CLT. “Lendlease has pioneered the use of CLT,” says Jeff Arfsten, COO of Lendlease U.S. Construction. The company first used CLT in Australia to construct the multiresidential Forté Living, as well as the public Library at the Dock, both of which Arfsten says were the first of their kind on the continent. In 2016, the company turned to the U.S., building “the first CLT hotel in the country,” according to Arfsten.
Arfsten says CLT is a more sustainable approach to building. CLT is Forest Stewardship Council-certified, and is projected to achieve a substantial energy savings when compared with more traditional low-rise residential structures of the same size for the same climate.
Lendlease is currently building its second hotel in the U.S. using CLT. The hotel, a 65,000-sq-ft structure located in Fort Drum in Watertown, N.Y., will include nearly 100 rooms and will incorporate CLT for the hotel’s floors, roof, exterior walls, shaft walls and select interior walls.
Arfsten says CLT provides exceptional exterior wall performance for the building envelope, contributing to making the hotel’s design compliant with the Unified Facilities Criteria Anti-Terrorism Force Protection requirements for blast performance and progressive collapse. “The use of CLT as an alternative to structures in low-rise residential is an innovation that is transforming our industry,” he says.