For many firms in the construction industry, the market recession is well into its third year, and most executives believe it shows no signs of abating. Specialty contractors and subcontractors have been hit particularly hard; few had healthy backlogs to tide them over for an extended period of time.

Many large specialty contractors have gone into survival mode, accepting lower revenue levels, pursuing only those projects that make sense and only working with customers and partners they trust.

The impact of the downturn can be measured by the results of the ENR Top 600 Specialty Contractors survey. The Top 600 as a group had contracting revenue of $72.55 billion in 2009, a drop from $87.02 billion, or 16.6%, for the group in 2008.

The scale of the downturn can be seen in the individual responses to the Top 600 survey. A total of 536 companies on this year’s Top 600 also sent in surveys last year. Of that group, 414 saw a drop in 2009 revenue from 2008 levels. Only 117 firms had increased revenue levels—barely one in five grew in 2009—while five had revenue that was essentially flat.

Most specialty contractors believe there will be no major turnaround any time soon. “I don’t see things getting any worse—just more of the same,” says Tony Guzzi, president of EMCOR Group. “People are prepared to deal with the slow market for the next 12 to 18 months.”

“There isn’t any light switch that will come on to turn around the market,” says Mark Rondeau, manager of business development for Dunkin & Bush. “We were hoping for a turnaround in September 2010, but now we are looking to September 2011,” says John Boncher, recently-appointed chief executive officer of Cupertino Electric. However, he says predicting the market is difficult at this point. “Going out any farther than the current project cycle is just guesswork.”

Two Markets

The recession has forced a tough decision: Bid for quantity or quality. “It takes some real courage to shrink your top line,” says Guzzi. EMCOR’s revenue was down last year from 2008, and the firm reluctantly laid people off. “But the alternative was to chase anything, and we have been trying really hard not to take bad jobs,” he says.

Many larger contractors are becoming more selective in the projects they pursue. “There are two markets out there: a price-driven market and a value-driven market,” says Dave Suder, CEO of KHS&S. He says his firm avoids the hard-bid market because of the risks to the bottom line.

“You have to learn to say no to bad deals in bidding, where the [firm that makes the] biggest mistake wins the job,” says Charlie Bacon, CEO of Limbach Facility Services. He says the firm recently was invited by a general contractor to partner on a project, but the GC said the owner insisted on bringing in a dozen other bidders. “We appreciated the offer, but we had to decline,” Bacon says.

Times are tough, but some say the sense of doom and gloom may be overblown. “People tend to go into a recession as optimists, believing that things will turn around quickly,” says E. Colette Nelson, CEO of the American Subcontractors Association, Alexandria, Va. However, she says once a recession lengthens, people in the construction industry tend to turn pessimistic until a recovery is well under way. She says people are beginning to get work.

Many subs say that there still is work out there. “The difference between this market and the one in the early 1990s is that there is work to bid this time around,” says Suder. He notes that the total U.S. market still is about $900 billion. He says KHS&S’s market is on par with what it was in 2004. “We thought 2004 was a really good year. You just have to do your job, and your revenue will be what it will be,” he says.

On the industrial-services side, it is no different. “Capital spending is down, but people still need gasoline and they still need power, so our customers still have to keep their industrial infrastructure maintained,” says Rondeau.

“There is work around, but the prices on the smaller projects are very competitive,” says J. Robert Mann, chairman of E-J Electric Installation. He says E-J Electric is tracking several large, complex projects coming up for bid in New York City where few electrical subcontractors have the size and expertise to tackle the job. E-J Electric is part of the team that won the job to build the Barclays Center in Brooklyn.

There are some signs of an uptick in the market. “We are seeing the pipeline improve. We tracked a 22% increase in opportunities in the last quarter,” says Bacon. He concedes this activity does not constitute a recovery, but it is a positive indicator.

Many firms look with skepticism at federal stimulus packages. Guzzi says the $50-billion infrastructure stimulus bill proposed last month would not be enough to affect the market. “The commercial market is dead, and there’s not enough money … on the federal and state level to take up the slack,” says Mike Taylor, executive director of the National Demolition Association, Doylestown, Pa.

Guzzi says American corporations have an estimated $1.8 trillion in cash on hand. “Once there is more certainty on federal tax and energy policy, some of that money may start being spent on hiring and capital programs,” Guzzi says. “Public spending will not end the market recession. Private spending will.”

Some firms have been able to avoid some of the impact of the recession thanks to the markets they serve and the services they provide. M.C. Dean managed to increase its revenue in 2009 despite the downturn. “We did this by being diverse...