...in both the buildings and infrastructure markets,” says CEO Bill Dean, noting the firm just won a major life-safety contract with the Metropolitan Atlanta Rapid Transit Authority.

Dean also notes that his firm has had major successes in the manufacturing market in the South. “That has made up for the falloff in the commercial market.” Further, M.C. Dean has won some big contracts in the health-care market.

Another firm that has been helped by its diversity is Southland Industries. “We now do more business outside of our home state of California than within it,” says Ted Lynch, regional president.

Southland has benefited from the federal building boom, but it also has a substantial presence in the health-care and education markets, Lynch says. For example, the firm was part of the design-build team that recently won the $500-million hospital project at Fort Hood in Texas.

Mergers and Acquisitions

The recession has many owners of specialty contractors looking to get out of the business, rather than going through tough times one more time. But owners looking to sell have seen multiples fall rapidly, devaluing the equity in their firms. Thus, while these owners may want to cash in and get out, they are reluctant to do so at rock-bottom prices, which has caused a falloff in the amount of transactions.

However, Guzzi of EMCOR believes the industry is nearing a tipping point on M&A activity. He says many owners were waiting for the market to get better to sell at a higher multiple, but they now believe the turnaround may be two to three years away. “They may not want to wait that long,” he says.

Some say European money will continue to enter the U.S. market. Andy Walker, CEO of Nicholson Construction, says European firms recently have acquired several heavy and civil contractors in the New York City area, including Secaucus, N.J.-based Schiavone Construction by Spain’s Grupo ACS and Holmdel, N.J.-based E.E. Cruz by Germany’s Hochtief.

Some firms are holding fast. “We are a group of roofing executives with 30-plus years in the industry, not a roll-up,” says Richard M. Nugent, CEO of Nations Roof. “We have no interest in buying other roofers. When we expand, we do start-up offices.” He says the cost and risk of starting up in a new location make expansion a bad idea in this market.

Holding On

For the past 18 months, industry executives have been predicting the recession and aggressive bidding would cause a wave of contractor failures; however, there has been little evidence of widespread bankruptcies. “We have seen a couple of contractor failures and some that have had their credit lines pulled, but I thought we would see more,” says Bacon. Sureties don’t see a wave of firms going out of businesss any time soon, says Bacon.

Many contractors have maintained good business practices, but others have been bidding wildly. Suder saw a bid spread for a school drywall contract that ranged from $1.5 million to $3.6 million. “How do you leave that much on the table in a 3%-margin business?” he says.

Owners and GCs are growing increasingly wary of subcontractors’ financial health. “Clients are looking for more prequalification and background checks,” says Burt Fried, chairman of LVI Services. While subs once would have had to complete a one-page form, prequalification forms now can run to a dozen pages of detailed questions, he says.

ASA is conducting workshops on how subs can present themselves effectively to GCs and owners. “The prequalification document is not just a piece of paper but a means to sell yourself,” says Nelson.

For some, this increased scrutiny is welcome. “We like it because maybe it will help weed out some of the less reliable general contractors,” says Walker of Nicholson Construction.

Many subs say the surety market is tightening up. “Bonding is tight, and sureties are making you dot all the i’s and cross all the t’s, but that benefits the healthy contractors and is good business,” says Mann of E-J Electric.

Unlike the past couple downturns, there have been fewer complaints about predatory practices by general contractors during this recession. “The major GCs are being really fair,” says Mann. “GCs are requiring competitive pricing, but they also appreciate quality and are willing to pay a little more for it,” Mann says. “Owners are beating up on everyone, so GCs and subs see that they are all in the same boat and are working together,” adds Boncher.

Nelson thinks there are not as many predatory practices being used by GCs during this recession as compared to past downturns, saying, “It is not as pervasive, but it still is going on.” Nelson cautions that subs should be careful if contract requirements or conditions look too onerous. “Sometimes, the best jobs are the ones you never took.”

Nicholson Construction’s Walker agrees, saying, “The bad guys [among GCs] are getting worse, and the good guys are under pressure to push subs.” He says some GCs are attempting to cut costs and retain profits by self-performing the more simple tasks they used to sub out. “That isn’t always the wisest decision.”

A buyers’ market is tilting the playing field. “Owners are taking a much tougher stance on things like change orders,” says Boncher. “Whenever the issue comes up, the first word out of their mouths seem to be ‘no.’ ” He says GCs and subs have to spend increasing amounts of time and effort to get paid for changes. “So those contractors that bid low and hope to make it up on change orders risk getting into trouble,” Boncher says.

But ASA’s Nelson warns that strict contract enforcement by owners can cut both ways. “With margins so tight, GCs and subcontractors may also be less willing to perform courtesy changes that may cut into their bottom lines, the way they did in the past,” she says.

Managing for Success

Bacon of Limbach cautions that subs must get smarter about managing their companies to survive, saying, “You don’t succeed simply by bidding lower. You have to improve efficiency.” Limbach has been implementing a variety of lean construction practices,...