Construction experts discuss the challenges of 2010 and offer advice for the road ahead.
If the No. 1 concern of contractors in 2010 had to be summed up by one phrase, it would certainly be "lack of work." Here at Construction Business Owner, we have heard this concern echoed in countless encounters with contractors and in meetings with our editorial advisory board. This notion is confirmed by industry insiders like Mel Burges, chairman of CFMA and CFO for Harcon Forming of Alpharetta, Ga. "Regardless of the market sector, there just wasn't enough work to go around in 2010." Burgess says this lack of volume created an ultra-competitive environment-some contractors attacked new markets and others reduced bid prices to break-even margins and below cost in some cases just to keep core personnel busy.
Construction companies were lean coming into 2010, but 2011 presents a glimmer of hope as construction activity will most likely begin a gradual climb. Hank Harris, president and CEO of FMI, management consultants to the construction industry, explains that " We think the industry's put-in-place construction will be up about 4 or 5 percent for 2011. ... It will probably be 2014 before put-in-place construction is anywhere close to what it was before the financial markets melted down."
Even more encouraging is that many contractors are still succeeding despite the market challenges. Chief among this group are contractors who resisted the urge to overextend themselves when the industry was booming. Mike Trammel, Member-in-Charge of the Dixon Hughes Construction and Real Estate Group explains that in 2010, most contractors noticed, or "renoticed," that cash is king. "If a contractor went into the recession undercapitalized, overextended or without a specific niche in the market, 2010 began to exert unwelcomed pressure."
We also learned an important lesson from a highly successful contractor on our editorial board who prefers to remain anonymous. He says it's just as important to determine what you won't do as it is to determine what you will. He attributes a large part of his success to carefully selecting who he should work with and maintaining the discipline to turn down a project if necessary.
Most importantly, the consensus is that contractors willing to read and research to stay ahead of the curve will have the advantage. In the spirit of working smarter in 2011, we sought out industry experts to explain how last year's challenges affected the construction business, what to watch in the coming year and how to implement strategies for successful growth.
How Challenges Reshaped the Landscape
Securing jobs has never been as competitive as it was in 2010 when small- and mid-size contractors suddenly found themselves competing with much larger companies. As Brian Barksdale, CPA with Carr, Riggs and Ingram, a regional accounting firm , puts it, "Taking jobs at low profits or even losses has been a consideration for many contractors in an attempt to pay some overhead or keep valuable employees on the payroll." While desperate times may call for desperate measures, many in the industry are urging contractors to stop the bidding war, cautioning that it only harms the industry's health. CFMA Chairman Burges says, "Contractors will have to raise their bid prices in order to start climbing out of their low-margin backlogs, and the low- to no-margin bidding strategy will have to stop."
Another "sore spot" in 2010 was succinctly summed up by Ray Frobosilo, the president of Super Stud Building Products. "The banks are not acting like banks," he observes. Industry insiders are calling for banks to loosen the stranglehold they currently have on credit. "Until owners or developers can acquire the financing necessary to start or restart projects, the industry will continue to be in stagnation," says Burges.
Barksdale offers this solution to the problem: "Construction companies need to be working routinely with their bankers and surety companies to maintain strong
