Eight Years Covering the Construction Industry

Eight years ago, when Cahaba Media launched Construction Business Owner, the construction landscape looked very different. Though the market has changed, the mission of the magazine—to provide the kind of business management knowledge that is of real value to owners—has not. That’s why we are here to mark the 100th issue with this December’s publication. CBO has remained relevant because in both up-cycles and downturns, contractors who stick to sound business management principles almost always come out ahead.

We want to take this opportunity to recognize the main reason that readers turn to the magazine for advice—our expert authors, who so generously share their years of experience inside these pages. (Once, a reader told me that CBO is like having paid consultants at your fingertips for free.) Though we couldn’t talk with all of our experts, we did catch up with quite a few to examine advice previously quoted in the magazine and update their comments with a fresh perspective for 2013.

Before we get to their comments, however, let’s assess where we’ve been and where the industry stands today. In 2004, there was plenty of work, and especially in the years that followed, it was almost hard for contractors not to make money. Then in 2009, when the financial markets melted down, the atmosphere changed dramatically. As Vic Marshal, partner and co-founder of Leveraged Resources, puts it, “Recovery is so fragile right now that it takes a lot to get it going and almost nothing to knock it back.”

The changes since 2004 are numerous. “The biggest change in construction has been the collapse of residential construction spending, which is barely half as big as it was eight years ago,” says Ken Simonson, chief economist of The Associated General Contractors of America. “In contrast, nonresidential construction spending in September 2012 was 24-percent greater than in 2004—although probably about the same in inflation-adjusted dollars or square footage.”

According to Hank Harris, president and chief executive officer of FMI, one factor that has slowed construction has been continuing malaise in the general business climate. “Right now we haven’t had the confidence level to enable momentum to break loose. The public sector has been the most challenged, and the private sector has money, but the problem is that it’s not flowing,” says Harris.  

Other big changes since 2004 are the increase in the inflow of international firms in the U.S. and the rising numbers of U.S.-based contractors starting to look at international markets, Harris explains. With enormous pressure on profit margins, larger firms have fared better. “There’s no question we’ve seen more consolidation and the industry has become more stratified into very large and more localized firms,” Harris says. In addition, there has been significant growth since 2004 in large projects over $500 million in size. “Some of the infrastructure projects have been enormous, like the Bay Bridge in San Francisco and the new $4 billion Apple headquarters. … In 2005, there were 116 jobs over $500 million and no jobs over $1 billion. In 2011, there were 194 jobs over $500 million and 103 over $1 billion,” Harris explains.

Even so, one of the biggest challenges that many contractors face is the inability of developers to obtain funding for projects. In fact, as Scott Tracy, co-managing partner of the construction real estate practice Clifton Larson Allen, explains, “We’re seeing contractors help projects along by collaborating with developers. They are doing more real estate work to help developers find financing so projects can actually be built.” In addition, he explains, there have been creative solutions for funding civil projects with more participation in public-private partnerships. “One example is toll roads, and at the other end of the spectrum is government buildings that are working with private entities to manage it,” Tracy says. There’s no question that during challenging economic times, the best businesspeople find creative solutions to problems, and they often come out of the cycle stronger.

And that’s not the only silver lining. Since 2004, the green sustainability movement has taken off, and technological advancements for contractors abound. However, many still struggle to understand how they can wield a competitive advantage by using these tools.

As for future projections, Simonson has this to say: “Going forward, I expect greater growth in residential than nonresidential construction but not nearly as much single-family homebuilding as last decade. More people will choose—or be forced to choose—multifamily, mainly rental housing.” He also expects that nonresidential construction will shift “to projects related to domestic oil and gas, manufacturing and distribution, such as trucking, rail and warehouse construction.”

Authors
George Hedley Owner of Hard Hat Presentations
Then (January 2005): “Think about what it takes to grow and maintain a successful construction business. What are the most important aspects in building a profitable company—doing the work or managing the business? I’m sure you agree it takes both to be successful.”

Now: “Back then, getting work was not that hard because contractors didn’t have to focus on setting themselves apart from the competition. … If you were a good builder, you could do okay. Today being a good builder is only one-half of the formula, and if you don’t adapt, you’re gone. Today’s customers are more demanding; they expect perfect for a very competitive price. In short, the environment has forced contractors to become better businesspeople.”

Hank Harris President and Chief Executive Officer of FMI
Then (January 2011): “It will probably be 2014 before put-in-place construction is anywhere close to what it was before the financial markets melted down.”

Now: “I think this is generally close to true, but I was probably a little bit off on the timing. In 2014, we’ll still be just under $1 trillion total construction put in place, so I was probably overly optimistic by about 24 months. Our current forecast indicates it will be around 2016 before the construction industry is projected to hit $1.2 trillion.”

Scott Tracy Co-Managing Partner of CliftonLarsonAllen, LLP
Then (January 2010): “Survival generally requires not so much new practices as it does best practices—the kind of financial management that is smart in any economy. … Fortunately, construction is cyclical and almost invariably returns with the same or greater strength. It is the contractors who manage cash flow and use good business sense who will remain strong and still be around to enjoy the next upturn.”
 
Now: “All contractors are going to be looking for growth, leading many to seek work outside of their geography or the type of work they do. When they start moving out of their geography is when they bring on more risks. … Contractors who are still applying the fundamentals are going to be strong and survive. Just apply them under this new environment and be smart about how you analyze opportunities.”

Vic Marshall Founder and Owner of Leveraged Resources
Then (January 2008): “In today’s tough economic climate, it can be a real challenge to survive until things improve. In good times, work is plentiful, and even marginal or poorly managed firms can be successful. Tough times present an opportunity for you to review your operations, make an effort to understand what works and doesn’t work for you and initiate constructive change that will make you a better-managed operation.”

Now: “The validity of that quote holds up. In good times and bad times, it’s a good management principle. Unfortunately, because four years have gone by, a lot of companies have gone by the wayside. You see people in places where they wouldn’t normally be bidding, getting into lines they wouldn’t normally get into. Construction is very risky anyway, but the climate has forced contractors to take even more risks. The original opportunity in 2008 was to improve processes internally. The opportunity today is for them to explore traditionally risky areas—geographies that are unfamiliar—and do it in as risk-adverse manner as possible. Many companies have had to fix internal risks and are now facing external risks that they would not normally take on. We have contractors in Detroit working in Canada and contractors in Florida doing jobs in Qatar. The opportunity now is to manage external risks.”

Dean Barley Vice President and General Manager of Terex
Then (January 2010)—Bob Desel, Vice President of Terex, Americas and Asia: “Normalization of the credit markets is one of the top issues facing the construction industry in general as well as the construction equipment industry. The inability of smaller contractors to get credit is putting a significant damper on the few signs of recovery we have begun to see lately. … The other major issue facing our industry is meaningful investment in infrastructure that will drive long-term economic growth, making the movement of goods and people more efficient and effective. The federal highway bill currently awaiting re-authorization by Congress is the most immediate opportunity we have, as a country, to begin making the required investments.”

Now—Dean Barley, Vice President and General Manager of Terex: “I would say that current industry trends are similar to those mentioned. … Although 2010 was a slow start to a multi-year recovery, rentals have shown signs of growth. That, combined with aging equipment fleets, has created equipment movement. Unfortunately, this momentum has not been accompanied by meaningful investment in Congress to drive infrastructure to support future accelerated growth and stimulate the economy long-term.”

Ken Simonson Chief Economist of the Associated General Contractors of America
Then (May 2012): “The whole public sector is still weak and likely to stay weak for several years—the weakest of all is school districts and local governments.”  

Now: “I’m sticking by my story on public construction. Public construction spending fell 4.2 percent from September 2011 to September 2012. That was the 24th consecutive month of year-over-year declines in public construction spending. I remain positive about total construction spending, however. The total in September, $852 billion at a seasonally adjusted annual rate, was the highest since October 2009. The full-year figure for 2012 seems sure to be up from a year ago for the first time since 2006, thanks to growth in both residential and nonresidential private construction.”

Steven Davis Senior Vice President and Director of Construction Risk Services of McGriff, Seibels & Williams
Then (January 2011): “One of the most critical risk issues facing contractors, particularly those who engage with subcontractors, is the condition of the subcontract documents and how they manage the risks associated with additional insured provisions, many of which are limited in scope.” Davis also describes the 2011 insurance market as “relatively soft.”

Now: “The insurance market for contractors has changed quite a bit from 2011, with significant upward pressure on rates across the board, including ancillary coverages such as employment practices, directors and officers and crime. Additional insured provisions continue to create problems for contractors. While the standard language is often sought, insurers like to use their proprietary forms, which are more restrictive.”

Brian Barksdale CPA and Partner of Carr Riggs & Ingram
Then (January 2011): “Construction companies need to be working routinely with their bankers and surety companies to maintain strong relationships in order to be in the best position to obtain financing and bonding. Accurate financial information is a must—and open communication with lending sources is critical. Many companies will consider bringing in new equity investors, although they may be hard to find at this time.”

Now: “I think this still holds true. We have not seen any influx of new equity investors, and banks have certainly continued to be careful about extending credit to any business—and construction is on their list of more risky businesses. It’s always important that contractors have good relationships with banks and sureties, but today’s contractors have to have timely financial reports, whereas in the past some contractors may have been slow to provide financial information. If it ever was okay, it’s not okay anymore.”

Domenic G. Ruccolo Senior Vice President of Sales and Marketing of John Deere’s Worldwide Construction & Forestry Division
Then (January 2011): Ruccolo explains how Deere has chosen to launch units that feature a cooled exhaust gas recirculation (EGR) with exhaust filters as a solution to IT4: “We believe it’s the right technology right now because it is simple, fuel-efficient, field-proven, fully-integrated and fully-supported.”

Now: “The implementation of IT4 technology has progressed to the point where manufacturers have already unveiled their Final Tier 4 plans. In March 2012, John Deere announced its Final Tier 4 strategy—an ‘Integrated Emissions Control’ system. This is an optimized after-treatment solution paired with the performance-enhanced, fuel-efficient IT4 engine platform, featuring proven cooled exhaust gas recirculation (EGR). … Like John Deere’s approach to previous regulatory tiers, the Final Tier 4 technology solution was designed to consider overall performance and operating efficiency.”

Carol Patridge CPA and Co-Managing Principal of Yeo & Yeo, P.C.
Then (January 2006): “Some companies are so busy servicing existing clients that they do not devote enough time to planning ahead, ensuring that future projects are scheduled. When you are busy completing and managing current projects and do not focus enough time on bidding and lining up future work, you fail to ensure an even transition from one project to the next.”

Now: “I think this rings even truer now. Since then, a lot of contractors have contracted their workforces, so their busy schedules may be even more compounded. They need to make sure they are still focusing on bidding.”

Readers Respond
This year we surveyed more than 100 of our readers to ask them how well we are doing our job. We got some interesting feedback and an earful about what topics they like to read about most.

Favorite Topics: business strategy, legal articles, accounting and finance, risk management, safety, industry news and market forecasts
Favorite Articles:  “How To Develop a World Championship Team,” by Gregg Schoppman; “A Mild and Moderate Recovery,” by Jeana Durst; “Who Drives Your Construction Company’s IT Strategy?” by Marty Hilsenteger
What Readers Like Best about CBO: One reader reported that he likes the “hands-on advice that you can use immediately,” and another cited the fact that our articles focus on “business management issues rather than pushing products.”

Ralph Martin Owner of RW Martin Construction, Charleston, S.C.
Reader since 2004
“I’ve been in business 25 years. This is one magazine that I do pull out and I do read (and I get a lot of magazines that I don’t read). I like the different articles about the technological tools, especially reading about software that can provide time savings as well as GPS tracking, time cards and web-based and mobile tools.”

Troy Deal President of Aztec Development Company, Orlando, Fla.
Reader since 2004
“I do read the magazine, and I find it very interesting and worthwhile.”

Industry Insiders Share Insights into Their Markets
We asked long-time advertisers who have supported the magazine since 2004 to share how their respective industries have changed during the past eight years.

Towmaster Len Stulc, President
“Contractors have been ordering more specialized trailers through our dealers. We have seen a trend toward options that help them reduce trips and haul more than just the basic equipment.”

Insite Software Steve Warfle, Product Manager and Co-founder
“The economy’s gotten tough, and contractors have realized that to minimize risk, they really have to analyze what is happening on the job. IT is driving down risks in the industry. Our software allows customers to break jobs down to a very detailed level. We’ve been doing a lot with software to make sure customers have the business tools to minimize risk. Another change has been in document distribution. We’ve released the PDF version of our software—we heavily invested in allowing the customer the most information they can get from a PDF. Though there’s been earthwork software for 30 years now, the biggest change is that it’s no longer paper-driven. The most efficient contractors are the ones minimizing risk with information.”

ExakTime Tony Pappas, CEO
“In eight years this amazing change happened, and now we are living in the world of a connected office. Users who have always been great businesspeople but perhaps unsophisticated with technology have become much more sophisticated. They understand that if they are still doing things on paper, then they are not doing things as efficiently as they should. Our users keep us on our toes; they ask tough questions. … We get to develop a lot cooler products for the Android and the iPhone, including a suite of sophisticated management tools that lets owners address jobsite issues and concerns as they occur.

“Our mobile products started out with time tracking, but we have found that what’s more important to customers is the ability to send photos and recording from the jobsite. It’s great for compliance and protection against threats of litigation. It helps mitigate risks. In 2008, our job clock line was 100 percent of our revenue. Now it’s 40 to 50 percent, and the rest of the revenue comes from the mobile technology we have.”

Thank You to Our Loyal Advertisers
We are proud to recognize advertisers who have been with us since 2004 and are continued supporters in 2012:

AlturnaMATS
American Technical
Breaker Technology
ExakTime
Insite Software
John Brown & Sons
dee Concrete
Towmaster
Vulcan On-Board