Everyday, the landscape of the construction industry changes dramatically. This is not in reference to structures going up, or coming down, but rather the countless variables that impact the industry. Foreclosures, interest rates, equipment sales, new technology, jobsite conditions, financing—all impact the industry in a profound way. Perhaps even more threatening is that each of these variables can change at any given moment, creating a ripple effect throughout the industry.
How does a business survive? How has the economy impacted their business? Is their business going to be around in five years?
CC asked these questions to a variety of general and concrete contractors in various locations throughout the country. CC also spoke to a segment of the industry that included tool and equipment manufacturers, as well as associations in order to get their perspective on the industry, which in some cases differs from the opinions set forth by contractors. Be sure to check out these responses as part of the web exclusive article, Industry Associations, Manufacturers Weigh in on Industry Future, where ACI, AGC, PCA, and equipment manufacturers predict what's next in concrete construction.
CONCRETE CONSTRUCTION (CC): How has the economy impacted your business?
Steve Lloyd: Since the economy took a nose dive, our business has been down 30%. We've gone from 88 employees to around 65.
Larry Mayo: Reduced selling prices, revenue, and profits have dropped to early 2000 levels.
Paul Albanelli: First and foremost, the volume of construction is way down leading to a 40% to 50% reduction in revenue from our high in 2007. Great competition for fewer jobs has eliminated net profits. While reducing our workforce mainly through attrition, those still here are working fewer hours than they used to.
Al Raffin: Last year, we were able to do OK because of our backlog from 2008. This year, like most companies, our volume is down and the profit margins are also lower. We find ourselves bidding more work than before to get less work than we did previously.
Michael Schneider: Sales are down dramatically, but the biggest effect is the shift of our market mix. In the past, private work has been the majority of our business. However, currently 80% of our business is government work. Our focus has always been on the customer, however, taking care of the customer has never been more important than it is today.
John Ylinen: Constantly adjusting to low-bid pricing in the market: Can we buy materials cheaper? Can we build it faster with less people? What overhead can I do without? Am I choosing the right projects to bid?
CC: How have you operated your business differently?
Lloyd: One thing this recession has done for me is that it has made me a smarter businessman. We had it easy for such a long time, and now we must attack a job like a game. We plan it out and must also manage it very carefully.
Mayo: We've lowered costs, gone after more federal work, and [entered into] more joint ventures.
Albanelli: It's been much more humbling and frustrating. All the things we were doing right don't seem to matter much anymore. We understand that our customers are fighting tooth and nail for a piece of a much smaller pie, and the only thing that seems to matter is how low you will go on our price. That's great for the construction buyer in the short-term, but I don't think it's sustainable because as contractors close up shop or dwindle away, the reduced number of contractors capable of doing the jobs will cause long-term price escalation. We're just trying to operate so that we'll be one of those standing to fight another day.
Raffin: We have tried to increase our bidding load in our existing market, to market to new companies in specific sectors, and to look at different markets. We have also taken some government work, which we have not done in the past due to the volume of paperwork those jobs require.
Schneider: We must have the discipline to control our overhead, which has been the most difficult part because it has involved several rounds of layoffs, which are never pleasant. We have also had to put some of our initiatives on hold.
CC: What segment of the industry are you doing most of your business?
Lloyd: Our company is very versatile. It seems when our finishing division is slow, our foundation and prep crews, as well as pumping, pick up the slack.
Mayo: Parking garages.
Albanelli: Decorative work on infrastructure projects, such as streetscapes, has been a decent market the last couple of years. No one market segment has been dominant. We have done work in medical, education, parks, municipal buildings, restaurants, defense, and airports. Retail has been limited to drug stores and renovations with no new retail in sight.
Raffin: We have been performing the majority of our work in the industrial sector. Perhaps, that is because they have held off spending the last few years.
Schneider: We are looking at more infrastructure work than we have in the past. We also are looking at more government facilities.
Ylinen: We were very diverse, and worked in a number of different markets before the recession hit. That has helped us through the slow economy.
CC: Have you expanded into new segments of the industry to diversify your business?
Lloyd: We have always been a highly diversified company. We have road crews that work nationwide on big industrial projects. For the guys who prefer to stay close to home, we do foundation and prep work, finishing, decorative, concrete pumping, and concrete repair work. One new segment we began a few short years ago was polishing; there seems to be a demand for it because of its beauty and the ability to be maintenance free.
Mayo: We have moved into federal work, and expanded geographically.
Albanelli: Department of Transportation projects have been our largest new market followed by more vertical concrete and renovation projects such as overlays.
Raffin: At this point, we have not expanded into different segments of the industry. We are looking at doing that, but it takes resources and we want to make sure that we reallocate our limited resources carefully.
Schneider: Baker went into the wind business and has expanded geographically through several strategic acquisitions.
Ylinen: Being already diverse in our market, the only adjustments we had to make was expanding the geographic locations that we normally perform work.
CC: How do you think the current economic conditions will impact the future of your business?
Lloyd: This economy will make us all as Americans better. It has caused us to learn to be better businessmen and craftsmen.
Mayo: Reduced supply and demand for the next five years.
Albanelli: If it doesn't kill us, we'll be stronger because of it.
Raffin: We do a lot of repeat business with clients. My concern is that our clients may not be able to weather a prolonged downturn. On the positive end, the current conditions have forced us to operate more efficiently, which should help us in the future.
Schneider: Current conditions are forcing us to travel more for projects. Traveling is becoming the norm, rather than the exception. Even though there have been temptations to compromise on safety, this is an area where we have taken a strong stand and believe all accidents can be prevented. Also, coworkers are going to be asked to do more with less. The people who are willing to go where needed, when needed, and demonstrate Baker core values on a daily basis will continue to be successful in the organization.
Ylinen: Companies are not investing in training like they have in the past, and my concern is when this economy does get turned around, and it will, the craftspeople will not be there to do the work safely and at the level of quality that we expect.
CC: How do you think current economic conditions will impact the future of the construction industry?
Lloyd: I think all trades will work harder to be the best they can. You've got to be on top of your game to be awarded a job and then do a good job on the project. There are a lot of good people to choose from out there and you have to make yourself and your company stand out.
Albanelli: We see more than a few of our former construction management customers turning to more traditional GC roles by self-performing concrete and carpentry. Needless to say, this isn't so good for a subcontracting firm like us.
Raffin: If the economic malaise doesn't end soon, and we don't see that it will, more companies will be forced to close their doors as there is too much capacity for the available work. Companies that don't keep up with technology, expand their markets, increase efficiency of operations, and provide expanded services to their existing client base are the ones most susceptible to closing.
Schneider: I believe there will be a shake out of concrete specialty contractors, as well as general contractors. I also feel there is a looming manpower shortage because of people leaving the industry, as well as the baby boomers retiring.
Ylinen: Craftspeople leaving the industry that we will never get back.
CC: Have you purchased any new equipment this year, and do you plan to purchase any next year? If so, what type of equipment?
Lloyd: We have only purchased the equipment we really need. We have taught our employees how to take better care of the equipment we do have so it doesn't need to be replaced or repaired as often.
Albanelli: Small items such as saws, compactors, and power tools are the only new equipment we've bought this year. We know the day is coming soon when we'll need a lot of trucks and larger equipment. That is a result of low prices and no profits, leaving no money to replace worn out equipment. If we had any confidence the construction market would improve, we would be happy to go out and buy, but right now we just don't have that confidence. So I don't have the plan as to when I may buy but when we do it will be pickups, medium-duty trucks, backhoe loaders, trowels, power buggies, computers, and software.
Raffin: We have not purchased any new equipment this year nor do we have particular plans to do so next year. We are keeping our eyes open for the possibility of good used equipment coming on the market.
Schneider: For the most part, we are using existing equipment, and large purchases are on hold.
CC: What are some of the current issues you feel are impacting the industry?
Lloyd: I have always been concerned about additives, especially in cold weather. When concrete doesn't hydrate in a timely manner, we tend to over-finish the slab, which actually can contribute to a lot of other issues.
Mayo: Excessive litigation, FF/FL requirements for elevated slabs, and e-verify.
Albanelli: The fly ash ruling from the EPA is probably the most important issue other than the volume of work. Field leadership is the one labor issue high on our list as well as getting a solution to allow more legal immigration.
Raffin: Government regulations in general that make it difficult to run a business. The possible government mandate of the use of green technologies that don't make sense economically. We hear that OSHA, looking for revenue, is going to increase fines and step up enforcement. Low-ball pricing by some contractors can make it difficult to do quality work and yet retain a decent profit.
Schneider: We have great concern about pending EPA recommendations on the classification of fly ash as a hazardous material.
Ylinen: Overly aggressive low biding that is driving low wages and the lack of investment into training.
CC: What impact may these issues have on the industry in the long-term?
Lloyd: They have really impacted us and it will continue. That is why I stay involved with the American Society of Concrete Contractors and the American Concrete Institute, because that is where we can make a difference now and in the future.
Mayo: Tougher contract negotiations, more in-house testing, and a different workforce.
Albanelli: Most of our field leadership is 50 plus, and they are looking to get out while they still have some chance of getting something from their union pension funds. Too many of our young guys just don't see the value and/or pride in being a leader and aren't willing to do the extra work that it takes.
Raffin: On a long-term basis, if government regulations and enforcement increase the cost of doing business, less business will build. What will have the biggest long-term impact on our industry is whether or not the government allows an economic climate to exist where our clients will feel comfortable to invest in and expand their business.
Schneider: Long-term, I feel it may be difficult convincing young people to come into the industry because of all the uncertainty. With the retirement of the baby boomers, I believe there are going to be tremendous opportunities for the young people starting out in the industry.
Ylinen: Safety and quality will suffer the most.
CC: Are you worried about your business surviving in the next 5 to 10 years?
Lloyd: No, not really. We have always tried to be the best we can be at what we do. We've always used the most modern tools and technology to improve what we do. I really and truly love my job, and so do our people. Our customers know this and we have always given 110% on every job we do, no matter how big or small. We've always been fair. With us it's black and white, no gray area. We don't believe in back charges, just give you a fair price and we do what we say. When people hire us, they're always pleased with the final outcome and they really and truly get more bang for their buck.
Mayo: No to surviving, I do question our ability to make ROI's commensurate with risk.
Albanelli: No question we worry about the next five years almost every day. It's been a long struggle already in Michigan and we wonder every day whether it's worth continuing the battle. It's not so much ego that keeps us going but rather the challenge of surviving the first really bad times we've faced in our careers. It would be easy to close up and live off the last 25-year run we had, but a lot of families are counting on us to stay in the fight and win not only the battle but this war as well.
Raffin: Yes and no. If the current economic situation persists, there is not a lot of room for error in how one runs a business. Who knows what could happen? That being said, my great grandfather started our business in 1916 and went bankrupt in the Great Depression because people couldn't pay him. He started right back up and operated in a lean fashion until the country came out of it. We can survive, but it will not be easy and some people could be hurt.
Schneider: We believe that we will survive. We have an emphasis on succession planning in all areas of the organization to help ensure that survival. Our challenge is perpetuating our company values. The challenge that Dan Baker continually gives us is making Baker a great company to work for and work with.
Ylinen: No, our company has great leadership that had planned for rainy days, and has worked hard at finding good opportunities in the right markets.
Additional feedback from the American Concrete Institute, the Associated General Contractors of America, and the Portland Cement Association regarding the future of the construction industry can be found at www.concreteconstruction.net.
Tom O'Malley, vice president sales and marketing, Schwing America Inc., St. Paul, Minn.
Ion Warner, senior director of marketing, Case Construction, Racine, Wis.
CC: What is the projection for your company's equipment sales over the next 12 to 36 months?