In late January, Bev Garnant, executive director at the American Society of Concrete Contractors (ASCC), St. Louis, forwarded my request for contact information of contractors working on school projects to a group of ASCC members. The response was surprising—I heard back from more than 20 concrete contractors who currently are working on schools jobs. After talking with several of them, I learned this is one construction market where there are some good projects underway. However, school projects aren't always an easy way to make money.

Many contractors agreed that, in normal times, they avoid school work because of the tight profit margins. “In a good market, I try to stay away from schools,” says John Hoffschneider, All-Phase Concrete, Englewood, Colo. “But it keeps our cash flow going and these days, as long as we aren't losing money, we're OK.”

A bright spot with tight margins

With commercial construction slow to nonexistent in many areas of the country, the nearly $25 billion in the American Recovery and Reinvestment Act allocated for school construction is a bright spot. For example, Toledo, Ohio, launched an $800 million program to rebuild and renovate all district schools—the largest single-building project in the city's history. According to Rocky Gardner, operations manager of the Gardner Corp., a Toledo-area concrete contractor, “There are a lot of contractors coming into the Toledo area from Detroit and Cleveland to try to get some of this work. That keeps the margins low, but it's the best work out there—I've seen very little work recently in the commercial private sector.”

The competition for school projects can be fierce. “We are unique in that when times were great, our bread and butter was schools even when most people shied away from them,” says Scott Truax, Middle Georgia Concrete Constructors, Atlanta. “Now everyone wants to do schools.”

Aaron Long, president of Procon Inc., Rocky Mount, Va., agrees. “Bidding schools now is very competitive. Because they are public jobs, everyone knows about them and they are relatively simple construction. We've even seen some residential contractors trying to get the work.”

Another common thread is that as public work, schools are nearly always a hard bid. “Just about everything is hard bid,” says Long, “but occasionally the school district works with a construction manager (CM) and we get a little negotiated work. In those cases, we work directly for the CM and we're giving them a budget number and the margins then are not nearly as tight.”

Margins are another issue with schools, which are mostly on the low side. Some contractors report margins as low as 5%. “Excluding 2009, our margins were very good on schools,” says Truax. “It was always like we had the schools to ourselves because it was not desirable work. Everyone went after condos and warehouses. We made a good living for more than six years—doing nothing but schools with well over 20% margins—although that's obviously not the case now.”

Steve Lloyd, president of Lloyd Concrete Services, Forest, Va., says, “School work is always cheap. It's really competitive, especially in this market. I don't see how some people are doing it. I guess they are just working for cost.”

One rumor about school construction that didn't seem to bear truth was that payment could be a problem. “There are a fewer issues on school work with getting paid than on other work,” says Truax. “As a general rule, our schools pay more quickly, and we have the Georgia Prompt Pay Act so that on any state project, retainage is reduced to 5% once the project is 50% complete. Usually by the time the slab is installed and the building is dried in we can apply for the reduction of retainage.”

“One thing with schools is that we never have any payment issues and that's important on a job with tighter margins,” agrees Long. “We have negotiated to 5% retainage on most school jobs. They don't release anything on the concrete until the billing is complete but it's only an 18-month time frame.”