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Beware the Contract You Never Signed
Beyond the Ballot Box
Buy, Sell or Hold
Food for Thought
From Concept to Production
On the Job
Seeing is Believing
The College of Hard Knocks
The Right Financing
ZWICK: Our fees need to go up. There’s no question about it.
GARFF: We are a small commercial contractor. Some of our clients are wanting to talk to us that did not want to talk to us a year ago, but mostly it’s still talk. We are seeing a very flat market. My general opinion is we’ve hit bottom, but we are still bouncing along the bottom. And there are no fees out there in these jobs. Many contractors like us are just hanging on and looking for better days. But I think we are in this for a couple more years.
WILLIAMS: As architects, we see things a little sooner. We’re optimistic, actually. We’re busy. And maybe we’re unique from other firms, but we’ve had a lot of owners that have been waiting to build, and they understand that it’s kind of a buyer’s market now. They can get great pricing. So they are starting to pull the trigger and do some more building.
In the past, it’s been mostly apartment buildings and industrial, but we have student housing, assisted living. We’ve got some schools coming online, and the other one that is pretty big is hotel and resorts. We actually have some international clients that are backlogged for all of the next year. And we have a client coming from Japan in December, and they are looking for Utah builders that are willing to go build in Japan. They claim they have $2.5 billion in contracts.
It’s easy for us to do international work because it’s easier for us to travel than for contractors, but there are opportunities if people want to tackle something like that.
BULLARD: A couple of disturbing trends seem to be continuing: the margin compression is one, and I don’t see anything on the horizon that indicates a relief to that. And there is excess capacity in our industry. How do you weed that excess capacity out?
The disturbing thing is that the margins that the generals are getting have no relation to the risk that is being taken on projects. Some of the very low margins that the subcontractors have been bidding are starting to be booked. And it takes awhile—it takes a year or two before the numbers hit on some of the large bids from our subcontractors, and once those hit the books, there will be some reassessments about those markets. We are probably taking more risks in the marketplace than we should. Because they don’t have margins either.
The most disturbing trend that I see is a setback to our industry in terms of the willingness of owners to look to us for advice during the critical stages of a project’s development. AGC has made a big push in past years for the construction industry to be thought of as a professional service industry. And because of this recession, that message is not getting through.
All I can say is that an owner going back to a hard-bid status, either they are just very naive and think that they are going to get the low dollar for a project or they simply don’t value the services that we are offering during preconstruction. And if that is the case, then we need to reassess the type of information and services we are giving during that critical period of a project. Because moving away from a negotiated CMGC marketplace into a hard-bid marketplace is a bad thing for our industry.
Alan, can you give us insight on what you are seeing as a subcontractor on the commercial end?
JOHNSON: At a sub level, I honestly believe that building up to what you guys want and expect in a subcontractor is going to deteriorate with the current margins. And the cash flow management from the owners to the generals, which then parlays down to the subcontractors, is taking hits. Most subcontractors are not well developed in a business sense; they compete on a wage, and they take it down in the labor force. Now I see the labor force deteriorating and people not wanting to come into the trades the way they were.
I can only tell you what we are experiencing. We are busy, but we are also expanding the kind of projects and markets we chase to cover our overhead to stay in business and hopefully be around with you guys three years from now when the market turns.
HUNT: What has been unprecedented is that we are going into four years of uncertainty. We’ve been through a lot of ups and downs over the years, and usually after a couple of years, you have a pretty good barometer that it’s either going up or down. But it’s been very flat for going on four years and that is a challenge for all of us.
WALTER: Utah is in better shape than most of the country. We are the sixth most diverse economy in the United States. Our exports are up. I think we have the ability to recover faster. My perception is that Utah is going to return, probably not next year, but in 2013 we should really start roaring back. I’m feeling much more optimistic this year than last year.