Construction Trends

June 2008

Subcontractors Warn IRS That 3 Percent Withholding Could Add to Payment Problems
In comments submitted April 28, 2008, the American Subcontractors Association Inc., Alexandria, Va., cautioned the Internal Revenue Service against exacerbating the slow and partial payment issues experienced on construction projects, and against creating "a major overhaul of the entire contracting, bidding and procurement processes at all levels of government,” when the agency writes rules implementing a 3 percent tax withholding requirement.

"ASA told the IRS that the 3 percent withholding requirement should be repealed, but if it isn’t, the regulation needs to be written to minimize negative effects on cash flow,” said 2007–2008 ASA President David H. Bradbury, Precision Concrete Construction Inc., Alpharetta, Ga. "Many firms in the construction industry operate on very small profit margins that would be erased by a 3 percent tax withholding. ASA doesn’t believe that the law requires withholding specifically from subcontractors, but that doesn’t mean subcontractors are shielded from the effects of withholding. If prime contractors react by withholding funds from subcontractors, it could mean more payment problems on public projects—unless the rules ensure prompt payment.”

A provision of the Tax Increase Prevention and Reconciliation Act of 2005 (Public Law 109-222), the law will require federal, state and local government entities with annual budgets over $100 million to withhold 3 percent on all contracts for goods and services, including construction. It is set to take effect on Jan. 1, 2011. Responding to the IRS’ March 31, 2008, request for public comments regarding the law’s implementation, ASA made the case that the requirement should not apply to subcontractors since the government does not pay them: "… [P]ayments are made directly to the prime contractor and not the subcontractors. In many situations, the government entity may not even know the names of the subcontractors working on a project or the dollar value of their contracts with the prime contractor. How would the IRS propose that a government entity withhold funds under these circumstances? It would be problematic without a major overhaul of the entire contracting, bidding and procurement processes at all levels of government.”

"If written without proper care, the regulation could really aggravate a historically sensitive problem: subcontractors being paid late or partially, without cause,” said Bradbury. Payment issues top the list of subcontractors’ most important business concerns. ASA urged the IRS to include prompt payment protections in its regulation for any funds withheld from subcontractors under the auspices of the tax withholding requirement. ASA said: "… a provision [should] be added to any implementing regulation that requires the total amount of any funds withheld from subcontractors by prime contractors to be released within 7 days of receipt from the government or accrue interest at a rate in compliance with section 12 of the Contract Disputes Act of 1978 (41 U.S.C. 611). A provision such as this parallels the federal Prompt Payment Act and would ensure that monies withheld under the auspices of this law are not abused or used for any purposes other than intended. It will also ensure that subcontractors do not bear an unfair share of the burden.”

Even as it urged the IRS to exercise care when writing the rule, ASA supported legislation that would repeal the onerous tax withholding requirement. An ASA-supported bill providing full repeal is pending in the U.S. House of Representatives (H.R. 1023) with 250 co-sponsors. However, under House rules, spending bills need to be offset by revenue-raising bills, and House members have been unable to find a way to fund the repeal. On April 15, 2008, a measure (H.R. 5719) passed the House that would delay the effective date of the tax withholding requirement by one year until Jan. 1, 2012. As of the date of ASA’s comments, the Senate Committee on Finance had yet to vote on the legislation. ASA continues to call on Congress to pass full repeal.

March Construction Slides 8 Percent
New construction starts retreated 8 percent in March to a seasonally adjusted annual rate of $518.5 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building in March fell back after the elevated pace reported in January and February, which featured the start of several massive office and hotel projects. Residential building also weakened in March, as the correction for single-family housing continued. Cushioning the decline for total construction was greater activity for nonbuilding construction (public works and electric utilities), reflecting the start of several large power plants.

During the first three months of 2008, total construction on an unadjusted basis was $121.2 billion, down 19 percent from the same period a year ago. If residential building is excluded from the year-to-date figures, new construction starts in the first three months of 2008 were down 2 percent.

The March statistics lowered the Dodge Index to 110 (2000=100), compared to 119 in February.

Nonresidential building in March plunged 23 percent to $206.8 billion (annual rate), after rising 36 percent in January and February combined. The first two months of this year were boosted by the start of a number of projects valued each in excess of $1 billion; the absence of such large projects in March contributed to the overall decline for nonresidential building. Hotel construction in March was down sharply from an exceptional February, falling 67 percent. Office construction was also down from an exceptional February, falling 28 percent. Rounding out the commercial sector, store construction in March fell 18 percent, while warehouses ran counter to this declining trend with a 21 percent gain. Manufacturing plant construction had a weak March, dropping 46 percent.

On the institutional side of the nonresidential market, two project types showed expansion in March. The educational building category advanced 12 percent, reflecting construction growth for a range of projects—primary and secondary schools, as well as colleges and universities. The dormitory category, which includes both college residences and military barracks, jumped 132 percent. The other institutional structure types showed reduced contracting in March relative to February. Healthcare facilities retreated 30 percent, and the public buildings category dropped 37 percent. A substantial decline was reported in March for amusement-related projects, down 44 percent. More moderate retrenchment was shown by transportation terminals, down 16 percent; and churches, down 3 percent.

Residential building, at $185.5 billion (annual rate), slipped 1 percent in March. Single-family housing retreated an additional 1 percent, providing more evidence that its lengthy correction is still in the process of reaching bottom. The single-family pattern at the regional level showed weaker activity in the Northeast (down 12 percent) and the South Atlantic (down 5 percent), no change for the South Central, and some improvement in the West (up 1 percent) and the Midwest (up 8 percent).

The multifamily category in March was essentially steady with its February amount.

The 19 percent drop for total construction during the January–March period of 2008 relative to last year was due to shortfalls for residential building, down 40 percent; and nonbuilding construction, down 11 percent. The 3 percent year-to-date gain for nonresidential building was in contrast to the broad weakening trend.

On a regional basis, total construction in the first three months of 2008 performed as follows: the Northeast, up 10 percent; the West, down 18 percent; the South Central, down 20 percent; the South Atlantic, down 27 percent; and the Midwest, down 32 percent.

Report: Green Home Building Market Has "Tipped” and Is Expected to Double by 2012
McGraw-Hill Construction, a part of The McGraw-Hill Companies, presented on May 12 the findings of its latest market research investigating "green” home building, focusing on changes in green building activity between 2001 and 2007; the impact of the down market on green home building; opinions and preferences of builders for green materials and processes, and triggers and obstacles affecting green building expansion.

The major findings of the survey, which is co-sponsored by the National Association of Home Builders, include the following:

• The residential green building market is expected to be worth $12 billion to $20 billion (6 percent to 10 percent of the market) this year.

• In five years (2012), the market is expected to double to 12 percent to 20 percent market share, or $40 billion to $70 billion.

• 40 percent of builders think green building helps them market their homes in a down market.

• Quality has emerged in this down market as the most important reason for building green. Previously, builders were motivated by energy cost savings of green homes and doing the right thing, which still came in #2 this year. This is likely due to green home marketing and how it improves quality of life.

For more information on NAHB, please visit www.nahb.org.

The results presented at the May NAHB Green Building Conference have been incorporated into a new issue of the McGraw-Hill Construction SmartMarket Report series, available later this month at www.analyticsstore.construction.com.

Nation’s First Green Residential Remodeling Guidelines Launched
The American Society of Interior Designers Foundation and the U.S. Green Building Council have launched the nation’s first green residential remodeling guidelines.

Organized into the 10 most common remodeling projects, the REGREEN Guidelines are designed to provide professionals and homeowners with resources and tools to green their home remodeling projects. The guidelines can be applied to a variety of projects, from remodeling a kitchen to executing a full-scale renovation.

The market for residential remodeling is massive, topping $200 billion per year, and is projected to nearly double within five years due to the aging of our housing stock. The median age of U.S. housing stock has topped 30 years, and homeowners are increasingly considering family health and well-being, skyrocketing energy costs and the environment when planning home improvements.

The REGREEN guidelines are accompanied by case studies, and address the major elements of any green renovation project, including the site of the home, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality.

To access the guidelines visit www.regreenprogram.org or www.thegreenhomeguide.org. Additional electronic resources will be available online starting in early summer with a comprehensive educational lineup for the interior design, contractor and consumer to follow.

Green Schools at the Top of the Agenda for U.S. Communities
One school a day. That’s the rate America’s schools are registering for the U.S. Green Building Council’s LEED certification program for green schools, signaling their intent to build and operate schools that are more energy and water efficient, which will save taxpayers money. Green schools also have significantly improved indoor air quality, and that results in healthier kids.

"When you consider the fact that 50 million young people spend 8 hours a school day in a school building, we should do everything we can to make that environment work for them, not against them. Parents, teachers and school board officials understand better than anyone the link between child health and learning; and the fact is that children in green schools have fewer sick days and better test scores,” said Michelle Moore, senior vice president, USGBC.

"And if these reasons aren’t compelling enough to go green,” Moore continued, "the operational cost savings should be. If you do the math, energy savings alone could pay for 5,000 new textbooks per school per year.”

Moore noted that there are about 100,000 public and private schools in the United States, and that fully one-third of their facility costs are in heating/cooling buildings, providing water, electricity and other energy/utility functions.

The newly formed Green Schools Caucus in the U.S. House of Representatives has lent a federal voice to the green schools agenda. Created by co-chairs Rep. Darlene Hooley (D-Ore), Rep. Michael McCaul, R-Texas) and Rep. Jim Matheson (D-Utah), the goals of the caucus are to raise awareness of the benefits of green schools, lead the policy discussion on the topic in various forums, create legislative opportunities for the collective efforts of the caucus members, and provide members of Congress with constituent outreach resources.

The LEED certification program was developed by USGBC for parents, teachers, school boards and communities as a tool to measure and manage their school buildings. For more information on green schools, visits USGBC’s green schools site: www.buildgreenschools.org.

To find green schools in your neighborhood: www.buildgreenschools.org/leed/leed_schools_maps.html.

World Demand for Drywall to Reach 9.75 Billion Square Meters in 2012
World demand for drywall (also known as plasterboard or wallboard) is forecast to expand 4.5 percent per year through 2012 to 9.75 billion square meters. Gains will vary greatly by region, depending on a host of factors such as building construction spending and economic growth prospects, as well as trends in local construction techniques. Gypsum-based building plaster sales will rise 5.2 percent per year through 2012 to 35 million metric tons. In most developed countries, drywall is by far the dominant market for gypsum. In developing countries, however, the dominant use for gypsum is as a cement additive. Drywall based on synthetic gypsum will account for an increasing share of global demand through 2012. These and other trends are presented in World Drywall & Building Plasters, a new study from The Freedonia Group, Inc., a Cleveland-based industry research firm.

The market for drywall is concentrated in North America, which accounted for 48 percent of global sales in 2007. However, through 2012, sales growth in North America will significantly lag all other regions, primarily due to maturation in the large U.S. market.

Drywall prospects in the Asia/Pacific region will be particularly robust, especially when excluding Japan. The Japanese drywall market, although registering weak gains through 2012, will recover somewhat from the anemic performance of the past decade. China and India will perform especially favorably, with countries such as Indonesia, Malaysia, Thailand and Vietnam also registering healthy gains in demand. Growth in other developing parts of the world will typically exceed 9 percent per year through 2012, with new drywall plants opening in booming markets such as the United Arab Emirates and Ukraine. Both rapid construction growth and rising popularity of dry construction techniques will bolster demand in developing countries.

Drywall sales in Western Europe will register gains lagging the world average, but exceeding most other developed markets. Gains will be particularly strong in countries such as Portugal, Italy and Spain, where drywall use is increasingly being substituted for traditional wet construction techniques. Western Europe will remain the world’s largest market for gypsum-based building plasters through 2012.

Wallboard Shipment Volume Announced for First Quarter of 2008
According to statistics compiled by the Gypsum Association, Washington, D.C., the United States gypsum board industry shipped a total of 6.785 billion square feet of material during the first calendar quarter (January–March) of 2008.

During the same period, Canadian manufacturers shipped 694 million square feet of material.

Lafarge Announces Joint Venture With Jamaica Pre-Mix Ltd.
Lafarge, Herndon, Va., signed an agreement April 28 with Jamaica Pre-Mix Ltd. to create a new joint venture based in Kingston, Jamaica. This strategic alliance is part of Lafarge’s latest efforts in North America to maintain and expand its infrastructure.

The joint venture, to be named Jamaica Aggregates Limited, will be owned and operated by Lafarge and by Jamaica Pre-Mix. Under the terms of the agreement, Jamaica Pre-Mix will contribute its aggregate operations to the venture and Lafarge will make a contribution toward development and operations. The joint venture will operate four quarries and employ 60 to 70 staff members who currently work at Jamaica Pre-Mix.

Sto Corp. Hosts Industry’s First Bucket Drumming Contest
Sto Corp., Atlanta, announces the first annual Sto Bucket Drumming Contest, a competition to find the best bucket drummer in the building industry.

The competition is free and open to industry members in conjunction with any Sto distributor. All it takes is some talent, creativity and a few Sto buckets to get started.

There are several categories with cash prizes for the winners. Categories include solo, ensemble, drum line and one specially design for children. Cash prizes range from $500 to $1,500 per category.

For inspiration and ideas, go to YouTube.com and search the phrase "bucket drummer” to see some examples of interesting performances. The deadline for submitting video’s on YouTube is Aug. 1, 2008. Complete rules and details are available at www.stocorp.com/bucketdrumcontest.htm

Entries will be judged for creativity, technical merit and skill, musicality and showmanship

Johns Manville Expands and Re-launches SpecJM.com
Johns Manville, headquartered in Denver, has re-launched SpecJM.com and created an enhanced online resource focused on providing building professionals with a centralized resource center for commercial and residential projects. SpecJM.com serves as a resource for product solutions, information on the science behind the products, instructional videos on installation and product use and tips to maximize LEED® credits for sustainable building, along with continuing education resources.

SpecJM.com provides case studies and industry resources, including tips for earning credits toward qualifying for LEED® certification and the products that help to earn the certification. The Web site provides links to JM products that will earn credits across categories including sustainable sites, energy and atmosphere, materials and resources, indoor environmental quality and innovation and design process.

SpecJM.com follows the launch of its consumer-oriented counterpart JMHomeowner.com in November 2007, an online energy-efficiency resource center dedicated to empowering homeowners to make informed decisions about products that can improve their home’s energy efficiency along with the health, safety and comfort of their families. JMHomeowner.com offers consumers product information, a contractor locator and tools such as the Home Energy Analysis, an energy-efficiency calculator that allows homeowners to evaluate their home’s energy efficiency through a step-by-step evaluation of their home’s specifications.

People & Companies in the News
AGATEC Construction Lasers, Jacksonville, Ark., has appointed Bob Lawson as vice president of sales and marketing. Lawson is now responsible for expanding AGATEC’s multiple distribution channels and overseeing the AGATEC sales force and manufacturer’s representatives that serve them. He is also doing national account development and working with the various buying groups for this product brand.

Better Than Ever Tools of Vernon, British Columbia, Canada, has signed an exclusive agreement with the Millennium Group of Loveland, Colo., to be the Master Distributor of The Nailer drywall backer throughout Canada. Better Than Ever Tools will sell through existing distribution agreements with contractor supply organizations in all provinces.

Bon Tool Co., Gibsonia, Pa., has completed its acquisition of Wha-Lite Corporation and the operating assets of the Chicago based tool company.

For more than 60 years, Wha-Lite has manufactured professional-quality tools for plaster and concrete finishing. The manufacture of Wha-Lite hand tools combines durability with its signature lightweight magnesium.

Bon will continue the manufacture of select Wha-Lite magnesium products while maintaining Wha-Lite tool specifications and the company’s tradition of providing contractors with lightweight tools that make every hour on the job more productive and more profitable. More than 120 products will continue to be marketed under the Wha-Lite brand and available through Bon. The distribution of the products will be handled through Bon’s Eastern and Western U.S. distribution centers located in Pennsylvania and Nevada respectively.

Crane Composites, Inc., a division of Crane Co., Channahon, Ill., has hired Kelly Erdmann as vice president, building products. Erdmann will perform a critical role for the organization, leading the Building Products business segment. Her leadership will be key in aligning all departments in Crane Composites including operations, technical and marketing to further develop and refine the Crane Composite product line and business strategy.

Barbara Catlow has been promoted to director of marketing communications for Dryvit Systems, Inc., West Warwick, R.I.

Catlow has been employed by Dryvit for the past 25 years, most recently as manager of marketing services. Her responsibilities have included management of trade shows, events, collateral, advertising and public relations. In her new role Catlow is responsible for marketing communications for the Dryvit and Triarch product lines as well as managing the Dryvit Technical Services Department.

Roger Euliss has announced his intentions to retire from Multiquip, Carson, Calif., at the end of 2008.

"After almost 28 years, it is time for others to take the helm,” Euliss. "We have an excellent team in place, so the continued growth and success of the company are assured. I feel very proud and confident of the company and the team that I have been a part of for so many years. It is now time for me to spend more time at my North Carolina home and with my wife and family, all who are located in the eastern half of the country.”

The new MQ organization will be headed by Mike Howlett who will become president of the MQ General Construction Equipment Group and will report to Tom Yasuda, chairman and chief executive officer. The balance of the core management organization will remain largely unchanged.

Sunbelt Rentals, headquartered in Fort Mill, S.C., celebrated the grand opening of its newest full-service rental branch in Champaign, Ill, on May 8. The celebration featured the JCB GT "World’s Fastest Backhoe,” a specialized "racing” backhoe fitted with a Chevrolet V8 engine, capable of track speeds up to 100 mph. Additionally, Sunbelt provided complimentary lunch, door prizes and giveaways, and vendors JCB, Genie, Miller Electric, Norton Pro-Cut, Vermeer, Wacker and JLG hosted interactive equipment displays.

Topcon Positioning Systems, based in Livermore, Calif., has reorganized its sales and marketing personnel and duties.

Murray Lodge has been promoted to vice president of construction survey.

Mark Contino, former director of sales and marketing, has accepted the new role of vice president of survey sales. Reporting to him will be TPS regional survey managers.

Peter Wallace, former director of survey sales, is the new director of business development-Latin America.

Brian Juroff has been promoted to director of construction sales.

Jason Killpack will be the new director of product marketing and events. He will also be in charge of providing product and market analysis, as well as orchestrating trade shows and events.

Dale Jefferson will assume the new position of director of product management and training. Jefferson will also assume the responsibility for managing the newly formed Topcon training group.