How Fares Your Wallet?

AWCI Member Contractors Are Optimistic for 2018—Except for the Manpower Shortage

Ulf Wolf / January 2018

In presenting his 2018 construction outlook at the Dodge Outlook Executive Conference held in November, Dodge Chief Economist Robert Murray said U.S. construction starts are expected to climb by 3 percent to $765 billion in 2018, following a similarly modest 4 percent boost to an estimated $746 billion for 2017.

Murray was cautiously optimistic about 2018: “There are several positive factors that suggest construction expansion has further room to proceed.”
    
Said Murray, “The U.S. construction industry has moved into a mature stage of expansion. After rising 11 percent to 13 percent per year from 2012 through 2015, total construction starts advanced a more-subdued 5 percent in 2016.”
    
How do these numbers tally with the contractor members of the Association of the Wall and Ceiling Industry? There’s only one way to find out.

Busy or Not?
First, we wanted to know: On a scale of 1 to 5, with 5 being flat-out, crazy busy and 1 being the opposite, how busy are you these days?
    
Gary Dillman, owner of Titan Walls in Florida, reports, “We’re only at a 3 right now, primarily due to competition and a shortage of skilled labor.”
    
James Murray, president of Murray Drywall in Nebraska, on the other hand, reports a flat-out busy 5.
    
Howard Bernstein, president of Penn Installations, Inc. in Pennsylvania, is very specific: “We’re at 3.85232, approaching 4 with spring/summer looking to have the potential of 5.”
    
From Southern California, Dave DeHorn, chief estimator at Brady Company/Los Angeles, Inc., shares, “We are at a level 3 and will be at a level 5 by March 2018. The Los Angeles market is busy with many high-rise buildings going up in the downtown area. The LAX airport has over $5 billion in construction projects that are now underway, with more to be released. Also, the Los Angeles Ram’s stadium is underway, and we still have the usual schools, universities, and other projects coming up for bid.”
    
From Northern California, Craig Daley, president of Daley’s Drywall & Taping in California, has more good news, “We’re at a 5. The Bay Area is doing very well. The tech companies are expanding and high-density housing is in high demand.”
    
Also from the Bay area, John Kirk, owner of Kirk Builders, reports being between a 3 and a 5 over the last year and a half. In Texas, Randal Newman, president of Silver Star Plastering, Inc., reports being a 4 or a 5. And in Vermont, Gilly Turgeon, president of Green Mountain Drywall Co., Inc., reports a 5.
    
It’s a different picture in North Dakota, where Gerald Roach, owner/president of Forks Lath & Plaster, Inc., says, “We’re at about a 2. Our economy has slowed considerably.”
    
James Keller, vice president at Valcom Enterprises, Inc. in Kentucky reports, “We’ve been at 6, but lately things have backed off a touch, which is nice. Maybe 3.5 right now.”
    
From Iowa, Scott Turczynski, vice president/owner at The Heartland Companies, is “near crazy busy but not quite. I’d say a 4 right now. If I were to grade myself it would be a 5 as I am constantly looking to make our company the best it can be and to position us for the future.”
    
Says Donald Radeljic, owner of PK Interiors in New York, “At 3 right now, but could be busier (the work is there) had we more resources (as in money) to float payroll for additional jobs.”
    
As for Michigan, Phil Ruffin, president of Pontiac Ceiling & Partition, reports a 3. “We’re coming off some major 2016–2017 jobs,” he says, “and there currently is a lull in new projects.”
    
Timothy Rogan, vice president, CEP at Houston Lath & Plaster reports, “I’m as busy as I can be with my manpower and have been turning work away with tight deadlines.”
    
Mike Heering, president of F.L. Crane & Sons, Inc. in Mississippi, observes, “We are currently operating at a 3, but that is on the tail of a 5 over the past seven months. We should be back to a solid 4 around the first of the year.”
    
Checking in with Maryland, Robert Aird, president of Robert A. Aird, Inc., reports, “We are screaming busy, construction is booming and at this point we are turning down more work than we are accepting.
    
“These days, low price on bids is not necessarily the winner for the GCs: CMs and owners want service, quality, no comebacks. Our limitation—more than anything—is finding qualified workers.”
    
There’s good news from North Carolina, where Richard Wagner, owner of Richard Wagner Enterprises, LLC, reports, “A busy 4.95. Best backlog in 10 years.”
    
Back to Los Angeles where Greg Smith, executive vice president at Superior Wall Systems, reports being at “a 3 right now, but there is a deep backlog on the horizon. 2017 wasn’t as busy as we had expected, but 2018 is looking like it will be a very busy year. Our sales are up about 20 percent over 2016, and next year looks to eclipse that.”
    
In Minnesota, Roger Olson, president of Sig Olson & Sons Plastering, Inc., reports, “We are busy, but not overwhelmingly, so I would call it a 4.”
    
Also from Minnesota, Mark Mathiowetz, president of MCI Paint & Drywall, Inc., says, “We have been going 100 miles an hour, but now we are back to our load limit and it feels like we are slow. Now I know how the NASCAR boys feel coming down pit road.”
    
From New York City, Lee Zaretzky, president at Ronsco, Inc., tells us, “We’re at 3 by choice. These days we are very selective about what projects we take on and for whom we will work.”
    
Rounding out this survey from Fort Worth, Texas, Glenn McBride, division manager at Marek Brothers Systems, Inc., reports, “We’re at a 4 and the Dallas/Fort Worth market remains strong. The majority of our work comes from good customers, many of which have negotiated projects that enable them to award jobs based on best value rather than the low number.”
    
It’s as busy a field as we have seen in a long time.

Margins
According to recent GC input, it seems to be a subcontractors’ market these days—subs can now be more selective about what projects to bid and work. How is this affecting margins?
    
Says Dillman, “I guess that depends on which market you’re in. These days, our margins are good but not the best ever.”
    
“Very positively,” reports Murray.
    
“Because of increased opportunities and manpower concerns, margins have crept upwards,” concurs Bernstein.
    
“These days, yes, some markets see better margins and less competition on the bidding side,” reports DeHorn.
    
Says Daley, “Our margins improve each year as we can afford to stay away from clients that lack a track record with us. Our core clients know how to run a job and they don’t beat us up on change orders.”
    
Kirk concurs: “My margins are up considerably since the recession. Still, no one is giving money away, and if they find my margin is too pricey, I won’t land the job.”
    
Observes Ruffin: “We don’t necessarily see better margins at bid time. More often we realize them with better on-site management, better planning of manpower, and a more seasoned and experienced field force.”
    
Reports Turgeon: “It greatly affects our margins as it allows us to pick and choose the good jobs rather than the not-so-good ones.”
    
Aird concurs: “Because of the abundance of work, we can now price our work higher than ever.”
    
Says Smith, “Not only can we be selective, but we have to be selective. We simply don’t have enough estimators to keep up with the available bid volume. That said, our margins have risen a little, but not tremendously. Los Angeles is a crowded market with a lot of contractors vying for good work, so it’s still competitive out here. Also, there’s a manpower shortage that dilutes our talent pool, causing production rates to drop.”
    
Olson agrees: “There seems to be plenty of work for the subs these days, especially the specialized ones like us. However, there is still enough competition out there to keep everyone honest. We are able, though, to raise our prices to at least reflect increased costs of labor and materials.”
    
Observes Zaretzky, “There is plenty of competition out there, especially in the commercial interior markets, so owners are still benefiting from a buyer’s market. Still, by careful vetting and project selection, we avoid the over-competitive projects and, on less volume than two years ago, we’re seeing better gross profit.”
    
Reports McBride, “Margins are fair to good. Though the market is busy, there is an abundance of drywall and acoustical contractors competing for the jobs. We focus on projects generated by customer relationships.”
    
Perhaps not as delighted as one could have hoped, but wallets definitely seem happier these days.

Bid Selection
These days, how do wall and ceiling contractors determine which projects to bid and which to give a pass?
    
Dillman says the biggest factors in this decision are the availability of manpower, location and type of project. Murray concurs and adds that it is also the GC and the schedule.
    
“For us,” says Bernstein, “geography has always played a role, but well-respected customers receive top priority—those who have always treated us fairly, even in down times. Those with poor payment records or unsafe job sites get the pass.”
    
DeHorn says they consider things such as whether or not they have a history with a client. “Also, our company is union,” he says, “so if the GC is accepting non-union bids for our scope, then I turn the bid down. I also consider our current bid schedule.”
    
Daley also looks at the client, more than the type of job “We need to keep our limited manpower available to those GCs that brought us to the dance in the past,” he says.
    
Kirk shares a similar view: “If I’ve had problems with this GC in the past, there is no reason to even consider doing more work for him in the current environment.”
    
“We basically only bid government and healthcare work,” says Roach. “Also, I will pass on jobs that I see have strong competition from cheaper contractors.”
    
Says Keller, “I consider the number of GCs, whether public or private, and the size of job.”
    
Offers Ruffin: “We have a set customer-base that we service at all times. While we do venture away from our base at times, that is only when the customer and job make sense.”
    
“These days,” says Heering, “it is a lot easier to look at a certain job and decide whether to bid or not. Also, in this market, we try to secure favorable contract language. This with reasonable success. However, we have been able to walk away from seven-figure contracts because the client would not budge. We haven’t been able to do that in a long time.”
    
Says Rogan, “We favor negotiated work where we can set the terms of payment and tell the client how long it will take us, rather than trying to meet an unrealistic schedule that’s already behind.”
    
Says Turgeon, “We try to stay local, and the more work we have, the less likely we are to bid something that is out of town.
    
“Our aim,” says Aird, “is to work directly with owners or architects, or with property managers and third-party engineers, who, if they’re retained as construction managers for the project, won’t hire the cheap bid for fear of a failure on their record. Instead, they hire companies they know and trust to do things right the first time, on time and on budget.”
    
Smith’s standpoint is that “We really try to stay within our core competency and only bid in the markets where we are strong. Also, we bid to our valued and regular customers.
    
“We also look at project timing. We don’t want to overbook ourselves and create unnecessary problems.”
    
Shares Mathiowetz, “We used to bid everything but now we concentrate on our core competency.”
    
“If it’s in line with our corporate strategy, we’ll bid it,” says Zaretzky. “If not, we’ll pass. This year, by being selective and playing it smartly, we’ve been landing one bid in five.”
    
It’s been a while since contractors could be this selective. Let’s hope it stays this way.

2018 Outlook
Virtually to a man, 2018 looks very promising. Most contractors have already accumulated a considerable backlog for the coming year and are at this point more concerned about finding and securing manpower than landing additional projects.
    
A few examples will serve.
    
Says DeHorn, “We have a strong backlog in 2018 and about a third of our backlog already secured for 2019.”
    
As does Daley, “We have experienced a 20 percent–plus growth over the last couple years, and we expect 2018 and 2019 to continue at this pace.”
    
Murray predicts they will “stay very busy for the next three to five years,” and Bernstein says 2018 will be very positive. That goes for Turczynski as well: “We look for next year to be as good if not better than this year.”
    
“Plate already half full,” says Roach.
    
Ruffin begs slightly to differ. “We expect a slowdown in 2018,” he says, “but with a further increase in 2019.”
    
And shares McBride, “Our backlog for 2018 is off to a great start, and should be just about as busy and profitable as the past couple of years.”
    
This glass is definitely three-quarters full.

Business Boosters
What factors are boosting business in the wall and ceiling industry?
    
DeHorn says, “A strong residential construction market usually leads to a strong commercial-construction market. In Southern California, we currently have both.”
    
Daley says, “Growth in our business is a combination of there simply being more jobs to bid while our reputation as the ‘go-to’ sub continues to improve with excellent job performance.”
    
Suggests Kirk, “Years of pent-up demand has finally burst along with the remaking of San Francisco into an almost different city.”
    
“A very good crew,” says Roach.
    
“More work than competent subcontractors,” suggests Keller.
    
“Better economy and more aggressive estimating,” says Radeljic.
    
Says Ruffin, “Having great manpower stabilizes our job costs, which has a major effect on our bottom line.”
    
“The one thing that helps us,” says Heering, “is the fact that we have many locations in several different markets. Over time, we have seen strong areas grow weaker while others, after struggling, have rebounded. A broad field allows us to ride such storms.”
    
Rogan’s view is that “others’ poor quality helps the most since we have a great reputation when it comes to stucco repair.”
    
Says Aird, “A stable workforce that is trained, reliable, competent and loyal to the company.” Then he adds, “And whom we take very good care of.”
    
Shares Wagner, “We have boosted our workload by being honest, dependable and fair.”
    
Observes Smith, “A very brisk economy and a shortage of housing in our market has caused an unprecedented building boom.”
    
“Experience,” says Zaretzky, “and the wisdom that comes with it, help us to know intuitively what to pursue and what to stay away from.”
    
From McBride’s perspective, “Being able to package the drywall and acoustical scope with other specialties—such as window treatments, stretch fabrics, glass boards, etc.—contributes to boosting our business.”
    
Savvy bidding and an excellent crew seems to be the strongest cards.

Business Barriers
On the flip side, what factors might hamper your business?
    
At least eight of the contractors interviewed for this article said the lack of available, skilled manpower is the biggest barrier facing contracting businesses.
    
Heering is one of them. “I think it is imperative that we all have a solid training process within our companies to attract young workers and to help them become the best that they can be,” he says.
    
DeHorn concurs and elaborates, “In Southern California, I think we will see a manpower shortage starting in the second quarter of 2018 and lasting for a year or so. We are trying not to over-extend our sales because of this.”
    
Murray says, “So many good imported workers have left Dodge that it is very difficult to complete the current volume of work in the field.”
    
Along the same lines, Mathiowetz is concerned about immigration reform. “Almost all of our workers know of somebody who is here illegally, and they are concerned they will be deported,” he says
    
Aird adds, “We also fear that the disasters in Puerto Rico, the Keys, Houston and Northern California will create a materials shortage nationally.”
    
Keller is also concerned about the effects of the natural disasters. “[With] all the damage from hurricanes down south,” he says, “materials prices rising and labor becoming even scarcer.”
    
Says McBride, “Less negotiated work would hamper our business. When GCs have to hard bid projects, they are forced to use the low number rather than awarding based on best value.”
    
Quips Roach, “The one factor that is hampering my business is folks trying to drag me into the computer age.”
    
If there is a dark cloud on the horizon, it’s labor shortage.

Other Thoughts
“Hopefully this market will last longer than the Browns lead in a football game,” quips Bernstein.
    
Daley waxes philosophical, “Although every day is hectic with manpower shortages and growing pains, I’m sure we will look back on these times as the ‘good old days.’”
    
Heering reflects, “With tighter job schedules, GCs will take a look at the manpower required to do the job and will evaluate the subs accordingly. The GCs want to make sure we can complete the job on time.
    
“That’s why I think the companies that offer a solid training path for employees will succeed in keeping manpower up to where they need it to be, and that will help them be the contractor of choice.”

California-based Ulf Wolf is the senior writer at Words & Images.