The New Normal
Ulf Wolf / October 2015
Today, as always, the only true constant is change. At times, however, these changes slow their pace and settle for a while, and then we call them the current state of affairs. • But they never settle for long, it seems, and soon pick up speed again and what used to be normal no longer is. A good example of that, of course, is the recent downturn, when many good things we knew and loved fell by the wayside.
Today, as always, the only true constant is change. At times, however, these changes slow their pace and settle for a while, and then we call them the current state of affairs.
But they never settle for long, it seems, and soon pick up speed again and what used to be normal no longer is. A good example of that, of course, is the recent downturn, when many good things we knew and loved fell by the wayside.
Some of those changes have yet to revert back to what we now fondly look back upon as the pre-recession normal and may in fact never do so, in effect becoming our new normal. Among them: GCs self-performing drywall; old suppliers now merged or gone out of business; some of your competitors may have closed shop while others—remote contractors—might still be poaching in your area.
Today, things have settled down a bit again, allowing us to take a deep breath, look around and determine: What does today’s normal look like?
During the recession, everyone was cutting expenses to survive, and one particular expense that many GCs cut was the subcontractor. Instead of contracting the job, they decided that they could save themselves a bundle by performing the drywall work themselves.
As better times returned, many GCs once again turned to their trusted subs, though not all. To what extent, then, are GCs still self-performing drywall?
Says Stephen Baker, president of Baker Drywall, Ltd. in Texas, “We don’t see many GCs self-performing drywall, typically just smaller, tenant-finish contractors.”
Brian Mead, president of Commercial Builders, Inc. in Florida, concurs. “Very few, if any, GCs self-perform for the work we typically pursue in our market,” he says. “If a GC is self-performing drywall, we simply do not provide them a number—period.”
Greg Smith, vice president of Mowery-Thomason, Inc. in California, sees a similar picture: “A very small percentage of GCs perform their own drywall work. In fact, in our market, it is rare that a GC performs any work at all. They are more construction manager and less contractor.”
Says Gerald Roach, president of Forks Lath & Plaster, Inc. in North Dakota, “We do a package deal and will not work on that job if they want to self-perform any part of our trades.”
Observes Craig Daley, president of Daley’s Drywall & Taping in California, “We’ve seen a few GCs try self-performing and then give it up. Of course, we don’t help them in any way, no help with budgeting and no manpower trade-off like we do with our regular GCs.”
Ken Fox, vice president of Delta United Specialties, Inc. in Tennessee, reports, “Currently, we have two GCs in our area that self-perform. One is on an occasional basis and only has had an impact on one project. As for the second, we bid them very cautiously.”
Dick Mettler, executive director of Northwest Wall & Ceiling Contractors’ Association in Washington, observes that, “In Seattle, there are very few GCs that self-perform, usually small ones. Others have tried, but they don’t do it up here anymore.”
Scott Masson, president of Lotspeich Co. Southwest, Inc. in Florida, says that “it is rare for a GC we solicit business from to self-perform our trade. The few we know who do, we never bid, since they are simply looking for us to validate their own estimates.”
Says Lee Zaretzky, president of Ronsco, Inc., “Here in New York City, the trend is to move away from self-performing. For the most part, CMs and GCs sub out the majority of their work, though they may keep one or two guys on to do small jobs and punch lists.”
Kevin Biddle, president of Mader Construction Co., Inc. in Elma, N.Y., “A couple of GCs have purchased drywall companies over the last 10 to 15 years and now do their own drywall. Of course, no other drywall companies bid these GCs.”
Doug Bellamy, former president of Innovative Drywall Systems, Inc. in California, shares that sentiment. “For my money,” he says, “GCs who elect to self-perform are off the table when it comes to any interaction on our part. Those who do business with us have to make up their minds: either they want to be GCs or drywall contractors.”
For Robert Sutton, project manager at Reitter Stucco and Supply in Ohio, things look a little differently. “We find more and more GCs self-performing metal framing/drywall,” he says. “In our market we can name at least four larger GCs self-performing, and I’ve heard of a few more attempting it. Although this has yet to affect EIFS, stucco or manufactured stone, it could potentially become an issue for these as well.”
Mike Heering, president of F.L. Crane & Sons, Inc. in Mississippi, reports that in his area, “few GCs self-perform drywall work. As for the few that do, we sat down with them and talked it over, making it clear that we expected them to let us know when they plan to self-perform, in which case we will not send them pricing for that particular job. For the most part, they have been straight with us. We do not like it when it happens, but we have to live with it.”
While some areas still see GCs self-performing, the trend shows a return of drywall work to the trusted subcontractor.
A contractor’s relationship with his or her supplier can be crucial, both at bid time and, even more so, at project time. Without correct and timely quality supplies, there is no project.
So the observation that many suppliers were either bought out, merged or simply closed their doors during the recession begged questions about current supplier relationships.
Says Baker, “Despite some mergers and acquisitions, we still maintain close relationships with our major suppliers. They were smart enough to leave the local people in place.”
Joel Chambers, vice president of sales at J & B Acoustical, Inc. in Ohio, shares, “Since we also have a supply arm to our company, our local suppliers pursue our business very aggressively, typically selling jobsite delivery, etc., which does help our bottom line.”
Mead reports, “Supplier/Distributor relationships are all about precisely that—relationships, and for us, they haven’t really changed. And now, as work picks up, you want someone in your corner that you’ve supported and who, in kind, will support you.”
Giles Turgeon, president of Green Mountain Drywall Co., Inc. in Vermont, considers himself lucky. “We still have the same suppliers we had 10 years ago, and that is a very good thing,” he says.
Reports Smith, “There were two significant mergers in our market, but they did not impact our buying habits. In the main, our sale representatives have stayed the same.”
Daley also considers himself fortunate. “Although we’ve seen supplier consolidation in the Bay Area,” he says, “our experienced sales reps have remained in place.”
John Kirk, owner of Kirk Builders in California, has seen quite a few changes over the recent years, but “beyond normal turnover, our main contacts and reps have stayed the same,” he says.
Says Mettler, “The biggest change in our area is personnel leaving one supplier and going to another. As for our contractors, some stick with the company while others go with the sales rep.”
Biddle shares that they “have not seen too many changes with our long-term suppliers. We have always treated them as partners on projects. I want them to make money supplying the project as much as I want us to make money doing the installation. OK, maybe not as much.”
Bellamy says, “We believe in long-term, mutually beneficial relationships, and our suppliers are no exception. Our current supplier has taken good care of us for decades and although I don’t generally recommend this, we single source with them. Generally, it’s best to have a minimum of two or three suppliers—the longer term, the better.”
Even though there have been some supplier shakeups, the contractors who saw changes report that suppliers are smart enough to leave local reps in place.
It was not only suppliers that merged or closed door during the downturn—some subcontractors did as well. Where did that leave the competitive field?
For Baker, “The market seems to be even more competitive today, coming out of the ‘Great Recession.’ Texas fared better than any state during the downturn, which attracted many out-of-state contractors. I think every California and Florida drywall and plaster contractor is still doing work in Texas. This continues to put pressure on margins.”
Says Chambers, “There are only a handful of subcontractors left in our area, so the fact that we are still here says something about us as a company and about how we are able to deal with challenges.”
Mead reports, “There seems to be plenty of work for all of us, but you still see some crazy numbers on the street. Best advise it to go golfing or fishing rather than sign a job that is underbid.”
“It’s still very competitive in our area,” says Turgeon. “Even though some of our competitors went out of business, as soon as one does, others seem to show up.”
Smith says that “the competition is pretty robust in Los Angeles, and that hasn’t changed. We had a couple of causalities, but also saw a couple of new firms.”
Roach reports fewer competitors today while Fox says Tennessee is still extremely competitive.
Mettler also reports tight competition. “While we have a lot of work here,” he says, “we’re still only at about two-thirds of our 2008–2009 volume, and competition remains high. Some will underbid jobs by 25 percent.”
Masson says, “We are having a significant residential boom (condos and apartment high rises) in South Florida, which occupies those competitors who are not proficient in the commercial sector. However, the boom has yet to reach our sector, so our margins are still a challenge.”
Zaretzky says New York City “looks slightly less competitive these days, and projects are starting up sooner, which gives the GCs less time for bid-shopping.”
Tim Rogan, CEP, vice president of Houston Lath & Plaster and Coastal Plaster Supply in Texas, observes that “many of our competitors are still in a hard-times mode and still give work away.”
Adds Bellamy, “It’s all about reliable resources and a good reputation. If this is the case with your company today—with manpower stripped to the bone, you can just about name your number. We’ve had builders beg us to do their work and even offer a premium since they can’t find reliable alternatives. A good reputation is worth a fortune.”
Heering says his area of Mississippi is still highly competitive but less so than three years ago. “However,” he says, “I think the competitive field is made up of stronger contractors than in the past, which does make the bids more competitive.”
For the most part, it seems that the competitive field has not changed much, and that contractors face the same level of competition now as during the downturn.
During the recession, when work dried up locally, many contractors moved into areas where jobs were still to be bid and won. To what extent do these contractors still remain today?
Baker says that many of the larger California contractors remain in Texas.
Chambers observes, “There are certain markets that the out-of-area contractors do thrive in: long-term healthcare and certain government sectors, to name a couple.”
Shares Mead, “There are still some Florida West Coast contractors bidding jobs in our market. Again, if they underbid a project, best advice is to let them have it.”
Smith reports good news from California, “For the most part, the carpet baggers have left town.”
Quips Roach, “With the economy picking up in other areas of the United States, there are fewer and fewer out-of-town contractors who want to work in North Dakota.”
Daley says that, for the most part, the Bay Area has kept outside drywall companies from gaining a foothold, and it’s also “not a big issue in Seattle” for Mettler.
Masson, however, reports that “out-of-town poaching is bigger than ever as our region recovered ahead of the rest of Florida, and we expect it may increase unless other metropolitan areas pick up soon.”
Rogan says, “We still bid a lot against out-of-towners. Many are still hungry. In fact, Texas is on fire and is now facing shortages of cranes and manpower.”
Quips Biddle, “Not many contractors want to come to Buffalo. Snow starts in October and ends in June.”
Observes Heering, “It seems that when a large job hits the market, many people come here to bid aggressively. If they are successful they will use that one job to try and make this area their new territory. It might be a new normal that large projects will attract contractors from far and wide.”
The general trends seems to be that out-of-state contractors are seen less and less and only come around for the bigger opportunities—except for the fertile Texas market, where they remain.
The New Normal
So what do contractors consider to be the new normal?
For Mead, a new normal is “too much work, not enough quality tradesmen.”
Roach agrees. “The new normal in our area is trying to find qualified people or even warm bodies that want to learn the trades,” he says.
Turgeon observes, “Another new normal is bad blueprints. If you are an owner looking to build a new building, you should spend what it takes for the architect to produce complete plans.”
“A new normal for us,” says Daley, “is that we are now a regular part of the BIM team—unheard of until recently. Being seen as a framing contractor expert rather than just a drywall contractor has gained us more respect from our clients.”
A new normal for Kirk is that “everything now is ‘fast track’ with aggressive scheduling.”
Mettler observes a disturbing new normal: “Today seems to be a less friendly world, a little nastier than before. Perhaps this is due to stiff competition and a lack of manpower; there has been some labor poaching between contractors.”
Bellamy’s version of the new normal is that “it’s booming,” he says. “Today, we have 1,500 homes under contract in a 20-mile radius. We’re turning down work and raising our prices, in some cases reluctantly but necessarily.”
Suggests Baker, “A new normal in contracting is the contractor who cheats on labor, misclassifying their employees as independent contractors.”
Sutton observes, “A new normal for us is the labor subcontractor. Today, this is a very real and widely used practice. Use of labor subs is old news in the South, but is has now reached the North as well. Since the labor subcontractor is paid by the job or by the unit, they tend to work harder, faster and produce work equal to that of regular employees. That makes controlling labor costs much easier. Also, health insurance and unemployment are non-issues.”
Suggests Fox, “Seems like the general contractors have abandoned the long-term relationships with many of their subcontractors. Price is everything.”
Says Smith, “It seems as if the new normal for us is a continued tight and competitive market with very small margins.”
Heering agrees. “One new normal is our current margins,” he says. “They fell to nothing during the recession but now seem to have reached a cap of about half of where we were pre-recession.”
Mead says “the biggest issue today is the lack of skilled workmen. The industry hasn’t replenished the workforce since the 2008 downturn, and our elected officials need to get off their derrières and do something about immigration.
“The Hispanic workforce is the best in our industry. The problem is politicians who are more worried about the next election than about doing their jobs, and they don’t have the courage to solve this national problem.
“It’s not complicated: Give them a Social Security number and a work authorization card. Make sure they pay taxes annually (if not, bye-bye). Give them a pathway to citizenship. There. Now what’s so damn hard about that?”
Says Daley, “The construction economy looks like it will remain strong for the foreseeable future, no recession in sight for years to come. Of course, if you had asked me in 2006, I would have said the same thing.”
Fox says, “Over the next few years, the ability to man a project will determine whether subcontractors will turn a profit.”
“I believe construction is in a state of transition, from the old to the young, and has been for a while now,” says Sutton. “Also, labor has become the main issue for all construction trades. It seems as though every client, competitor, vendor and manufacturer I speak with complains about not being able to find help; not just good help, but help in general.”
Hanging like a dark cloud over most answers is that unless the construction industry workforce is restocked with capable, skilled workers—and unless the immigration issues facing many states is resolved—this recovery will soon be history, and 10 years from now, we will look back on today as the good old days.
California-based Ulf Wolf is the senior writer at Words & Images.