Economic Outlook Brightens Somewhat, but Will Self-Performing GCs Spoil the Fun?
Engineering News-Record hosted a webinar May 9 to introduce its annual Top 400 Contractors list, and with the announcement that Bechtel sits at the top of the list for the 14th consecutive year came news that some subcontractors may view as a brightening light at the end of the long, dark economic tunnel.
Of the firms that sent in surveys last year and that were on the list this year, 223 of them saw an increase in revenues while only 137 showed declines (and two companies remained flat). ENR Senior Editor Gary J. Tulacz pointed out that last year those numbers were nearly reversed.
The Top 400 Contractors in the 2011 list showed only three of the top 30 companies with increases in total revenue, but 23 of 30 on the 2012 list increased revenue. Said Tulacz, “Obviously there are some major changes in the markets, and that’s reflected in the numbers for the individual companies.”
Tulacz added that as a whole for all 400 general contractors on the list, revenue was up almost 9 percent after two years of declines. Although 2011’s $282.14 billion in contracting revenue is far lower than the record $338.38 billion in 2008 contracting revenue, the McGraw-Hill publication says 2011’s numbers represent “a step in a positive direction.”
But will GCs put a damper on subcontractors’ joy by continuing to self-perform the wall and ceiling work normally done by specialty subcontractors?
The webinar’s panel included three GCs who spoke to the self-performing issue. They represented the following companies: Satterfield & Pontikes Construction, Inc. (#138 on ENR’s list with 403 contracts in 2011), Skanska USA (#7 on the ENR list with 6,327.8 contracts in 2011) and Turner Construction Company (#4 with 9,005.7 contracts in 2011).
When asked about the tendency of general contractors to self-perform work, Nicholas T. Makes, senior vice president at Turner Construction Company, said his company looks at self-performing on a regional, or geographic, basis. Turner will self-perform in certain markets, he said, but there are many others where they don’t do any kind of self-perform work. “The reason we would do it,” he said, “is there would be concern that there would not be an ample amount of contractors that do the particular type of work that we would want to undertake in a given market, and feel that we can be more competitive with our pricing in that particular scenario as opposed to trying to get numbers from the marketplace.”
George A. Pontikes, president and chief executive officer of Satterfield & Pontikes Construction, Inc., said, “The bottom line is we’re going to takeoff everything on the project, and we’re going to look at self-performing whatever scope we can competitively perform in an effort to get the project.”
Allen H. Jones, LEED AP and corporate senior vice president at Skanska USA, noted that “self-perform” might mean different things to different people. In its purest form, self-perform means using your own workforce, your own payroll, to complete a job, and he does not see a lot of that going on, especially on large, complex projects. However, if your definition of “self-perform” means splitting up a package, he is seeing some of that going on, including at Skanska. Jones said an example is a turn-key structural concrete package where the GC subs out the forming, the reinforcing, the finishing, etc., all to different subcontractors.
Regarding this second definition, Jones said, “I think there is a tendency to do that at this point in time, and I also believe that a lot of that is being driven by the fact that the owners are driving costs down. So to the extent that the owner knows of or sees or anticipates or thinks that there are opportunities for multiple markups throughout a package, then there’s going to be that tendency to figure out how we break that package down to eliminate those multiple markups.”
One reason some GCs are self-performing is that they may have been burned by past subcontracting companies that went out of business before the job was finished, or those that touted skills they didn’t really have. These experiences are making some of the generals more likely to follow the old adage that if you want something done right, do it yourself.
Pontikes said his company is seeing subcontractor failures across all the trades, but the biggest problems are in site work, concrete and steel. “You get to where there are only a couple of subcontractors that can do the scope on a large project,” he said. “Say for example, a large civil project that is part of a larger building project: Sometimes we see prices that are way out of whack there. We’ll take that off and take advantage of breaking it down into components if we can, and subbing it out that way.”
Pontikes added that his company frequently sees situations where the subcontractor’s pricing is significantly lower than their cost. “If we don’t use that subcontractor pricing, we’re not going to be competitive,” he said. “We see contractors come in from the outside and not really know the subcontracting market and get themselves into a difficult spot by accepting bids from contractors that aren’t qualified to do the work.”
Turner Construction Company has been lucky, according to Makes, because they have not had to deal much with subcontractor defaults. But Makes added that he believes that “with all the aggressive pricing that’s been going on for the last three years/three-plus years, I think many firms have been living on cash flow, a lot of firms have lost their credit lines, and a lot of firms’ balance sheets aren’t as strong as they used to be.” Turner plays it safe by checking their subs’ balance sheets on a quarterly basis. Based on those quarterly checks, Makes says, “We are convinced that the number of defaults in the subcontractor market is going to be on the rise throughout this year and certainly into 2013, and it’s one of the biggest concerns we have in the industry right now.”
Should wall and ceiling subcontractors be concerned that this trend of self-performing GCs will continue? For the most part, no, according to Jones: “I really do believe that that is probably a characteristic of the market that we’re in right now. All of us are trying to figure out ways to shed risk, but when you think about that, we’re probably taking on more risk. I think as the market turns and we have a more normal market, perhaps some of those pressures may go away.”
For more discussion about self-performing GCs, look to “Problem Solved” on page 52.
America’s Steel Industry Is Leading Manufacturing Out of the Recession
A report recently released by Timothy J. Considine, professor of energy economics at the University of Wyoming, reveals that the American steel industry is playing a significant role in leading manufacturing’s post-recession resurgence primarily because it is highly interrelated with many other sectors of the economy.
In his analysis titled, “Economic Impacts of the American Steel Industry,” Dr. Considine notes that “every one job in the U.S. steel industry supports seven jobs in the U.S. economy, reflecting its ripple effect on employment.”
For 2011, the report states, the American steel industry directly employed 150,700 and given the multiplier effect, supported more than 1,022,009 jobs.
March Construction Climbs 23 Percent
New construction starts in March jumped 23 percent to a seasonally adjusted annual rate of $482.4 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies.
McGraw-Hill says the increase came as the result of a sharp gain for electric utility construction, lifted in particular by work at a nuclear power plant facility in Georgia. Meanwhile, public works construction and housing showed modest improvement in March, but nonresidential building lost further momentum. For the first three months of 2012, the amount of total construction starts on an unadjusted basis was reported at $94.2 billion, down 3 percent from a year ago. For the 12 months ending March 2012 versus the 12 months ending March 2011, total construction starts were basically unchanged.
The latest month’s data boosted the Dodge Index to 102 (2000=100), up from a revised 83 for February. The annual average for the Dodge Index during both 2010 and 2011 was 91. The March construction start statistics included $8.5 billion estimated for work on Units 3 and 4 at the Vogtle nuclear power facility near Waynesboro, Ga. If the latest entry for the Vogtle nuclear facility project is excluded, the pace of construction starts in March would be down 3 percent to $380.4 billion (annual rate), producing a reading of 80 for the Dodge Index.
Residential building, at $146.7 billion (annual rate), grew 2 percent in March, maintaining the gradual if hesitant upward trend that’s been present since the second half of last year. Multifamily housing in March increased 5 percent, continuing to regain upward momentum after its pause at the start of 2012. Nonresidential building in March fell 4 percent to $122.8 billion (annual rate). The institutional building sector dropped 7 percent due to weaker activity for a majority of its structure types. Healthcare facilities fell 30 percent after showing some improvement during the first two months of 2012.
The amusement-related category dropped 21 percent in March, and churches also witnessed a 21 percent decline. Transportation terminal work slipped 9 percent, while the public buildings category was unchanged. On the plus side, the educational building category improved 10 percent, but manufacturing plant construction plunged 61 percent as contracting in early 2012 has retreated following the improved activity reported last year.
The commercial sector in March was able to rise 10 percent from the previous month. Office construction grew 9 percent, warehouse construction advanced 19 percent, and hotel construction jumped 91 percent relative to a subdued February. Moving the opposite direction was store construction, falling 18 percent.
The 3 percent shortfall for total construction on an unadjusted basis during the first three months of 2012 was the result of a varied pattern by major sector. Nonresidential building was down 25 percent from the first three months of 2011, but residential building climbed 21 percent, featuring year-to-date growth for both sides of the housing market: single-family housing up 22 percent and multifamily housing up 17 percent. By geography, total construction during the first three months of 2012 showed declines in three regions: the South Central, down 23 percent; the West, down 22 percent; and the Northeast, down 13 percent. Year-to-date gains for total construction were reported in the Midwest, up 6 percent; and the South Atlantic, up 54 percent (reflecting in large part the boost coming from work at the Vogtle nuclear facility in Georgia).
The “no change” for total construction on a 12-month moving total basis, meaning the 12 months ending March 2012 versus the 12 months ending March 2011, was due to this pattern by major sector: nonresidential building, down 7 percent; nonbuilding construction, down 3 percent; and residential building, up 13 percent. By geography, the 12 months ending March 2012 showed the following behavior for total construction: the South Central, down 10 percent; the Northeast, down 7 percent; the Midwest, down 6 percent; the West, down 2 percent; and the South Atlantic, up 27 percent.
100 Housing Markets on Improving List in May
The list of housing markets showing measurable and sustained improvement held virtually unchanged in May at 100, down from 101 in April, according to the National Association of Home Builders/First American Improving Markets Index, released May 7. The number of states represented on the list also held firm from the previous month, at 35 (including the District of Columbia).
The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. While 83 metros held onto their previous places on the IMI and 17 new ones were added to the list in May 18 metros dropped from the list, for a net loss of one. Metros newly added to the list in May include such geographically diverse places as Phoenix, Ariz.; Bowling Green, Ky.; Bend, Ore.; and Lubbock, Texas.
The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.
A complete list of all 100 metropolitan areas currently on the IMI, and separate breakouts of metros newly added to or dropped from the list in May, is available at www.nahb.org/imi.
Builder Confidence Rises Five Points in May
Builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the National Association of Home Builders/Wells Fargo Housing Market Index, released May 15. This is the index’s strongest reading since May 2007.
“While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB Chief Economist David Crowe. “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”
Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
Each of the index’s components rebounded from declines in the previous month. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points in May to 30 and 23, respectively, with the traffic component hitting its highest level since April 2007. The component gauging sales expectations in the next six months rose three points to 34.
Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.
CISCA Honors Chicago Metallic Corporation with Four Construction Excellence Awards
Chicago Metallic® Corporation earned four 2011 Construction Excellence Awards from the Ceilings & Interior Systems Construction Association. These prestigious awards recognize CISCA members who produced the year’s finest examples of interior commercial construction.
The 2011 Construction Excellence Awards were presented to the winners on April 18, 2012, at the CISCA Annual Convention and INTEX Expo in Charlotte, N.C. Chicago Metallic Corporation honors include the following:
Gold Award, Boutique Projects, for the Buffalo Sabres’ ice hockey team dressing room in the First Niagara Center in Buffalo, N.Y. It features an elliptically shaped, metal, custom ceiling that mimics the contours of the ice arena. Cannon Design of Grand Island, N.Y., served as the architect and Gypsum Systems, Inc. of Elma, N.Y., was the installation contractor.
Gold Award, Ceilings Category, East Region, for the Bradley Central High School’s Fine Arts Center in Cleveland, Tenn. Designed by KBJM Architects, TRI-CON was the general contractor for the Tennessee-based team. Wallace Tile worked on a constricted schedule and budget.
Silver Award, Ceilings Category, East Region, for the North Carolina History Center at Tryon Palace in New Bern. Architectural firms, BJAC in Raleigh, N.C., and Quinn Evans in Washington, D.C., guided the transformation of this former Barbour Boat Works warehouse into a center that connects the past to the present. Raleigh-based Acousti Engineering Co. installed the metal ceiling panels, perimeter trim, suspension system and panels to achieve the project’s aesthetic, performance and sustainable design goals.
Bronze Award, Interior Finishes Category, East Region, for University of South Carolina’s Williams-Brice Stadium in Columbia, S.C. Jumper, Carter Sease Architects teamed with JHS Architects to design this football stadium featuring Chicago Metallic’s multiple metal ceiling systems, panel systems, suspension systems and custom finishes. Morris Nussbaum, the university’s director of building services, managed the ceiling system installation.
For the 2011 Construction Excellence Awards, projects must have been completed between July 2010 and January 2012, within 18 months of the nomination and not previously submitted. While the competition is open to all, the installing contractor and manufacturer on the project, as well as the company submitting the entry, must be CISCA members.
People in the News
Shawn Beears has been promoted to manager, product management for CertainTeed Insulation, where he will lead the company’s product development efforts for CertaSpray foam insulation. In his new role, Beears will be responsible for product management and coordination of new product development, as well as management of the spray foam and blowing wool product lines. His responsibilities will also include leading new product development teams, reviewing business opportunities, and assisting in the business planning process.
Tormod Gunleiksrud has been appointed the new CEO and president for the Alimak Hek Group, Stockholm, Sweden. Gunleiksrud will start Nov. 1, 2012, replacing interim CEO Lars Josefsson. To ensure a seamless transition both the former CEO, Patrik Nolåker, who is a member of the board, as well as Josefsson will be supporting Gunleiksrud until the year-end.
Gunleiksrud is currently working for ABB in Switzerland as manager of operational excellence for the robotics business unit.
The board of directors of Lafarge North America Inc. has appointed John Stull as Lafarge’s senior leader for all aggregate, cement and concrete operations in the United States. This appointment, which brings these Lafarge business lines in the United States together under a single leader, will further the company’s customer focus as it delivers sustainable solutions to the construction industry.
Stull has more than 20 years of experience with the Lafarge Group, including assignments in the United States and Paris. Most recently, he managed Lafarge Group businesses in Latin America and Sub-Saharan Africa.
Companies in the News
CertainTeed, headquartered in Valley Forge, Pa., is expanding production of Metal Building Insulation to its Kansas City plant, enabling shorter lead times by reducing transport to customers in the central regions of the United States. The company’s investment in new manufacturing equipment has enabled the plant to produce a high-quality product that is easier to store, transport and install.
LINE-X Protective Coatings, a developer and provider of high performance protective coatings that is based in Huntsville, Ala., has been named to Entrepreneur Magazine’s 2012 “Best of the Best Franchises” and “Top Global Franchises” lists. Rising an impressive 243 places since last year’s recognition, LINE-X’s strong franchise networks continues to grow, now with more than 500 specialized franchised locations in more than 46 countries. This is the 11th consecutive year that LINE-X has been recognized by Entrepreneur Magazine. This year’s placement in the magazine’s “Top 500 Franchises” places LINE-X at 195th overall, with a notable 153rd place ranking for “Top Global Franchises.”
Phillips Manufacturing Co. recently acquired the assets of Steel Drum Industries, LLC, Tampa, Fla. Steel Drum has fabricated corner bead and trim products for drywall corner finishing since 2003. Established in 1955, Phillips is a national single source manufacturer for all drywall finishing beads and trims, channels and framing components, as well as stucco accessories and roofing metals.
Phillips Manufacturing has been servicing customers in Florida for many years, and this acquisition will help grow that business and improve the company’s service model in the Southeastern United States. Phillips Manufacturing will expand and enhance the product offering out of its current location in Tampa.
Products in the News
3M™ LeadCheck™ Swabs, the simple way to test for lead and assist in compliance with the Environmental Protection Agency’s Renovation, Repair and Painting Rule, are now recognized by the EPA for use on drywall and plaster.
The swabs were the first commercially available lead test kit recognized by the EPA for use on painted wood and metal. Now with EPA recognition on surfaces including wood, metal, plaster and drywall, 3M LeadCheck Swabs provide a quick and simple way for certified renovators to test for lead and take steps to RRP compliance, all with one easy test kit.
StrucSoft MWF Professional customers will soon be able to specify Cemco’s and MarinoWARE’s cold-formed steel framing products inside Autodesk Revit® Building Information Modeling software. This capability is included in the MWF subscription program.
MWF’s ‘smart placement’ capability helps contractors optimize the best framing solution for a given situation, saving time and eliminating material waste while ensuring that they are meeting building codes and BIM compliancy. Supported Cemco products include the ProX Header, SureSpan® Floor Joist System, ViperStud® Interior Framing System, FAS-Track® and slotted track Head-of Wall Systems. Supported MarinoWARE® products include ViperStud® Drywall Framing, the QuickFrame™ Header System, FrameRite® Connectors and slotted track products.
Fomo Products’ Handi-Foam® E84 Class 1 low pressure spray polyurethane foam insulation has been approved for use as an air infiltration barrier in buildings of all types of construction. Handi-Foam® E84 SPF was tested in accordance to NFPA 286 in a simulated end-use configuration, meaning the product can be left exposed in commercial roof/wall junctures.
Handi-Foam® was found to be in compliance with chapter 26 of the 2009 International Building Code, and section R316 of the 2009 edition of the International Residential Code. Based on this successful testing, Handi-Foam® E84 Class 1 can be used in types I, II, III, IV and V construction without a thermal or ignition barrier coating. The use of spray foam is limited to a maximum depth of 2 inches in thickness and 6 inches in height application.
New on the ’Net
Thermafiber launched a new mobile website to make it easier for users to access product information from mobile devices. The site features product data sheets organized by market segment, LEED® credit information and Thermafiber’s LEED® Calculator. The Contact Us page offers direct-dial phone numbers and email addresses for questions or additional information.
Smartphone and tablet users will be automatically directed to the mobile website when they navigate to thermafiber.com. Each page of the mobile website offers a direct link to the company’s full website for users needing additional information.
The United States Citizenship and Immigration Services is now on Facebook. Check out www.facebook.com/USCIS for the latest news, events, informational videos, and learn more about our nation’s immigration history on the USCIS timeline.
What’s App, Doc?
Delmar, part of Cengage Learning and a provider of learning solutions for ongoing career development and education, and DeWalt have launched DeWalt Mobile Pro, a new mobile application for construction professionals. DeWalt Mobile Pro is an innovative and powerful mobile solution developed specifically for contractors and tradesmen in the construction industry, with a wealth of free features and numerous ways to customize the app based on each user’s trade focus. The app is available for the iPhone®, iPod touch® and iPad® and has been designed with custom interfaces to suit the various screen sizes of each device.
Visit dewalt.cengage.com for more information.
McGraw-Hill Construction Sweets has developed and launched a new mobile app that enables design professionals to search and download specs, CAD, BIM, catalogs and data sheets more quickly and easily on their iPhones and Android devices. Design professionals can choose from the thousands of building products via Sweets Search or by “MasterFormat Browse” to find the products that meet their design vision.
Furthermore, this new Sweets mobile app provides building product manufacturers who currently list their product information on Sweets with even greater access to design and construction professionals.
The Sweets mobile app can be downloaded at the iTunes Store, Android Market and at http://construction.com/sweets/apps/.
Hanson Brick, in partnership with Applosophy, a mobile application development company, has launched the My Hanson Brick mobile application for the iPad. My Hanson Brick is available for download via the Apple Store and is designed to help builders, distributors, architects and homeowners with their brick cladding needs. Users will be able to view the Hanson Brick catalog, find homes, offices and other buildings using specific Hanson Brick products, view their selections and map directions directly on their iPad and iPhone to visit the sites and see a particular brick style on a project.
