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That Light Up Ahead Is Not Coming from a Train … It’s Daylight

For our June 2013 issue we surveyed some of the contractor members of the Association of the Wall and Ceiling Industry who live and work west of the Mississippi River as to their view of the economy and its recovery (or lack thereof).

For this issue we have moved east of this famous river and will here present the Eastern AWCI contractor members’ views on that oncoming light up ahead.

T he following cities/areas were surveyed: Buffalo, New York City and Long Island, N.Y.; Wallingford, Vt.; Nashua, N.H.; Hartford, Conn.; Baltimore; Washington, D.C.; Philadelphia and Pittsburgh; Myrtle Beach, S.C.; Memphis, Tenn.; Louisville, Ky.; Milwaukee; Rockford, Ill.; Detroit and Milford, Mich.; Fulton, Miss.; Columbus, Ohio; Daytona Beach, Fort Lauderdale and Orlando, Fla.

To gauge the economic and market pulse of these areas, we asked AWCI members to consider the current climate and compare it to that of a year ago and determine if there had been a change, and whether that change had been for the better, for the worse or whether things had remained unchanged.

The following subjects were surveyed: area economy, political environment, bid volume, bid competition, project types, new permits, renovation vs. new construction, the area contractors’ outlook and the contractors’ personal outlooks.

Area Economy

Of those surveyed, 64.5 percent report that the economy in their area is stronger today than it was a year ago, 12.9 percent report a weaker economy, and 22.6 percent report it unchanged.

Robert Aird, president of Robert A. Aird, Inc. in Maryland, reports his area economy is doing well. In fact, “It seems the Washington, D.C., area is somewhat recession-proof by virtue of the politicians, diplomats and military coming and going.”

Tim Smith, president of City Renovation & Trim, Inc. in Michigan, sees good signs as well: “The Detroit area seems to be making a comeback. Cars are selling with the result that many within that chain are back in the construction market. Add to that new tenant work for ancillary companies. Retail is also doing well.”

While Christopher Filby, manager at Turner Construction Company in Ohio, reports that the area activity is up, he notes that “these days competition is strong.”

Dennis McDonnell, vice president at T.J. McCartney, Inc. in New Hampshire, is upbeat about the area economy. “There’s a lot of new work in and around Boston, which is the market we’re most active in,” he says.

However, Danny Bonnell II, president at Commercial Systems Plus, Inc. in South Carolina, has yet to see signs of a recovery “Our area seems to be lagging behind other cities in the state,” he says. “No one has a reason or solution for this, but everyone agrees we are lagging in new construction starts.”

In New York City, Lee Zaretzky, president of Ronsco, Inc., is all smiles. “The New York economy is definitely on the upswing, and we’re feeling it very nicely,” he says. “We’re doing well.”

Russell Unger, LEED AP and executive director at the Urban Green Council, the New York chapter of the U.S. Green Building Council, has this to add, “I can’t comment on the overall economy, but the Class A real estate industry in New York City seems much stronger than a year ago. I’ve heard from many people at architecture and engineering firms how their hiring is up, how previously stalled projects are moving again, and how new ones are coming in. Some firms are at the point where they actually are turning down projects, something no one was saying in 2012.”

Political Environment

Of those AWCI members surveyed, 46.1 percent believe their area’s political environment is pro-construction. The exact same percentage, 46.1 percent, believes that their political environment is neutral toward construction, while 7.8 percent believe their political environment is anti-construction.

Patrick Ford, president at Matsen Ford Design Associates, Inc., a Wisconsin consultant, observes, “I see our politicians struggle between measures to free up development and jobs, and provisions such as energy savings and ‘green’ requirements that, at least in the short term, have the opposite effect on the construction market by adding cost.”

Robert Sutton of Reitter Stucco, Inc. in Ohio makes this observation: “Our local politicians do all they can to spur economic growth, whether the development, such as multi-residential, is warranted or not.

“At this point, there are many tax breaks and cuts available for developers wanting to build in our area. I’m unsure what the long-term effect of that might be, though.”

Zaretzky feels that “New York City is pretty pro-construction. Not that there are not community groups against construction, and to be sure they’re speaking out. But on the whole, it’s pro. The World Trade Center is still going, and the Hudson Yards is now a go as well. Also, the Midtown East re-development is being discussed, which would be another boon to New York City construction.”

Bid Volume

When it comes to the current volume of bids and how it relates to the volume a year ago, 54.8 percent report a higher bid volume, 22.6 percent report a lower volume, and the same percentage, 22.6 percent, say their bid volume is level.

Richard Ostrom, president of RAM Acoustical Corporation in Pennsylvania, reports a down bid volume for two main reasons: “Hospitals will not build until they know how they will be paid once ‘Obamacare’ is implemented, and the state of Pennsylvania currently has a moratorium on financing school construction.”

Aird in Maryland, on the other hand, says, “There’s plenty to bid, but we’re booked for the year. We’re bidding work in 2014 and 2015.”

Giles Turgeon, president of Green Mountain Drywall, Inc. in Vermont, has this take on the bids: “Bid volume is up, but percentage of winning bids is down. There are still too many contractors low-balling their bids.”

Todd Lawrie at Delta Contracting Services in Michigan agrees that while the volume is up, “the numbers are too low. Contractors are still underbidding themselves.”

Jeff Burley, president at B & B Interior Systems, Inc. in Florida, says that “bid volume has increased to the point where it’s really stretching our still-lean but very productive estimating staff.”

Bonnell in South Carolina makes this observation: “Bidding is up, but it seems that GCs are bidding many projects just to test the waters. We have several projects that bid last year and are now up for re-bid.”

Gary Dillman Jr., CEO at Baylor Plastering & Drywall, Inc. in Florida, reports, “Our overall volume is up but not enough to warrant the slim profit margins that it takes to get the work.”

In Ohio, Sutton shares good news: “Compared to the same time period last year (March–August), our bidding is up by 30 percent, and we have now added another estimator. However, the market still sees general contractors and construction managers—as well as subcontractors—struggling, and competition is strong.”

Zaretzky in New York is happy: “Not only are bid requests up but our awards are up as well. A great change.”

Bid Competition

When it comes to the number of competitive bidders for each job, 22.5 percent report more bidders, 45 percent report fewer bidders, and 32.5 percent report the same amount of competition as last year.

Smith in Michigan observes, “I think that the downtimes have taught many of us that you don’t have to go for every project out there, so some of us are more selective these days, and we watch for bids that we truly have a shot at or ones that we feel that we will be able to hit our margins on.”

Gabriel Castillo at Pillar Constructions in Virginia observes that “the consolidation of companies in the past months has left some markets with fewer companies to bid.”

Michael Paz, president at Paz Interiors in New York, believes they see fewer competitors because “some companies have now closed and exited the market.”

Bonnell in South Carolina sees “many, many under-qualified or upstart bidders entering the market and bidding projects extremely low. Many of these subs are without proper licensing and insurance.”

William Roark, president at Acoustics & Specialties, LLC in Tennessee, says, “We have a similar number of bidders, but these days bidders are more realistic with pricing, and margins are returning to more normal levels.”

Rita Gosselin, president of G & R Construction in Connecticut, sees “many bidders on every job, with a lot of bids below cost. Either the bidders are not buying specified materials, or they are cutting corners somehow, foregoing insurance, etc.”

Dillman in Florida observes, “It does seem like the increase of projects (or at least the increase of high-profile projects) is creating fewer bidders per project.”

Michael Heering, president at F.L. Crane & Sons, Inc. in Mississippi, reports some good news: “We are seeing the same bidders but are beginning to see the GCs take a harder look at the scope of work included with each bid. It seems to me that the low-dollar bid is beginning to be replaced with the security of having a reputable contractor that will fulfill their obligations.”

Sutton makes a similar observation about his company in Ohio, “Our competition cannot keep up with the growing demand for quality. Owners/contractors are growing tired of dealing with the headaches that accompany the low bids.”

Zaretzky in New York sees fewer bidders “due to higher volume of projects. People don’t have the time or the resources to bid them all so we feel there is less competition, but the numbers are still very competitive.”

“Also,” Zaretzky continues, “the requested turnaround time is decreasing, which is always a good sign. During the low ebb, no one seemed in any hurry and bids would linger—these days the schedules are tighter. People mean business.”

Project Types

Of course, the types of projects that keep contractors busy these days do not necessarily have any bearing on whether recovery is afoot; still, the story told is worth telling.

The spread of projects from those surveyed is as follows:
• Medical/Hospital – 25.3 percent

• Commercial – 23.8 percent

• Private – 16.4 percent

• Schools – 10.4 percent

• Retail – 8.0 percent

• Condos – 7.4 percent

• Government – 5.9 percent

• Airports – 1.4 percent

• Hotels – 1.4 percent

Both the economic base of the area and major area-wide projects dictate the types of projects in which AWCI member contractors are involved.

Ostrom in Pennsylvania, for example, reports seeing “a fair amount of new hotel construction due to the Marcellus (natural gas projects) activity.”

Mervyn Smucker, president at Smucker Company in Pennsylvania, is also seeing “quite a few college and university dorm projects.”

Gosselin in New York reports, “For us, government jobs seem to be the most active. We see very few private jobs, and the commercial jobs are being re-bid two or three times until someone makes a mistake, at which point the GC will use that number if only to drive down the overall price.”

Heering in Mississippi says, “The hospital work seems to be growing. We are also beginning to see a retail comeback, which is a good sign.”

Kevin Biddle, president at Mader Construction Co., Inc. in New York, believes that “medical and hospital work is going to be big for the next few years in Western New York. There is always a decent amount of school work as well, although that is mostly renovations.”

Sutton in Ohio has seen quite a bit of medical during the last half of 2012 and first three quarters of 2013. There was also some government/military during the mid-year stretch, while general commercial has been sporadic.

Zaretzky says, “We specialize in commercial interiors, an area that was hit badly during the recession. This market is now making a strong comeback. Also, due to health-care providers’ consolidations, there are a lot of hospital projects as well.”
New Permits
While 35.5 percent of those surveyed did not keep track of new permits, of those who did, 63.2 percent report an increase, 15.8 percent see a decrease, and 21.0 percent see the same volume this year as last.

It stands to reason that an increase in new permits will, sooner or later, translate into more actual projects. With this in mind, these are good numbers.

Aird in Maryland adds this nice perspective: “Another barometer of the state of construction in a given area is the number of sky cranes seen. Here, there are now as many as there ever were.”

But Sutton observes, “Although commercial/government construction is down, private—especially multiresidential—is up. However, if commercial/government projects do not pick up over the next few months there could be a substantial decrease due to completion of residential projects in the first half of 2014.”

Renovation vs. New Construction

As a rule, a downturn in construction fortunes usually means more renovation projects versus new construction. When asked about this trend we found that 38.7 percent of those surveyed see more renovations today than a year ago; 22.6 percent report less; while another 38.7 percent see about the same ratio of renovations to new projects today as they did a year ago.

Aird reports seeing more renovations in Maryland because, “Today we see 50- and 60-year-old concrete fail due to out-of-date methods and materials, the wear and tear of time and the prevalent winter-time use of salt for melting ice and snow. The lack of maintenance and repair of these building exteriors degrades them, which then requires their premature restoration or replacement.”

Smith also reports more renovations in Michigan: “That’s just the way it is at the moment—a lot of rebuilding in downtown Detroit.”

Burley says Florida has “many aging hotels, shopping centers and universities that are now being renovated.”

Heering in Mississippi says, “As the economy improves we are seeing more new construction, but the renovation is still holding strong. This may change as our economy grows stronger.”

Sutton in Ohio says, “For us, renovation work has become the only constant. Owners do everything they can to keep from spending more money. The best way to update is renovate your facility/home, or buy an existing structure to renovate.”

Zaretzky in New York says, “We saw—and are still seeing—a renovation boost from Hurricane Sandy. The NYU Hospital, for one, was badly hit.” And the efforts to rebuild buildings downtown continues.

Area Outlook

The area outlook, being a mindset rather than a measurable statistic, may not be as concrete a measurement of daylight as some others. However, as a prevailing mood it can impact area fortunes. An upbeat outlook will always outperform—and better overcome—hardship than will a disheartened one.

That said, we are happy to report that of the contractors we surveyed, 63.3 percent feel that their area’s outlook is optimistic today while 16.6 percent feel it is pessimistic and 20.1 percent feel it’s neither one way nor the other.

“The sense here,” says Aird in Maryland, “is that the economy is recovering on many fronts and not only here, but in other parts of the country as well. These days, I’m told regularly that contractors are booked and are now looking for employees.”

McDonnell in New Hampshire echoes Aird’s concern: “We’re optimistic when it comes to the work but pessimistic when it comes to labor availability.”

Smith in Michigan shares a nice picture, “This year, guys were actually smiling at our association golf outing.”

On the other hand, Filby in Ohio reports that there is still a “wait-and-see attitude among many contractors in my area.”

Ford in Wisconsin says, “It’s better than recent years past but still not up to what we would consider a healthy level.”

Burley in Florida tongue-in-cheeks it: “Aren’t all of us contractors optimistic? After the last five years, why else would we still be here?”

Personal Outlook

Considering the personal outlook of those surveyed (how they see the rest of 2013 and 2014 developing for their own company), 70 percent of those surveyed are optimistic while 16.6 percent take a dimmer view of the future. Still, 13.4 percent report they do not see a change over the next year.

“I see 2014 much the same as 2012—slow, lots of bidders,” says Brian Scott, president of The Rockwell Group, Inc. in Freeport, Ill. “We need more cleansing of the marketplace to remove the constant low-bidder who undercuts our cost structure.”

Smith in Michigan says, “I see the volume staying about the same, but I see the margins make an uptick. We won’t be as large employee-wise as in years past, but I’m very comfortable with the level the company is operating at today. Big volume doesn’t necessarily translate into big profits.”

Castillo in Virginia says his company is returning to the volumes it had in the past, while Filby in Ohio says, “I am optimistic that things are getting better. Also, I find us stronger today as a result of becoming leaner and more efficient during the slowdown.”

Burley in Florida says, “I’m hopeful that we are moving in the right direction, and it looks like 2014 could be even more fruitful. However, the cost of doing business is also rising. I trust the demand to redevelop here in Florida will remain strong, along with new construction.”

Bonnell in South Carolina says, “Until the banks free up money for loans and relax credit and down payment requirements, I do not see the contracting business setting any records in 2014.”

Neal Harris, senior vice president at KHS&S Contractors in Florida, says “things are looking good. Unfortunately, there are still companies out there doing work for free and messing up the market.”

Zaretzky in New York adds, “My personal outlook is very positive. I look to increase 2014 volume 25 percent over this year and in fact reach pre-2008 levels.”

Daylight Again

While it seems like some, mostly rural, areas are still in the trough of the recent recession, it also appears that some metropolitan areas like New York City and Washington, D.C., are already approaching pre-dip levels. Other areas also report an improved construction market.

Overall, we believe it is fair to say that the tide has in fact turned, and that the light at the end of the tunnel is, at long last, no longer an oncoming train, but daylight.

Aird in Maryland sums it up with this advice to contractors: “If we’re diligent and smart and do the work that contractors and owners need—whether they realize it or not—they will recognize that the cheap price is rarely the least costly in the long run.

“The cycle of poorly designed, hurriedly built and shoddily constructed buildings ends up—in part due to increased energy usage—costing the owner, the occupants and, ultimately, the economy.”

Los Angeles–based Ulf Wolf is the senior writer at Words & Images.

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