Mountain States contractors continue to sing much the same song as last year—a tired blues number about tight competition, low margins and declining backlogs that most of them know by heart.
Revenue for all but a handful of regional contractors declined again in 2010, especially for heavy-highway firms, whose leaders are growing increasingly concerned about declining state and federal funding for roads and other infrastructure.
“Utah spent approximately $1.6 billion in 2010 in transportation funding. The current budget estimates that 2011 [spending] will be $300 million,” says Jeff Clyde, vice president of the heavy division at WW Clyde, Salt Lake City. “Utah has had a supportive Legislature that has invested in transportation funding over the last several years, but current economic conditions have decreased the budgets considerably. Our industry should be prepared to see fewer projects over the next couple of years.”
Kevan Blair, CFO for highway contractor Ralph L. Wadsworth Construction Co. in Draper, Utah, agrees, and says the situation is exacerbated by low-bidding scenarios that aren't sustainable. “The profit margins have been lower, and we're still seeing some contractors lowball some bids to the point of being ridiculous,” he says. “There have been some smaller competitors that have fallen by the wayside because of this practice, but just when we think some sanity has come back to the bidding process, some well-known competitor throws out a bid that is low—way beyond reason.”
Indeed, low- or no-profit bidding has become almost the norm in some sectors, especially in institutional arenas such as schools and government work.
“It takes discipline to avoid many projects that are driven by a low-bid market mentality,” says David S. Layton, president and CEO, Layton Construction Co. Inc., Salt Lake City. “It's clear that the industry has had too many general and subcontractor failures caused by companies who have been working simply to 'keep the front door open' during the Great Recession.”
Layton, like many of the contractors that have held fairly steady during the recession, has stuck primarily to its core markets and pushed to maintain quality. “We haven't really changed our market strategies but have tried to stay the course, finding opportunities with owners who appreciate levels of service and quality construction that will be evidenced a decade from now when that quality is still apparent,” Layton says.
In Colorado, top 10 contractors such as Saunders Construction, Centennial—which ranked first among pure building contractors in the state on this year's list—have found success by sticking with their historical markets and seeking project diversity that does not push their resources beyond a reasonable level.
“Saunders continues to stay focused on the fundamentals—diversity of our work program, flexibility, value-added services and development of our staff,” says Greg Schmidt, company president. “However, I would add that risk management has been more of a focus for us over the past four years. We are reminded of how important the balance is between investing in the future and the realities of shorter-term planning in these market conditions.”Schmidt says his firm has hope for the health-care, institutional and multifamily markets in the near future.
Meanwhile, over at Denver's Mortenson Construction, Dale Heter, vice president of operations, says there are positive steps contractors can take to improve their fundamentals during these slow times.