Not Alive…Just Yet

When one of our area’s major institutional buyers of construction recently held a meet and greet for their preferred consultants and contractors the event was vaguely reminiscent of speed dating over coffee. Earnest networking was taking place among players who might have ignored one another in a similar setting a few years

One executive from the organization that issued the invitation expressed mild surprise at the large turnout. Really there was no surprise at all. The construction companies were working connections and looking for opportunities in ways that told a lot about the state of the industry here and elsewhere.

The construction industry has historically not been as sophisticated about marketing business development as the industries it serves. That is changing as we claw our way out of the worst downturn in our business since the Great Depression.

Local business and general media has made much of the new projects that are coming online in Downtown St. Louis and among various industrial companies such as Express Scripts and P&G. Accentuating the positive is a good thing. In fact it’s great that there IS something positive to accentuate.

But the idea that construction has made a comeback is out of sync with the reality that most people in our industry deal with in their jobs every day. It’s sort of the reverse of the scene in the movie Monty Python and the Holy Grail, the dark comedy about the Middle Ages. A fellow is trying to make some money during the Black Plague by selling a body… except the “corpse” isn’t quite dead yet. “I’m not dead yet… I think I'll go for a walk,” the corpse remarks. In our case, the industry – any popular reports to the contrary – isn’t “alive”… just yet.

The CEO of one of our area’s most successful general contractors told me his company’s volume is down $100 million from pre-recession levels. And he expects to take another $100 million hit on top of that. “2011 will be the worst, “ he said. The CEO of another large general who has reported some big project wins in recent months points out that those “wins” were actually pre-recession contracts that have now been released. The same CEO said that the negotiated jobs the firm had been used to receiving are extraordinarily difficult to come by in this “buyers’ market”.

Subcontractors, while desperate for work, are holding their cards close to their vest when bidding until literally the last minute – or turning in a late bid, hoping that someone will use it – in fear of being bludgeoned by bid shopping. Not too long ago representatives of some GC firms were quoted in the business press encouraging owners to take advantage of the sub’s desperation.

These are not the signs of a completely healthy industry. The long and short of our current situation is that we are beginning to come back, but we are a long, long way from being back. Our industry is trailing the rest of the economy. We’re hearing reports that there are orders in for building materials associated with the retail industry. Industrial companies need to deal with deferred maintenance and are beginning to see increased demand that will lead to the need for increased manufacturing capacity. But our industry trails the rest of the economy. It’s going to take some time for full recovery to happen.

Healthcare, and to a lesser extent private higher education, have been bright spots in our local construction industry. St. Louis is a medical Mecca for the Midwest and as long as people continue to get sick hospitals continue to spend money. Educational institutions have been spending, but the endowments that they use for capital programs were hammered in the market.

If there’s a bright spot in this slow recovery it’s that we’re being forced to be better at what we do. It’s sort of like training for an athletic event – no pain,  no gain. Possibly a more apt metaphor would be recovering from an injury.

As business practices are improving, we’re being more sophisticated and more selective as an industry about the ways in which we market our services.

The cover story in this issue on collection practices indicates an overall improvement over the previous environment in which contractors were reluctant to hold their customers to the same standards of payment to which they were held.

Labor unions are working on maintaining market share recovery and putting their members back to work. The most obvious example of this is the settlement between the IBEW and NECA. The combined cut in wages and benefits and the change in work rule can represent as much as a 10 percent savings for owners on some kinds of work. This is the first such cut that IBEW has taken since the Great Depression.

Overall, this tightening and refining process is a good thing for our industry, however painful parts of it may be. Our industry is coming back to life, better and healthier than it has been in many decades. But we’re not completely alive… just yet.

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