2007-2008 CAM Biennial Survey

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b i e n n i a l 2 0 0 7 Business Surveys Outloo k2008

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Dear Construction Associate, We are pleased to present you with the results of our Biennial Business and Owner Surveys, which examined activity in 2007 and the outlook for the next 18 months. These two surveys were conducted through the joint efforts of the Construction Association of Michigan (CAM) and Plante & Moran, PLLC, and their continued commitment to provide accurate and timely business information.

This year’s survey questions were determined by the collaboration of a Survey Committee made up of a cross-section of Michigan construction professionals. As a member of this committee, I would like to acknowledge the other members here and personally thank them for their efforts:Kevin Koehler and Amanda Tackett from CAM; Tom Doyle from Plante & Moran; Steve Dailey from The Dailey Company; Scott Wortman from Redico Company; and Carl Evans from the Mechanical Contractors Association.

We have combined the results of both surveys into one single publication. The responses contained herein tell a great deal about our region, economy, and most specifically, the Michigan construction industry. Results are indicative of the many challenges currently facing our state, and the various ways that contractors and owners are coping with this reality. The future construction climate is also forecasted by those who are directly involved in the Michigan construction industry on a daily basis.

According to this year’s results, there is a current trend towards smaller projects, with projects under $100,000 comprising more than half of all construction opportunities. Forty percent of those surveyed said that they were finding work outside the state of Michigan. How long will it take for an economic recovery in Michigan?

Twenty-nine percent of contractors and 52 percent of the owners surveyed think an economic recovery is at least four years away.

As we negotiate this difficult economy, you have CAM’s pledge that we will continue to work hard both legislatively and in the media to improve the climate and perception of Michigan’s construction industry. We are Standing Strong Together and Ready to Keep Michigan Building.

Randy L. Brooks CAM Chairman of the Board Executive Vice President, Temperature Engineering Corporation

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About The Construction Association of Michigan The mission of the Construction Association of Michigan (CAM) is to provide its members with the programs and services they need to be successful in the very competitive construction industry. CAM serves more than 3,500 members representing subcontractors; equipment and material suppliers; general contractors; construction managers; and providers of legal, design, and financial services. Founded in 1885, it is the oldest and largest construction association in North America.

The association is an essential information network for the Michigan construction industry. It publishes Construction Project News, a daily report containing complete details on Michigan projects out for bid. Construction Pre-View, a weekly newsletter, keeps CAM members “in the know” with news of proposed projects. With advanced software, members can access entire plans and news at their office via CAM-Online.

The Construction Buyers Guide, published annually, is the premier directory of Michigan construction. It lists all relevant information on thousands of construction-related companies. The Construction Buyers Guide can also be accessed online at CAM’s website, www.cam-online.com. CAM Magazine, “The Voice of the Construction Industry,” is recognized as the leading monthly industry magazine covering construction news, business trends, and construction technology in Michigan.

CAM’s Training and Education Center (CAMTEC) offers industry-specific classes and seminars on construction project management, marketing, and other timely issues. These courses can even be taught on site. CAMSAFETY provides all the training and documentation assistance needed by contractors today. Companies can use CAM’s Certified Safety Consultant to ensure that their workers and their job sites are in complete compliance with current safety regulations.

CAM produces the Design & Construction Expo, the largest annual construction trade show in the Midwest. This show displays the latest construction products and services as well as hosting seminars, demonstrations, and advancement courses.

The CAM Labor Relations Program provides quality labor relations assistance and information at no additional cost to union contractors employing carpenters, cement masons, laborers, or operating engineers in southeast Michigan. CAM Administrative Services offers health insurance, CAM-COMP, which serves the need for workers’ compensation insurance. Construction Federal Credit Union provides CAM members superior banking service.

For more information about these or any other CAM services, please contact the CAM Marketing Department at 248.972.1000.

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Co-sponsor Plante & Moran, PLLC Serving the needs of the construction industry for more than 80 years, Plante & Moran is Michigan’s largest certified public accounting and management consulting firm with offices throughout the Great Lakes Region. Plante & Moran provides the experience and personal attention the construction industry demands, offering a full range of services including audit and accounting; federal, state, and local tax planning; information technology and telecommunications consulting; family business succession planning; merger and acquisition assistance; cost segregation studies; and strategic planning.

For more information about Plante & Moran’s construction team, please contact Tom Doyle at 248.223.3402 or thomas.doyle@plantemoran.com.

Biennial Business Survey Produced by the Construction Association of Michigan (CAM) and the accounting firm Plante & Moran, PLLC, the Biennial Business Survey has been conducted for more than 14 years.

The survey measures contractor opinion in several key categories.

Owner Business Survey This survey examines the construction industry from the clients’ perspective.

The two-part questionnaire asks owners and construction clients about plans for upcoming work and their perceptions of Michigan’s construction industry and its practices.

More than 3,000 survey participants were selected at random from CAM’s Daily Construction Project News division, which monitors construction activity throughout the state. The survey received an impressive response, the majority of which were gleaned from both public and private entities.

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Table of Contents

04

Page

05

Business Survey

Page

39

Business Survey Written Comments

Page

41

Owners Survey

Page

58

Owners Survey Written Comments

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business Survey

Please note: Percentages in the survey may not add up to 100 percent due to rounding.

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Construction Outlook

Contractors, Suppliers, Architects and Engineers

Which of the following designations best describes your primary business?

50%

47%

40%

30%

20%

18%

18%

10% 10% 4% 0%

General Contractor

Subcontractor

Equipment/ Manufacturer Material Supplier of Equipment or Materials

4%

Architect/ Engineer

Other

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In terms of project cost, what category of work is providing your company with the most opportunities? (Average) 2007

2005

60%

60% 52%

50%

50%

40%

40%

30%

30%

40%

31%

20%

20%

20% 13%

2% $ 5 Million to $10 Million

3%

Over $10 Million

5%

$2 Million to $5 Million

$1 Million to $2 Million

$500,000 to $1 Million

0%

$100,000 to $500,000

$2 Million to $5 Million

6%

2% $100,000 or less

3%

$ 5 Million to $10 Million

5%

$1 Million to $2 Million

$500,000 to $1 Million

$100,000 to $500,000

$100,000 or less

business Survey

0%

10%

6%

Over $10 Million

8%

10%

Projects under $100,000 comprise more than half of current construction opportunities, which indicates a trend towards smaller projects.

In terms of construction, what category of work is providing your company with the most opportunities?

60% 54% 50%

40% 31% 30%

20%

7%

10%

0%

08

New Renovation Maintenance Construction

BIENNIAL BUSINESS SURVEY 2007

4%

3%

Addition

Retrofit

3%

2% 2% No Answer

3%

Entertainment Facilities

Religious Buildings

Hotels/Motels

4%

No Answer

2%

Entertainment Facilities

2%

Religious Buildings

Infrastructure

Public Works Projects

5%

Hotels/Motels

4%

Infrastructure

8%

Public Works Projects

12% Interiors/Tenant Improvements

10%

Interiors/Tenant Improvements

9% Transportation/ Industrial Buildings

11%

Transportation/ Industrial Buildings

10% Residential

Health/Welfare Hospital Buildings

Education/Cultural Scientific Buildings

Office Buildings

12%

Residential

Health/Welfare/ Hospital Buildings

16%

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In terms of type of structure, what category of work is presently providing your company with the most opportunities for work?

25% 21%

20% 17%

15%

10% 10%

5% 2% 2%

What category do you anticipate providing your company with the most opportunities for work in the next 12–18 months?

20%

18%

15%

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Contractors, Suppliers, Architects and Engineers

0% 18%

Education/Cultural Scientific Buildings

18%

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0%

Office Buildings

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14%

11%

9%

6% 7%

4% 3%

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How has the volume of work for which you have contracted changed over the past 12 months?

2007 19%

20%

19%

16%

10%

10%

Down between 5% and 10%

Down between 10% and 20%

11% 12% 8% 7%

8%

7%

7%

Down more than 20%

Down 5% or less

About the same

Up more than 20%

Up between 10% and 20%

Up between 5% and 10%

business Survey

0%

Up 5% or less

4%

2005 20% 17% 16% 13%

13%

12%

12%

11%

10% 8%

8% 7%

8%

Down more than 20%

Down between 10% and 20%

Down between 5% and 10%

Down 5% or less

About the same

Up more than 20%

Up between 10% and 20%

Up between 5% and 10%

0%

Up 5% or less

4%

In 2005, 51 percent of the respondents indicated an increase in volume, while in 2007 only 33 percent indicated an increase.

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Construction Outlook

How do you anticipate the volume of work changing over the next 12–18 months?

40% 33% 30%

20% 12%

11%

10%

8%

Down between 10% and 20%

Down between 5% and 10%

Down 5% or less

About the same

Down more than 20%

5%

3%

Up more than 20%

Up between 10% and 20%

Up between 5% and 10%

6%

More than two thirds of the respondents anticipate their volume of work to stay the same or decrease over the next 12–18 months. 29 percent of the respondents anticipate their volume of work to increase over the next 12–18 months.

Michigan’s economy is currently one of the worst in the nation. How long do you anticipate this trend to continue?

Contractors, Suppliers, Architects and Engineers

Owners 37%

35%

35%

32%

30%

30%

27%

25%

25%

23%

22%

20% 20%

20%

15%

15%

Contractors, Suppliers, Architects and Engineers

0%

9%

Up 5% or less

10%

15%

10%

9%

9%

10%

5%

5%

2%

0%

0% One year

Two years Three years Four years Five years or more

One year

Two years Three years Four years Five years or more

Interestingly enough, more than 90 percent of contractors, suppliers, architects and engineers responding to the survey anticipate Michigan’s current economic trends to continue for at least two more years. However, they remain more optimistic than owners. More than half of the owners surveyed indicated an economic upturn is at least four years away.

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What area in the state of Michigan do you anticipate having the greatest number of construction opportunities in the next two years?

Southeastern Michigan

63%

Southwestern Michigan

25%

Northeastern Michigan

2%

Northwestern Michigan

3%

No answer

7%

Are you currently doing work outside the state of Michigan?

Yes

40%

No

58%

business Survey

No Answer

3%

If you answered yes, what percentage of your total volume of work is performed outside the state of Michigan?

Less than 10%

44%

10%–20%

24%

20%–30%

8%

30%–40%

9%

40%–50%

3%

50% or more

13%

Do you anticipate that percentage increasing or decreasing in the next 12–18 months?

Increasing

83%

Decreasing

17%

In which of the following areas outside the state of Michigan is the work being performed?

12

Northeastern United States

22%

Midwest United States

62%

Southeastern United States

34%

Southwestern United States

14%

Northwestern United States

7%

Canada

4%

Mexico

2%

Other

3%

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Yes

23%

No

40%

No Answer

37%

60%

55%

50%

40%

38%

30%

20%

21%

18%

9%

10%

4%

3%

Other

Mexico

Canada

Northwestern United States

Southeastern United States

Midwest United States

Northeastern United States

0%

Southwestern United States

1%

Contractors, Suppliers, Architects and Engineers

If you answered yes, in which of the following areas outside the state of Michigan do you anticipate to perform work?

Construction Outlook

If you are not currently working outside the state of Michigan, do you anticipate doing so in the next 12–18 months?

The answers to the previous questions clearly indicate a growing trend to look for work outside the state of Michigan.

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Securing Work Contractors, Suppliers, Architects and Engineers

How much new work do you currently have backlogged?

60%

55%

50%

40%

30% 20% 20% 12% 10%

0%

4%

1 to 3 months 4 to 6 months 7 to 12 months

More than a year

The survey indicates that firms that have been in business for more than 20 years tend to have more work backlogged.

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What is your primary method for securing new construction work?

2007 38%

40% 35% 30%

27%

25% 20%

16%

15%

14%

10% 5% 1%

business survey

0%

Competitive bidding (open bidding)

Competitive bidding (invitation only)

Negotiate directly with owner

Referral

14%

15%

Other

2005 41% 40% 35% 30% 25%

21%

20% 15% 10% 7% 5% 0%

Competitive bidding (open bidding)

Competitive bidding (invitation only)

Negotiate directly with owner

Referral

Other

Competitive bidding is still the leading method and, in fact, 65 percent of contractors reported using a form of competitive bidding as their primary method for obtaining new work. However, most competitive bidding procedures are invitation only.

Just two years ago, open public bidding was the more common practice. Contractors now list negotiating directly with an owner as third in importance.

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2007

2005

60%

60% 48%

50%

55%

50%

40%

30%

30%

20%

20% 9%

10%

10%

3% Less than 5

5 to 10

10 to 15

39%

5% 1%

0%

15 or more

Less than 5

5 to 10

10 to 15

15 or more

Do you anticipate the number of bidders, bidding against you, to increase or decrease in the next 12–18 months?

Increase

68%

Decrease

32%

Contractors, Suppliers, Architects and Engineers

40% 40%

0%

Securing Work

If you are bidding competitive work, what is the average number of bidders who have been bidding against you on each project?

What primary method do you anticipate using for securing new construction work in the next two years?

38%

40% 35% 30%

26%

25% 19%

20% 15%

13%

10% 5% 0%

2% Competitive bidding (open bidding)

Competitive bidding (invitation only)

Negotiate directly with owner

Referral

Other

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What primary method do you anticipate using for securing new construction work in the next two years (SECTOR BREAKDOWN)?

General Contractors

Subcontractors 49%

40%

40%

37%

35%

35% 30%

30% 25%

30% 23%

25%

20%

20%

15%

15%

business survey

5%

10%

2% Competitive bidding (open bidding)

Competitive bidding (invitation only)

Negotiate directly with owner

Referral

13% 10%

9%

10%

0%

27%

Other

5% 0%

1% Competitive bidding (open bidding)

Competitive bidding (invitation only)

Suppliers

Architects and Engineers

40%

40%

35%

Negotiate directly with owner

35%

33%

Referral

Other

33%

30% 30%

30%

25%

25%

25%

20%

20% 15% 13%

15%

15% 9%

10% 5% 0%

18

17%

17%

10%

8%

5% Competitive bidding (open bidding)

Competitive bidding (invitation only)

BIENNIAL BUSINESS SURVEY 2007

Negotiate directly with owner

Referral

Other

0%

Competitive bidding (open bidding)

Competitive bidding (invitation only)

Negotiate directly with owner

Referral

Other

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Securing Work Contractors, Suppliers, Architects and Engineers BIENNIAL BUSINESS SURVEY 2007

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Workforce Plans

Contractors, Suppliers, Architects and Engineers

Is your company experiencing difficulty finding salaried/office workers?

Yes

12%

No

84%

No Answer

4%

Is your company experiencing difficulty finding skilled workers?

2007

2005

2001

2003

Yes

28%

Yes

41%

Yes

44%

Yes

64%

No

69%

No

56%

No

54%

No

34%

No answer

2%

No answer

2%

No answer

No answer

3%

1%

Difficulty in finding skilled workers is not nearly the concern it was six years ago. Again, based upon the information that CAM monitors, this could be attributed to a drop in demand for workers as building has slowed, coupled with an increase in trained workers as a result of the training drive initiated in early 2000.

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Over the next two years, you anticipate labor availability to: Stay the same

38%

Increase slightly

29%

Increase significantly

10%

Decrease slightly

15%

Decrease significantly

3%

No answer

2%

What plans do you have for your workforce over the next 12–18 months?

business survey

60% 50% 50%

40% 30% 30%

20% 12% 6%

10%

4% 0%

Add full-time employees

Add part-time employees

No change in number of employees

Lay off full-time employees

Lay off part-time employees

Half of respondents indicated that they do not plan any change in staff levels. The most significant change, since the previous survey, is related to adding full-time employees. This category went from 23 percent to 30 percent.

22

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Workforce plans

What plans do you have for your workforce over the next 12–18 months (SECTOR BREAKDOWN)?

General Contractors

Subcontractors

60%

60% 52%

50%

40%

40% 31%

29%

30%

30%

20%

20% 8%

10%

0%

8% 3%

Add full-time employees

46%

Add part-time employees

No change in number of employees

Lay off full-time Lay off part-time employees employees

16%

10%

0%

6%

Add full-time employees

Add part-time employees

Suppliers

Architects and Engineers

60%

60% 49%

50%

50%

5%

No change in Lay off full-time number of employees employees

Lay off part-time employees

46%

46%

Contractors, Suppliers, Architects and Engineers

50%

40%

40% 32%

30%

30%

20%

20% 14% 10%

4%

4%

6%

10% 0%

0%

Add full-time employees

Add part-time employees

No change in Lay off full-time Lay off part-time employees employees number of employees

0%

Add full-time employees

Add part-time employees

0% No change in Lay off full-time number of employees employees

Lay off part-time employees

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Financial Health

Contractors, Suppliers, Architects and Engineers

Select three of the most challenging areas facing the construction industry within the next two years.

100% 80% 80%

55%

60%

49% 39% 40% 26% 20% 20% 6%

5%

Litigation

Government spending

9%

Shortage/ Training of labor

Insurance cost escalation

Material costs

Competition

Sources of future work

Getting paid

Economic decline

0%

It is interesting to note that the top three responses related directly or indirectly to the economy.

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Rank the three strategies your company has undertaken to improve profitability.

2007

2005

Cut Administrative Costs Improving Process/Products Enhanced Marketing Design/Build Projects Staff Reduction/Right-Sizing Geographic Expansion Enhanced Training Safety/Risk Management

21% 18% 14% 7% 17% 11% 5% 6%

Cut Administrative Costs Improving Process/Products Enhanced Marketing Design/Build Projects Staff Reduction/Right-Sizing Geographic Expansion Enhanced Training Safety/Risk Management

business survey

2003

2001

Cut Administrative Costs Improving Process/Products Enhanced Marketing Design/Build Projects Staff Reduction/Right-Sizing Geographic Expansion Enhanced Training Safety/Risk Management

Cut Administrative Costs Improving Process/Products Enhanced Marketing Design/Build Projects Staff Reduction/Right-Sizing Geographic Expansion Enhanced Training Safety/Risk Management

31% 22% 14% 12% 7% 8% 3% 2%

25% 25% 13% 15% 5% 8% 10% 3%

Two trends to note are the reduction in design/build efforts and the continued focus on company right-sizing.

Do you currently have a business succession plan in place or in process?

Yes

43%

No

54%

No Answer

3%

If you answered yes, which of the following is the key element of your strategy?

26

25% 20% 15% 10% 10% 9% 6% 4%

Selling/Transferring to family

52%

Selling to key management personnel

29%

Selling to a strategic buyer

6%

Establishing an ESOP

3%

Merging with another company

2%

Winding down/Liquidating

7%

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Financial Health

How does your present cash-flow situation compare to last year?

2007

2005 50%

50% 41% 40%

37%

40%

37%

31%

31 %

30%

30%

20%

10%

10%

0%

Worse than last year

About the same as last year

0%

Better than last year

Worse than last year

About the same as last year

Better than last year

How does your present cash-flow situation compare to last year (SECTOR BREAKDOWN)?

General Contractors

Subcontractors

50%

50%

48%

40% 40%

40%

33% 26%

30%

30%

20%

20%

10%

10%

0%

Worse than last year

About the same as last year

Better than last year

Suppliers

36%

0%

16%

Worse than last year

About the same as last year

Contractors, Suppliers, Architects and Engineers

21% 20%

Better than last year

Architects and Engineers 48%

50%

50% 40%

40% 40%

40% 30%

30% 22%

30% 20%

20%

20%

10%

10%

0%

Worse than last year

About the same as last year

Better than last year

0%

Worse than last year

About the same as last year

Better than last year

It appears that Subcontractors are having the most significant challenges with cash-flow.

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In the next 12–18 months, how do you anticipate your cash flow being?

80% 61% 60% 40% 23% 20% 0%

15%

Worse

About the same as last year

Better

What is the average length of time it takes your company to receive final payment for work performed or materials provided?

30 days

12%

60 days

47%

More than 90 days

40%

business survey

No answer

2%

Do you anticipate the average time it takes to be paid improving or getting worse in the next 12–18 months?

Improving

21%

Getting Worse

69%

No Answer

9%

What percentage of your total sales do you maintain in equity?

2007

2005

2003

Less than 5% of total sales

31%

Less than 5% of total sales

30%

Less than 5% of total sales

31%

5–10%

35%

5–10%

27%

5–10%

26% 16%

10–20%

13%

10–20%

13%

10–20%

More than 20%

11%

More than 20%

12%

More than 20%

11%

17%

No answer

16%

No answer

10%

No answer

It is interesting to note that older firms retain a greater percentage of sales in equity than younger firms, which is consistent with expectations.

Is your equity position sufficient to manage your cash-flow needs?

Yes

62%

No

28%

No Answer

28

9%

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Financial Health

Do you have an available line of credit?

Yes No No Answer

87% 10% 3%

Have you filed a Claim of Lien in the past 12 months?

50% 50%

38%

40%

30%

20%

10%

0%

4%

No claims

1 to 5

5 to 10

5%

More than 10

The percentage of responses shows that half of respondents have not filed Claims of Lien. It is worth noting that the last three CAM surveys have shown that many companies do not file Claims of Lien. The 2007 survey indicates 50 percent, which is consistent with previous surveys.

What percentage of the work you perform is bonded?

No bonded work 10% 20% 30% 40% 50% or more

Contractors, Suppliers, Architects and Engineers

60%

41% 24% 9% 6% 4% 14%

Is your organization having more difficulty securing sufficient bonding capacity?

Yes No No Answer

13% 68% 18%

How have material prices for your business changed in the past 12 months?

2005

2007 Increase in prices Decrease in prices Stayed about the same

83% 2% 13%

Increase in prices Decrease in prices Stayed about the same

2003 94% 2% 4%

Increase in prices Decrease in prices Stayed about the same

68% 7% 25%

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Have you been able to obtain escalation clauses in your contracts?

Yes No Haven’t tried

15% 48% 33%

Do you anticipate material prices changing in the next 12–18 months?

Anticipate increase in prices Stay the same Anticipate decrease in prices

83% 14% 2%

Compared to prior year sales, your company’s annual sales for the coming year will: 2005

2007 32%

32% 27%

business survey

25% 24%

24% 19%

20%

16% 16%

16% 14%

16%

13%

8%

12%

12% 8%

8%

8%

7%

1% 0%

Increase Increase Increase Stay about Decrease Decrease No answer 1% to 5% 6% to 14% more than the same 0% to 10% more than 15% 11%

0%

Increase Increase Increase Stay about Decrease Decrease No answer 1% to 5% 6% to 14% more than the same 0% to 10% more than 15% 11%

60 percent of the respondents indicate that sales will decrease or stay the same, whereas only 32 percent gave that response in 2005.

Compared to the prior year, your company’s profitability for the coming year will:

29%

30% 21%

21%

20%

9%

10%

12% 7% 1%

0%

30

Increase 1% to 5%

Increase 6% to 14%

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Increase more than 15%

Stay about the same

Decrease 0% to 10%

Decrease more than 11%

No answer

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Financial Health Contractors, Suppliers, Architects and Engineers BIENNIAL BUSINESS SURVEY 2007

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Technology

Contractors, Suppliers, Architects and Engineers

Which of the following online technologies is being utilized by your company?

Online job bidding 60% 50%

40%

38% 33%

30%

17%

20%

9%

10% 0%

4%

Currently using

Planning to implement

Considering No interest in implementing this technology

No answer

Online job bidding users increased by 11 percentage points from 2005.

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Which of the following online technologies is being utilized by your company? (continued)

Online Project Management

60% 47%

50%

40%

30%

20%

19%

19% 12%

10%

business survey

0%

4%

Currently using

Planning to implement

No interest in Considering implementing this technology

No answer

Currently, 42 percent of respondents have implemented, plan to implement, or are considering implementation of an online project management system.

Online Plans and Specifications

60%

56%

50%

40%

30%

20%

18% 13%

10% 0%

9%

4%

Currently using

Planning to implement

Considering No interest in implementing this technology

No answer

There has been a steady interest in this technology since the 2003 survey. That year 31 percent used the technology. In this year’s survey, 56 percent of respondents are utilizing online plans and specifications.

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Technology Contractors, Suppliers, Architects and Engineers BIENNIAL BUSINESS SURVEY 2007

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Policies & Procedures

Contractors, Suppliers, Architects and Engineers

Do you have plans to enhance any of the following policies and procedures?

Yes

Don’t Know

No

Job Safety Procedures

63%

33%

4%

Staff Development/Training

57%

36%

7%

Substance Abuse Testing

31%

58%

10%

Employee Benefit Programs

34%

56%

11%

Minority Employment

27%

61%

12%

Employee Theft Policies

23%

66%

11%

Handicapped Employment

12%

75%

13%

As in previous surveys, respondents plan to enhance job safety procedures.

What percentage of your construction work does a Michigan-based architectual or engineering firm design?

2007 Less than 10 percent 10–30 percent 30–50 percent 50–70 percent 70–90 percent More than 90 percent No answer

2005 11% 8% 8% 21% 23% 21% 8%

Less than 10 percent 10–30 percent 30–50 percent 50–70 percent 70–90 percent More than 90 percent No answer

2003 11% 7% 10% 17% 21% 22% 10%

Less than 10 percent 10–30 percent 30–50 percent 50–70 percent 70–90 percent More than 90 percent No answer

14% 7% 6% 14% 25% 25% 8%

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Generally speaking, do you consider yourself to be:

Respondent Demographics

Contractors, Suppliers, Architects and Engineers

Republican Democrat Independent No preference No answer

38

57% 9% 14% 15% 5%

What is your personal net worth?

Less than $50,000 $50,000–$99,999 $100,000–$499,999 $500,000–$1 million $1 million–$2 million More than $2 million

2% 4% 23% 21% 18% 15%

Approximately how long has your company been in business?

5 years or less 5–10 years 10–15 years 15–20 years 20–30 years More than 30 years No answer

6% 11% 12% 9% 16% 44% 1%

What is your title?

President Chief Executive Officer Chief Financial Officer Other No answer

59% 5% 5% 28% 2%

What is the last grade of school you completed?

High school Vocational/Technical school Some college College degree Post-graduate degree No answer

12% 7% 25% 41% 10% 5%

Is a woman a majority owner (51 percent or more) of this business?

Yes No No answer

8% 90% 2%

What is your approximate age?

21–34 35–44 45–54 55–64 65–Over No answer

Is this a minority-owned (excluding female-owned) business?

Yes No No answer

In which county are you located in the state of Michigan?

Wayne County Oakland County Macomb County Balance of Detroit SMSA Mid-Michigan West Michigan Tri-City/Thumb Area North Lower Michigan Upper Peninsula No answer

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25% 40% 17% 6% 5% 1% 2% 0% 0% 2%

4% 19% 38% 26% 10% 3%

5% 91% 4%

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GENERAL CONCERNS

Competition: • Competition—not enough work for too many builders.

• Profit margins too low.

• Many jobs being done by non-formed so-called companies.

• The construction industry is justifying cheap work to maintain volume. I worry that over time, profitable work will disappear.

• Underbidding/price cutting—the project owner gets squeezed by his customers; he in turn squeezes the general contractor who squeezes the subs.

• Lack of ethical behavior and integrity among the competition causes the rest of us to work harder and pay higher costs while trying to stay competitive.

• Bidding is too low to keep people working and the quality suffers.

Labor: • Union versus non-union is a big concern.

• Lack of training and safety training.

• Poor union attitude—not willing to help.

• Apprentices do not produce enough for the wages they make upon graduating. They should go to school for ten years, and then they will be worth the wages they get.

• Non-union competition is awarded contracts.

Costs: • Rising healthcare costs.

• Insurance costs are too high.

• Rising costs are killing projects.

Legal: • Need new laws to protect subcontractors and more stringent licensing procedures for all trade contractors.

• Subs and GCs issuing purchase orders should not be allowed to make contract clauses stating the supplier will not be paid unless the contractor is fully paid, even though we have no influence if and when they may be paid under their contract.

• Attempted transfer of liability through contract language to the subcontractor.

• Right to work issues.

• Too much litigation.

• The ridiculous tax policies of this state.

Getting Paid: • Not paying bills in a timely manner.

• Slow pay on projects.

• Payment policies on all projects are becoming slower and slower adding costs for carrying charges.

• Cash flow is a problem; need to omit 10% retention.

Contractors, Suppliers, Architects and Engineers

Economy: • Slow residential building, and the economy is in trouble.

• Continuous volume of work and market expansion is a big concern.

• Devalued existing building less than replacement cost.

• Lack of sizeable projects that are available, there are only small jobs.

• The lack of work is forcing us to move part of the workforce out of state.

• No work for small contractors.

• Lack of credit availability for projects, the decline in home values and the decline in the middle class.

• Suppliers and clients are moving out of the state.

• Revenue for the Michigan highway system.

• Lack of investment/expansion in the private sector.

Written Comments

At the present time, what is your biggest concern about the construction industry?

SUGGESTED SOLUTIONS • Business tax cut or some incentives to attract more business to Michigan.

• Stabilize the car companies.

• Need to monitor non-formed companies.

• Michigan has to move its dependency from the auto industry and move into more stable, long-term growth industries.

• Get employees to be more productive, politicians to do their job.

• Global competition and off-shoring of CADD work.

• Find niches and provide great customer service and quick turnaround.

• Creative and powerful marketing and advertising campaigns.

• Union needs to realize wages are a problem.

• Have on-line training for safety and more recruitment by CAM/colleges for skilled trades.

• Need to revise trade policies, re-educate American consumers, repeal the top tier personal income tax, shift to job creation, and limit incentives for outsourcing.

• Need to reduce taxes; the state government needs to lead and bring new business and enact a state right-to-work law.

• Need to move to another state to get more work.

• Need to bring in more industrial companies.

• Need more jobs to generate a tax base for improvements.

• Need to lower taxes.

• Need to find markets with competition that is profit-driven not volume-driven.

• Interest rates should be reasonably low for residential construction.

• Need new laws for workers’ compensation.

• Need to modify existing state and federal law to prohibit transfer of liability by contractor.

• Need tax incentives to keep the suppliers/clients in Michigan.

• Need a new Governor.

• People need to buy American cars.

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Would you still choose to make your living in the construction industry if you were beginning your career today?

100%

75%

50% 35% 27%

27%

25%

0%

Yes

40

No

Unsure

No answer

The responses to this question certainly underscore how construction today is a very challenging industry. Interestingly, in the 2003 CAM Survey, 75 percent responded “yes.” Those who responded “unsure” went from 1% in 2005 to 27% in this survey.

Of those who answered “No,” the following are some of their reasons: • Would not make a living in the construction industry because there are too many contractors that do not take the time to figure out how much a job costs them to do.

• This is a very difficult profession to stay in.

• Would not choose to continue to work in the industry due to decreasing profitability and lack of protection for subcontractors by the State of Michigan.

• Would not make a living in the industry due to the competitiveness and cutthroat volatility.

• The work is no longer fun to do and future is uncertain.

• Constant threat of litigation.

Written Comments

Contractors, Suppliers, Architects and Engineers

11%

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Owners Survey

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Client Perspective Owners, Developers and Construction Clients

Which of the following would best summarize your general experience with the professionalism of construction personnel during the building process?

60%

58%

50% 40%

32%

30% 20% 10%

10% 0%

Pleased/ Satisfied

Adequate

Disappointed

What was the overall quality of the construction in your most recent project?

60% 50%

45%

40% 30%

27%

25%

20% 10% 0%

2% Excellent

Good

Satisfactory

Poor

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Which of the following would best summarize your general experience with the overall construction process?

2007

2005

2003

Smoother than expected

10%

Smoother than expected

10%

Smoother than expected

5%

Proceeded as expected

64%

Proceeded as expected

73%

Proceeded as expected

78%

More conflicts than expected

16%

More conflicts than expected

17%

More conflicts than expected 24%

The number of problems with the construction process have increased from 2005 to 2007. In addition, the more projects the owners were involved with, the higher the conflict rate.

Which of the following would best summarize your general experience with project costs?

Owners survey

2003

2005

2007 Greater than expected

35%

Greater than expected

40%

Greater than expected

39%

Equal to expectations

59%

Equal to expectations

56%

Equal to expectations

57%

Below expectations

6%

Below expectations

4%

Below expectations

4%

Which of the following would best summarize your general experience with project completion times?

2007

2005

60%

60% 52%

50%

40%

50%

40%

35% 30%

30%

30%

25%

22%

20%

20%

10% 1% 0%

23%

On time

Delayed— contractor at fault

Delayed— no fault

Delayed— owners at fault

3% Ahead of schedule

4%

Other

10%

0%

On time

Delayed— contractor at fault

Delayed— no fault

2%

1%

1%

Delayed— owners at fault

Ahead of schedule

Other

A great change occurred concerning the issue of completion times since the last survey. A 17 percentage point drop in on-time completion was noted by owners since the last survey. Nearly half of the owners building ten or more projects experienced delays that they felt were the contractor’s fault.

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60% 53% 50%

40%

19%

20%

12% 8%

10%

5% 2%

1% No answer

Communications with owners

Communications with project manager

Quality of labor

Other

Communications with subcontractors

Unforeseen problems

0%

According to this survey, communication issues caused fewer delays than in the prior survey while the quality of labor improved.

However, unforeseen problems are becoming a larger issue for the industry. Unforeseen problems increased from 25 percent to 53 percent since the last survey.

Owners, Developers and Construction Clients

30%

Client Perspective

Which of the following generally causes the most delays in project completion or closeout?

In your opinion, whom should you contact first to address problems with your project?

73% 70%

60%

50%

40%

30%

20%

14% 11%

10% 1% 0%

General Contractors/ Architects Construction Managers

Engineers

Other

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When doing construction planning, whom do you consult first about your projects?

70%

63%

60% 50% 40% 30% 21% 20% 10% 0%

3%

Architect

Contractor

Financial Institution

5%

5%

Accountant

No answer

3% Attorney

Owners survey

What percentage of the fees charged for construction services do you believe represents profit for general contractors?

Less than 5% 5–10% 10–20% 20–30% More than 30%

13% 38% 36% 8% 2%

What percentage of the fees charged for construction services do you believe represents profit for specialty contractors?

Less than 5% 5–10% 10–20% 20–30% More than 30% No answer

12% 35% 28% 16% 4% 6%

What is your perception of fees earned by the following construction personnel?

Architects Engineers General Contractors Trades Specialty Contractors

Too high

Too low

40% 33% 10% 18% 29%

4% 3% 1% 1% 0%

Fair 50% 58% 84% 76% 63%

No answer 6% 6% 5% 4% 8%

Owners believe contractors are making more profit than they actually are. Nearly half of the owners responding believe general contractors are making profits of more than 10 percent.

Industry Fact: National surveys indicate the average general contractor’s gross profit is approximately six percent of sales, and the average specialty contractor’s gross profit is approximately 15 percent of sales. In addition, the before tax net income of general contractors averages less than two percent of sales. For specialty contractors, net income before tax averages less than four percent of sales.

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Financial health & Outlook Owners, Developers and Construction Clients

Compared to prior year sales, your company’s annual sales for the coming year will: 29% 30%

26%

25%

20%

18% 14%

15%

10% 7% 4%

5%

2% 0%

Increase 1% to 5%

Increase 6% to 14%

Increase more than 15%

Stay about the same

Decrease 0% to 10%

Decrease more than 11%

No answer

Only 24 percent of all respondents anticipate an increase in future sales, compared to 2005, when 48 percent of the owners anticipated an increase in sales for the coming year.

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Compared to the prior year, your company’s profitability for the coming year will: 38%

40%

30%

27%

20% 14%

13%

10% 2% 0%

Increase 1% to 5%

Increase 6% to 14%

4% 1% Increase more than 15%

Stay about the same

Decrease 0% to 10%

Decrease more than 11%

No answer

Owners survey

Over the next 12–18 months, your anticipated construction spending will: 30% 30%

25% 21%

20%

20%

14%

15%

10%

8%

5%

4%

0%

Increase 1% to 5%

4%

Increase 6% to 14%

Increase more than 15%

Stay about the same

Decrease 0% to 10%

Decrease more than 11%

No answer

Generally, how has your business performed over the last 12 months?

2007

2003

Better than expected

14%

Better than expected

19%

Better than expected

25%

As expected

68%

As expected

54%

As expected

45%

Worse than expected

14%

Worse than expected

12%

Worse than expected

24%

No answer

14%

No answer

No answer

50

2005

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4%

5%

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Financial Health & Outlook

Rank the three most challenging areas facing your business in the next two years.

76%

80%

57%

60%

40%

34% 25% 19%

20%

15%

15% 7%

No Answer

Other

Information Technology

Material/ Construction Costs

Interest Rates

Competition

Insurance Costs

Government Funding

Economy

What do you feel the overall outlook is for your business sector in the next 12–18 months?

2007

2005

Expected to be good About the same Worse No answer

10% 65% 21% 4%

2003

Expected to be good About the same Worse No answer

Expected to be good About the same Worse No answer

18% 49% 19% 14%

34% 45% 15% 6%

Although 65 percent of the respondents expect business to be the same, few respondents expect improvement.

Michigan’s economy is currently one of the worst in the nation. How long do you anticipate this trend continuing?

Owners, Developers and Construction Clients

3% 0%

Contractors, Suppliers, Architects and Engineers

Owners 40%

37%

40% 32%

30% 23% 20%

27%

30% 22% 15%

10%

20% 20%

10%

9%

9%

2% 0%

One year

Two years Three years Four years Five years or more

0%

One year

Two years Three years Four years Five years or more

Over one-half of owners expect Michigan’s economic trends to continue for at least four years. Contractors appear to be more optimistic.

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Construction Project Activity Owners, Developers and Construction Clients

How many non-residential projects has your organization been involved in planning and/or executing within the past year?

38%

40%

30% 25%

20% 13% 7%

10%

10%

4%

0%

No projects

1 project

2–5 projects

6–10 projects

11–50 projects

More than 50 projects

3% No answer

Do you anticipate an increase or decrease in the number of non-residential projects your company is planning and/or executing in the next 12–18 months?

Increase

7%

Decrease

41%

Stay about the same

45%

No answer

7%

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What type of work was done on the majority of your projects?

New Construction

49%

Renovation/Retrofit

40%

Addition/Expansion

8%

Maintenance

4%

Please select a range that represents the average estimated price of your projects.

30% 26%

19%

20% 15% 13% 10%

Owners survey

10%

10%

5%

0%

$100,000 $100,000– $500,001– $1.1 million– $2.1 million– $5.1 million– $10.1 million or less $500,000 $1 million $2 million $5 million $10 million and higher

Please select a range that represents the average estimated price of each of your future projects.

30% 30%

21% 20%

13% 10% 7%

10%

8%

3% 0%

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$100,000 or less

$100,000– $500,001– $1.1 million– $2.1 million– $5.1 million– $10.1 million $500,000 $1 million $2 million $5 million $10 million and higher

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Construction Project Activity

Owners, Developers and Construction Clients

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Technology

Owners, Developers and Construction Clients

Which of the following have you utilized or plan to utilize in future projects?

BIM

LEED

GREEN BUILDING

Have utilized

4%

13%

12%

Plan to utilize

8%

14%

29%

Never plan to utilize

7%

10%

15%

Not familiar with this technology

59%

43%

26%

No answer

22%

20%

18%

Eighty percent or more of “higher volume� owners either have utilized or plan to utilize BIM, LEED, and/or Green Building practices on future projects.

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What is your overall perception of the construction industry?

Written Comments

Owners, Developers and Construction Clients

POSITIVE OR NEUTRAL REPONSES: • As a whole, the industry produces an excellent product with quality workmanship. However, there are always exceptions.

• Construction manager—excellent; architect—poor; subcontractors— some poor and some OK. • Quality increases with more competition. Some contractors do not have experienced employees.

• The construction industry, in general, operates fine.

• I admire anyone who subjects themselves to the discipline of the marketplace.

• My belief is that in Michigan the profit margin is thin for general contractors. There is a great deal of competition for the jobs available.That fact helped us with low bids and a project that came in well under budget.

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NEGATIVE RESPONSES: • The industry is not held to as high of standards as others, such as automotive.

• Quality of workmanship has gone away.

• As finances get tight the bidding gets more cutthroat, and when construction begins every item is contested as an extra.

• Bunch of liars and try to hide problems they created.

• There is no integrity in the construction industry. Most cost-overruns are illegitimate.

• Union is simply not competitive; there is no advantage in quality, technology, speed or technique over the non-environment.

• Construction industry personnel are mostly disrespectful. Over the last three projects I have had complaints about hard hats thrown at vehicles, cat calls, foul language, and trenches filled with waste material.

In your opinion, what is the single biggest problem owners experience when working with the construction industry?

• As a school district, contracts are bid and awarded to the lowest responsible bidder. At times, the lowest responsible bidder doesn't care about the project as much as the district would hope. In addition, the meeting of construction timelines can be a problem.

• On a large building project like a school, you have too many subcontractors, and when something doesn’t go just right they blame the other guys. Several things they said they couldn’t do or change, because the architect or engineer designed it that way. I told them we paid the money for everything to be new and work properly and it wasn't my problem to fix, which is why we hired the company to make sure everything was done properly. Once they receive their pay, you may as well forget it.

• Delays—and they do not understand our issues. Wish I didn’t have to stay on their case to get the job done. This industry doesn’t practice quality assurance/quality improvement as far as I can tell. They are not proactive but wait until it’s badly broken before fixing it.

• Communication and follow-up.

• Lack of knowledge.

• High costs for extras, prime contractors’ mark-up on subcontracts, delays and cost overruns.

• Government red tape.

• Obtaining competitive pricing against competition against trades who are not part of CAM. • Equipment delivery and materials are always late.

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• I wonder about quality of work done by each individual trade and work ethic of a full day’s work.

• Getting a well-crafted project. Some areas were not done well, such as carpentry and electrical. Mechanical seemed most qualified.

• Keeping contractors on the same page so the bids are apples to apples.

• Hiring an unlicensed contractor.

• Plan reviews.

• Contractors who do not pay their subcontractors.

• Whose money to use first (owner, bank or builder).

• Contractors who chase the low bid until it leads them to a price that they cannot live with.

• The mark-up on change orders is ridiculous.

• Getting contractors to show up.

• Most contractors and tradespeople do not know basic codes.

• Local governments and building officials that have no stake in the project, not knowing their own requirements or changing their minds on requirements, and not understanding or caring how they affect the costs or timing of a project.

• Not understanding the length of time it takes to complete a project.

• Not enough follow-through and attention to detail.

• Being overburdened with new codes, regulations that slow down the progress.

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NOTES

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Construction Association of Michigan

43636 Woodward • P.O. Box 3204 • Bloomfield Hills, MI 48302-3204 www.cam-online.com