2 0 11 + 2 0 1 2 Construction A s s o c i at i o n o f Mi chi g a n
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Construction Association of Michigan celebrating 127 years of serving Michigan’s construction industry
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Dear Construction Associate, We are pleased to present you with the results of our Biennial Business and Owner Surveys, which examine activity in 2011 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, and their continued commitment to provide accurate and timely business information to the construction industry. This year’s survey was issued online to everyone for whom we had an e-mail address. This enabled a greater response due to the ease of completing and returning the questions. For those of you who took the time to complete the survey, thank you. Your participation is greatly appreciated. The responses are online, as well, but for those who would like a printed results booklet, please contact either CAM or Plante Moran. The survey information was compiled from the confidential survey responses by an independent survey company and developed as part of collaborative effort by CAM and Plante Moran. 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 how contractors and owners cope with the present economy; the future construction climate is also forecasted by those who are directly involved in the Michigan construction industry on a daily basis. As this year’s survey reflected some positive trends and outlooks, we sincerely hope that this is indicative of an economic turnaround for the construction industry in Michigan. CAM continues to work hard legislatively and in the media to serve our members well. As our mantra states, we are “One Industry, One Resource, One CAM.” Sincerely,
James C. Capo, AIA CAM Chairman of the Board Vice President, Design/Build, DeMattia Group
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about
the construction association of michigan
The Construction Association of Michigan (CAM) was founded in 1885 as the Builders Exchange of Detroit and Michigan. Celebrating its 127th year in 2012, CAM is the oldest and largest construction association in North America. CAM is headquartered in Bloomfield Hills, Mich., with a second division in Saginaw, known as CAM Tri-Cities. CAM is a not-for-profit organization comprised of 2,600 members. CAM is supported by annual dues and service fees, and is governed by a 12-member board of directors elected annually by the membership. CAM members are comprised of general contractors, subcontractors, equipment and materials suppliers, architects, engineers, and service firms (attorneys, financial management, etc.). 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 publication, 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 CAM Buyers Guide is the most widely used tool in the construction industry. Published yearly, the Buyers Guide is a directory containing each CAM member firm alphabetically and in classified categories. The CAM Buyers Guide is available in print, online via the CAM website at www.cam-online.com, and is also accessible through a new mobile app for smart phones. CAM Magazine, “The Voice of the Construction Industry,” is recognized as the leading monthly industry magazine covering construction news, business trends, current projects, and construction technology in Michigan. CAM Magazine is in print and also online at www.cammagazineonline.com and has readers worldwide. The magazine maintains a strong social media presence via Facebook, LinkedIn, and Twitter. CAMTEC, the training and education division of CAM, offers industry-specific classes and seminars on relevant topics within today’s construction industry, along with the latest technology and trends. Courses are also available to be conducted onsite. With a full-time qualified safety professional/instructor on staff, the CAMSAFETY department offers free, on-site and hands-on safety training to all CAM members. Under a grant from MIOSHA, training encompasses focus four hazards: falls, caught-in, struck by, and electrocutions. CAMSAFETY also offers many classes, including OSHA 10- and 30-hour. 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 retains a full-time lobbyist, Lansing-based Kindsvatter Associates. CAM recently formed the CAM Government Affairs Committee, which is run by its on-staff labor attorney. The Government Affairs Committee’s role is to identify governmental issues and/or trends which impact upon the construction industry in Michigan. Along with the services mentioned above, CAM also offers health insurance through CAM administrative services; workers’ compensation insurance through CAM Comp; and superior banking service through the Construction Federal Credit Union. For more information about any of these CAM services, or to inquire about CAM membership, please contact the CAM marketing department at 248.972.1000.
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plante moran
co-sponsor
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. 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 or go to plantemoran.com.
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table of contents 6 4
page 6
business survey page 30
business survey written comments
business survey 7
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 18 years. The survey measures contractor opinion in several key categories.
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b u s in e s s o u t l o o k
1 W hich of the following designations best describes your primary business? (Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
4% 10% 36%
13%
13%
Subcontractor General contractor Architect/Engineer Other Equipment/Material supplier Manufacturer of equipment or materials
24%
2 W hat type of work is presently providing your company with the most opportunities? (Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
Healthcare buildings/hospitals Education/Cultural/Scientific buildings
1% 1% <1% 4% 6%
Interiors/Tenant improvements Public Works
19%
Transport/Industrial buildings
7%
Office buildings 10%
14%
Residential Infrastructure
11% 12%
13%
Religious buildings Hotels Entertainment Renewable energy Compared to 2009, publicly-funded work is down, and healthcare-related worked is on the increase.
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b u s in e s s o u t l o o k
3 W most hat category do you anticipate providing your company with the opportunities for work in the next 12–18 months?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
Healthcare buildings/hospitals
<1%
Education/Cultural/Scientific buildings
3% 3% 3%
Office buildings
21%
7%
Interiors/Tenant improvements Public Works
7%
Infrastructure
7%
Residential
13%
Transport/Industrial buildings Entertainment
10%
Hotels
13%
12%
Religious buildings Renewable energy
4 I your n terms of project cost, what category of work is providing company with the most opportunities? (Average) 2011
35% 23%
Less than $100K– $100K $500K
14%
$500K– $1M
8%
$1M– $2M
6%
4%
$2M– $5M
$5– $10M
3%
2%
$2M– $5M
$5– $10M
2%
More than $10M
2009
59%
18% 9%
Less than $100K– $100K $500K
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$500K– $1M
5%
$1M– $2M
4%
More than $10M
This trend is toward larger size projects, which is more in line with 2005 survey results.
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5 Iyour n terms of construction, what category of work is providing company with the most opportunities? (Average)
50
100
2011
24%
29% 19%
0
13%
New Construction
Renovation
Retrofit
Maintenance
15%
Addition
50
100
2009
32%
40%
12%
9%
0
7%
New Construction
Renovation
Retrofit
Maintenance
Addition
New construction continues to be sluggish, with an uptick in retrofit, additions, and maintenance of existing facilities.
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100 50
29% 11%
14%
11%
9%
13%
0
13%
Up more Up Up less About than 20% between than 10% the same 10–20%
Down 10% or less
Down Down between more than 10–20% 20%
100
b u s in e s s o u t l o o k
6 h changed ow has the volume of work for which you have contracted over the past 12 months?
50
48%
22% 6%
3%
9%
8%
0
3%
Up more Up Up less About than 20% between than 10% the same 10–20%
Down 10% or less
Down Down between more than 10–20% 20%
The survey indicates that we may have hit bottom in 2009. 67% of the respondents contracted the same amount or more work over the past 12 months.
7 12–18 h ow domonths? you anticipate the volume of work changing over the next
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
6%
5% About the same
7%
32%
8%
Up less than 10% Up between 10–20% Down 10% or less Down more than 20% Down between 10–20%
20% 23%
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Up more than 20% This is the most optimistic outlook that we have seen since 2005.
8 W greatest hat area in the state of Michigan do you anticipate having the number of construction opportunities in the next two years? Southeastern Michigan Southwestern Michigan Northeastern Michigan Northwestern Michigan Upper Peninsula
65% 25% 4% 5% 0%
9 A re you currently doing work outside the state of Michigan? 2011 Yes No
55% 45%
2009 Yes No
43% 57% Compared to 2009, more contractors are performing work outside the state of Michigan.
10 I performed f you answered yes, what percentage of your total volume of work is outside the state of Michigan? Less than 10% 10 to 20% 20 to 50% 50% or more
26% 29% 21% 24%
11 D12â&#x20AC;&#x201C;18 o youmonths? anticipate that percentage increasing or decreasing in the next Yes No
67% 33%
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b u s in e s s o u t l o o k
12 I work n which of the following areas outside the state of Michigan is the being performed? Midwest United States 60% Southeastern United States 18% Other 8% Northeastern United States 6% Southwestern United States 6% Northwestern United States 1% Canada 1% Mexico 0%
13 Do you currently have a company branch or satellite in another state? 2011 Yes No
22% 78%
2009 Yes No
15% 85% Compared to the 2009 survey, there is a 7% increase in company branches or satellites in another state.
14 if yes, in which states are you currently located?
Company Branch/Satellite Locations
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Respondents indicated that they either have a branch or satellite office in all 50 states.
15 if no, do you plan on it in the future? Yes No
20% 80%
16 if yes, in which states would you consider opening in? 2011
States in Consideration
2009
States in Consideration
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s e c ur in g w o r k
1 H ow much new work do you currently have backlogged?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
8% 14%
1–3 months 4–6 months
53%
7 –12 months More than a year
25%
Compared to 2009, companies’ backlogs are increasing.
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100 50
38% 20%
19%
21% 3%
0
s e c ur in g w o r k
2 What is your primary method for securing new construction work?
Open competitive bidding – Public work
Competitive bidding – Invitation only
Referral
Negotiate directly with owner
Other
50
100
3 W securing hat primary method do you anticipate using for work in the next two years?
39% 18%
22% 5%
0
16%
Open Competitive competitive bidding – bidding – Invitation only Public work
Referral
Negotiate directly with owner
Other
This year’s survey shows a higher trend toward referral and negotiated work.
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4 I f you are bidding competitive work, what is the average number of
bidders who have been bidding against you on each project?
52% 32% 14% 2%
5–10 bidders
10–15 bidders
15 or more
50
100
Less than 5
42% 25%
23%
0
10%
Less than 5
5–10 bidders
10–15 bidders
15 or more
In the current survey only 16 percent of projects had 10 or more bidders, compared to 2009 which had 33 percent.
5 D ono you anticipate additional profit margins or mark-up pressure your bids in the next 12–18 months?
Yes No
61% 39%
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18
4%
8%
6%
Add part-time employees
18%
Lay off full-time employees
Lay off part-time employees
64%
No change in number of employees
9%
Add full-time employees
5%
Lay off full-time employees
Lay off part-time employees
No change in number of employees
Add part-time employees
Add full-time employees
workforce plans
1 What plans do you have for your workforce over the next 12â&#x20AC;&#x201C;18 months?
60%
23%
3%
Compared to the 2009 survey, respondents indicate a trend toward expanding their workforce.
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0%
5%
5%
Lay off full-time employees
5%
Lay off part-time employees
14% 5%
Lay off full-time employees
Lay off part-time employees
No change in number of employees
65%
No change in number of employees
0%
Add part-time employees
12%
Add part-time employees
Architects/Engineers Add full-time employees
General Contractors
Add full-time employees
9%
Lay off full-time employees
5%
Lay off full-time employees
14%
Lay off part-time employees
No change in number of employees
Add part-time employees
Add full-time employees 3%
Lay off part-time employees
No change in number of employees
Add part-time employees
Add full-time employees
(2011 Sector breakdown)
Subcontractors
65%
27% 14% 4%
Suppliers
64%
71%
14%
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f in an c i al h e al t h
1 S elect the 3 strategies your company has undertaken to improve profitability. Cut Administrative Costs Improving processes/Products Staff reduction/Right-sizing Enhanced marketing Geographic expansion Design/Build projects Safety/Risk management Enhanced training
24% 22% 15% 12% 10% 8% 6% 4%
Cut Administrative Costs Staff reduction/Right-sizing Improving processes/Products Enhanced marketing Geographic expansion Design/Build projects Safety/Risk management Enhanced training
32% 25% 17% 10% 9% 4% 2% 1%
Compared to 2009, there appears to be more focus on improving processes, and less on right-sizing/cost-cutting.
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f in an c i al h e al t h
2 what structure best describes your business? 65%
35%
Family-owned
Other
3 D oro inyouprocess? currently have a business succession plan in place Yes No
47% 53%
4 I f yes, which of the following is the key element of your strategy?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
8%
5%
5% Selling to key management personnel Selling/Transferring to family
9%
43%
Selling to a strategic buyer Winding down/Liquidating Establishing an ESOP
31%
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Merging with another company
5 how does your present cash flow situation compare to last year?
58% 46% 33%
32%
21%
10%
About the same as last year
Worse than last year
About the same as last year
Worse than last year
Better than last year
Better than last year
(2011 Sector breakdown) General Contractors
Subcontractors
51% 35%
31%
40% 25%
17%
Worse than last year
About the same as last year
Better than last year
Architects/Engineers
Worse than last year
About the same as last year
Better than last year
Suppliers
55% 47% 37%
35%
16% 10%
Worse than last year
About the same as last year
Better than last year
Worse than last year
About the same as last year
Better than last year
According to respondents cash flow has improved compared to 2009.
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f in an c i al h e al t h
6 In the next 12–18 months, do you anticipate your cash flow to be:
65% 51% 35%
About the same
19%
16%
Better
Worse
13%
About the same
Better
Worse
7 Wfinal hat is the average length of time it takes your company to receive payment for work performed or materials provided? More than 90 days 60 days 30 days
37% 48% 15%
8 Doro getting you anticipate the average time it takes to be paid improving worse in the next 12–18 months? Improving Getting Worse
41% 59%
Improving Getting Worse
28% 72%
9 What PERCENTAGE OF YOUR total sales do you maintain in equity? Less than 5 5–10% 10–20% More than 20%
25% 39% 20% 16%
Less than 5 5–10% 10–20% More than 20%
35% 32% 21% 11%
Respondents’ equity position is improving.
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10 Is your equity position sufficient to manage your cash flow needs? Yes No
68% 32%
11 Do you have access to a line of credit? Yes No
82% 18%
1 2 If no, have you had access to a credit line in the past?
Yes No
57% 43%
13 Wnext hat do you anticipate happening with the credit markets in the six months? Improving Staying the same Not Improving
13% 53% 34%
14 Imonths, f you don’t anticipate the credit markets improving in the next six when?
More than 12 months 6–12 months
81% 19% Respondents’ credit market concerns continue.
1 5 Have you filed a Claim of Lien in the past 12 months?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
2% 2% No claims 1–5 More than 10
28% 68%
5 –10 The last four surveys have shown that most companies don’t file Claims of Lien. 25
f in an c i al h e al t h
16 What percentage of the work you perform is bonded? No bonded work 10% 20-40% 41% or more
42% 28% 17% 14%
17 Isbonding your company having more difficulty securing sufficient capacity? Yes No
24% 76%
18 How have material prices for your business changed in the past 12 months? Increase in prices Stay about the same Decrease in prices
79% 19% 2%
Increase in prices Stay about the same Decrease in prices
43% 40% 16%
The price pressures that were seen in the 2005 and 2007 surveys have returned.
19 Do you anticipate material prices changing in the next 12â&#x20AC;&#x201C;18 months? Anticipate increase in prices Stay the same Anticipate decrease in prices
77% 21% 2%
20 Have you been able to obtain escalation clauses in your contracts? Yes No Havenâ&#x20AC;&#x2122;t tried 26
10% 43% 46%
29% 15% 12%
Decrease more than 10%
15% 10% 9%
Decrease more than 10%
Increase more than 10% Increase 1 – 10%
36% 21%
Respondents are optimistic about their sales and profitability for the coming year.
Decrease more than 10%
20%
Decrease 0 to 10%
12%
Stay about the same
12%
Decrease 0 to 10%
Stay about the same
Increase 1 – 10%
Increase more than 10% 20%
Decrease more than 10%
Decrease 0 to 10%
28%
Decrease 0 to 10%
Increase 1 – 10% 32%
Stay about the same
6%
Increase 1 – 10%
Increase more than 10% 20%
Stay about the same
10%
Increase more than 10%
21 C coming ompared to the prior year sales, your company’s annual sales for the year will:
40%
22 Compared to the prior year, your company’s profitability for the coming year will:
27%
26%
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t e c hn o l o g y / s u s t ain ab ili t y
1 Which of these online technologies is being utilized by your company? Online job bidding
Online project management
52%
19%
23%
Planning to implement
Considering implementing
No interest
33%
10%
6%
Currently using
30%
27%
Currently using
Planning to implement
Considering No implementing interest
Online plans and specifications
74%
7%
Currently using
Planning to implement
13%
Considering implementing
7%
No interest
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t e c h n o l o g fyi/nsauns ct iaai n l ahbe ial il t yh
2 W hat percentage of your company is currently LEED certified?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
2% 8%
5% Below 10% 10–25%
15%
26–50% 51–75%
70%
Over 75%
3 Ifplans none of your employees are currently LEED certified, do you have for them to pursue LEED certification in the future? Yes No
28% 72%
4 Does your company currently regularly engage in “green” or “sustainable” building practices? Yes No
52% 48%
5 “Green” If no, do you have plans to become more actively involved in or ” Sustainable” building practices? Yes No
31% 69% Based on the survey there has been an increase in the number of LEED Accredited Professionals.
6 D Modeling) oes your company currently utilize BIM (Building Information in its projects?
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Yes No
22% 78%
Yes No
12% 88%
(2011 Sector breakdown) General Contractors Yes No
Suppliers Yes No
26% 74%
Subcontractors Yes No
25% 75%
Architects and Engineers 12% 88%
Yes No
33% 67%
7 If no, do you have plans to utilize BIM in future projects? Yes No
16% 84%
Yes No
14% 86%
(2011 Sector breakdown) General Contractors Yes No
Subcontractors 22% 78%
Suppliers Yes No
Yes No
12% 88%
Architects and Engineers 7% 93%
Yes No
33% 67%
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p o li c i e s an d p r o c e dur e s
1 do you have plans to enhance any of the following policies and procedures? Job safety procedures Staff development/Training Substance abuse testing Minority employment Employee theft policies Employee benefit programs Handicapped employment
YES
NO
68% 73% 33% 32% 29% 32% 10%
32% 27% 67% 68% 71% 68% 90%
2 W architectural hat percentage of your construction work is designed by Michigan-based or engineering firms? More than 90% 70–90% 50–70% 30–50% 10 –30% Less than 10%
24% 26% 20% 14% 6% 10%
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Generally speaking, do you consider yourself to be: Republican 60% Democrat 7% Independent 18% No preference 14% What is your personal net worth? Less than $100,000 $100,000–$499,999 $500,000–$1 million $1 million–$2 million
7% 21% 32% 38%
What is the last grade of school you completed? High school 9% Vocational/Technical school 4% Some college 25% College degree 45% Post-graduate degree 17% Is a woman a majority owner (51 percent or more) of this business? Yes 7% No 93% Is this a minority-owned (excluding female-owned) business? Yes 3% No 97% Where are you located in the state of Michigan? Oakland County 34% Wayne County 20% Macomb County 18% Other 20% Mid-Michigan 7% Balance of Detroit 1% Approximately how long has your company been in business? 5 years or less 7% 5–15 years 12% 15–30 years 27% More than 30 years 54%
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What is your title? President Chief executive officer Chief financial officer Other
47% 7% 10% 36%
What is your approximate age? 21–34 35–44 45–54 55–64 65–over
4% 8% 39% 41% 9%
1 A construction t the present time, what is your biggest concern about the industry?
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• High taxes keeping new businesses out of Michigan. • Stability • Limited new construction starts. • Lowered fees and heightened expectations. • Too many empty buildings and no need for new construction. • Evolving from a time and material to lump sum model. • Not enough work for all the excavating companies out there; public or private. Private is essentially dead in our area. Public is dwindling. The competition is insane. Ridiculous rates being used to win. • Unsustainable • Lack of economic growth. • Lack of new projects going ahead. • Overall economic confidence and health will either help or hurt future construction in this country. • Profit margins, insurance costs, lack of overall talent working in the field. • Lack of work, future shortage of tradesmen, increase of material prices due to less companies producing the materials. • Too many bidders. • Banking, bonding, profits. • Getting more work. • Funding for the work that needs to be done both in the public sector and the private sector to compete in a global economy. • Lack of available credit. • Lack of lending for projects. • Getting paid as outlined in the contracts we sign. • Uncertainty in politics and future direction of the country, healthcare reform. • The industry is in a depression & declining. • Rising payroll and benefit costs. • Too much interference by the DEQ and DNR. • There are more construction companies than there are opportunities. The downturn in the economy has halted construction projects that would otherwise be moving forward. Therefore, the construction opportunities are limited. • Slow pay, no pay (foreclosures, bankruptcies, defaults.) • The housing and job market is poor in Michigan. • Training the future workforce. • Taxes and materials increases due to oil prices. • Union vs. non-union, how do we as a union contractor compete? • Competitive bidding margins are non-existent or negative due to survival tactics being used by many competitors. • Customers’ ability to pay. • Not enough jobs, therefore stiff competition for each job that is out there. • Government regulation preference to minority such as 65% Detroit residency’s not the definition of minority which is defined less than 1/2 of whole. Cannot secure projects and be profitable in Michigan — Contractors doing Davis Bacon, manipulating certified payroll Unions not in compliance with their CBA, keeping delinquent contractors until they cheated the fringes so deep, their only hope is to collect on a future job.
• The morals and ethics. • The decline in profitability. • Lack of trained/quality/skilled contractors. • Volatility • Pension fund withdrawal liabilities for union contractors has handcuffed many contractors into staying in union contracts that are simply not competitive. Worst yet, these same underfunded pension obligations are necessitating increases in wage and benefit costs, widening the cost gap between open shop and union contractors. • Not enough work- private or public. Private is absolutely dead. The inability to reach a constant level of growth so that some strength develops allowing in employment and the reduction of the need to constantly be under bidding just to keep the doors open. All this does is produce shoddy work because of all the corner-cutting. The next biggest threat is over regulation, by government (local and national) of all aspects of common construction. This includes materials and labor restrictions. Last, is the lack of training required of inspectors that are put in the field to make sure construction standards are met with an ability to also apply common sense to their rulings. • Government regulations. Banks non-responsive to loans. • Be able to continue to bid on new projects and to remain competitive. • Overcapacity • Competitor’s pricing. It seems my competitors are bidding work in desperation, or ignorance of their true costs. I cannot come close to the numbers being put out on competitive bids. • The desperation of some contractors bidding projects at a unrealistic margin. The municipal infrastructure projects have dried up. • Not having enough projects to bid and the profit margin being slim-to-none of the projects you do get awarded. It is very cut-throat because companies so badly need the work just to stay afloat. • That it remains fair to everyone, owners, design and construction. • Availability of credit for clients to get their projects off and running. Also, the time to get projects funded by the banks. • Growth, available credit. • Unions being oblivious to the position that they have put their member in. Their unwillingness to step back, reduce the greed factor and up productivity. • No money available for anyone to build. • Poor designs, contractors outside of their specialty engaging in the type of work that we do. • Too much “CYA” mentality—nobody willing to take responsibility for their own actions. • Morals and ethics. • Union labor costs. • Lack of projects, lack of building needs, over-supply of buildings. • Whether or not it will return to anywhere near previous levels.
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• There are three: the lack of decent margins, the lack of loyalty by customers to get quality service, and the amount of time it is taking to collect money. • Business growth over the next 5 years. • Decline of qualified help due to the lack of support from the MEA on skilled trade training. High schools have eliminated shop classes and the youth of today has no concept of manufacturing. • Getting work! • The U.S. economy. • No private sector work to bid, only schools, etc. • The slow payment terms—greater than 30 days. • Non-union infiltration. • Too much competition for the lack of work on hand. • Not enough projects for the amount of construction companies out there. We will see a lot more companies close in the next 12 months. • The market and competition continuing to ‘bid’ or pursue projects so low as to knock out viable/strong
companies that cannot go low dollar. The pressure to be ‘cheap’ makes it extremely difficult to provide value to the industry (example: provide BIM, other innovations in construction delivery, etc. • Future work. • Wage and health costs. • Being a sub-contractor, the CMs, unions, suppliers and regulations drive up costs every year. At the same time, unions and CM’s drive the Market Price into the ground. • Union issues, cash flow margins. • The president appearing on TV. • Economy • Mortality • Lack of projects and tight margins in Southeast Michigan. • OBAMA • Lack of volume of work in the state of Michigan.
2 WHAT IS YOUR SUGGESTED SOLUTION FOR THIS PROBLEM? • Lower business taxes for all Michigan businesses. Lessen regulations. • Negotiated work with repeat customers. • Loosen credit. • Actively managing our design projects focusing on what adds value and eliminating effort that does not. • Make the banks lend more money. • Aggressively moving to a lump sum model pricing with higher risk/reward. • With all the foreclosed houses, and the age of all the houses being below standard, fund a demo plan. It would clean up neighborhoods and spur on a new construction boom. You’d have cleaner neighborhoods and homes up-to-code. • Better business climate. Less discrimination. • Downsize government and change pension plans for unions. • A government that is business-friendly, reduces taxes on all, and reduces frivolous spending. • The answer to this is far too extensive to indicate in the space given here. • Stability in the economy for work, market to high school students the advantages of being a tradesman and once the economy stabilizes and we have cooperation in Washington, business will begin to ramp up production. • Companies need to leave the area. • More projects to bid on. • Offer better prices. • Utilize more fit-outs of existing properties. Demolish blighted properties. • Lower taxes for small business. Tax incentives for new construction. • Put people to work rebuilding the infrastructure as a start. Cut back on government duplication. We have too many government entities. Less government and more commerce. • Federal government needs to take restrictions off lenders. 36
• Being able to lien public work. • Legislation • Revise tax code, eliminate Obamacare. • Remove the remainder of democrats from Washington, D.C. and the state of Michigan. • Utilize the free market system • Tiered wage & benefit structures for unionized workers. • Less regulation from the DEQ & DNR. • To increase the opportunities to bid; it may take diversity and offering more than one line of trade. • Government backing of credit programs. • Upfront payments/planning/communications from lenders, proof of financing, less government red tape with HUD/MSHDA, no CO without proof of final/full payment to gc/subs.) • Need pro-business policies in Washington. • Company-driven mentoring and training programs. • Reduce taxes. • Stop the escalating wage increases until the economy gets stronger! • Subcontractors should be selected by performance and price/fee negotiated. • Find a way to reduce the financial burdens (such as healthcare costs, gas and food) of the everyday Joe so that he or she might be able to make a purchase of some sort. Right now I can’t buy or invest in anything because of those costs. This would in turn help businesses which would then help the employee which would then reduce the everyday Joe’s financial burdens. • Have the Fed quit micro-managing. • More skilled training programs. • Economy needs to balance out—help from the Feds. • There needs to be substantial reform in the pensions themselves. Existing tradespeople cannot expect to retire with rich packages at 50 years old. New tradespeople must enter with a drastically different wage and benefit structure.
• Until someone with common sense and half a brain is chosen to run the country and force banks and financial institutions to quit hoarding our money (given to them to stimulate something besides their bottom line) construction will suffer, employment will continue to suffer, the economic recovery won’t happen and our strength will continue downward. We will need to make a change in elected officials from those that are presently part of the establishment that looks only to enrich themselves at our expense. They need to be replaced with people that have a passion for the U.S. and its financial health and the growth of our economy and for the resulting health of its citizens and their financial well-being. Going to be one hell of a fight to accomplish that, but the rewards will be long lasting for everyone. • Increasing tariff to foreign countries. Government to get out of private business. • Hunker down and wait out the desperation. Eventually the low bid competitors will either be gone, or have a sufficient amount of work on their books that the prices will again become profitable for my firm. Maintaining adequate equity in the company has allowed us to do this. • Spending in the municipal sector will be an investment in our country’s future. Without a state-of-the-art, dependable infrastructure system, business cannot continue to function efficiently. • More work open opportunities at institutions— universities, hospitals, government which are effectively closed to oustside “non-favorites” firms. • Actually getting together to talk. • Loosen the loan requirements “again” for people/ companies that have not abused the system(s).
• Make Michigan a Right-to-Work state. • I wish I knew. • Political stability, economic leadership. • I do not have any solutions because these are forces beyond my control. We just need to constantly adapt to them. • Private industry and private company growth and development get the darn government out of the way of growth! • Put more effort into training for the trades. Every school district should offer an industrial arts program—wood shop, metals, art, etc. • New President and Administration in Washington. • More jobs people spend money, people hire and things get better. • Prompt payment terms no longer than 30 days. • Reduced labor costs through improved collective bargaining. • Economic turnaround. • Continue to educate clients about comparing apples to apples understanding the value of service over price. • Vote—Change our government. • I gave up, the sub-contractors are the back-bone of this industry. Who has the time to fight? • Ease credit availability. • Look elsewhere. • Get the government to stop picking winners and losers. Take the corporate tax rate to zero and watch how many new workers would be hired to build the projects that would be spurred by investment in this state.
3 W were ould you still choose to make your living in the construction industry if you beginning your career today? 2011
2009
37%
39%
37%
31%
32%
No
Unsure
24%
Yes
No
Unsure
Yes
In the almost 20 years since the survey’s inception, this is the first time that the No’s have outnumbered the Yes’s. 37
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4 Of those who answered “no,” the following are some of their reasons: • Too many outside, uncontrollable factors determine profitability. • The cut-throatness of this industry is frustrating. Your numbers are shopped and then used against you to get the work. The engineers and architects are so slow to adapt to technology and use of online bidding, submitting of submittals, pay apps. Stone age. • Seasonality is tough. Margins stink. It's hard work for how little you can make on it. • It simply isn't worth the effort anymore. Nearly every project devolves into a bitter struggle almost immediately. Owners don't pay architects so the specs are horrible, the GC's are not making any money, so they basically do nothing but harass you. The culture/environment in the construction industry is very poor at best. Confrontation, mistrust and disagreement are the norm. • Low profits and a lot of work. • My background is in design, and I would stay in design. • This is not a fun business to be in right now. It is a buyer’s market and will be that way for years to come. • Reaganomics worked in the good old days. Obamanomics has not been effective and will not work in the future. • The work is hard, the risks are high, the pay is less than appropriate for my goals. Should have been a politician. • I don’t want my children to be involved in a union company while the market moves to a non-union world.
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• Too much stress. • As general contractors, we are on a road to self destruction. Tremendous price pressure caused by way too much competition is leading us to use less than qualified subcontractors, who all have to figure out how to cut corners to "get low" in their bidding. Yet, Owners are more and more demanding in their requirements for speed, quality and low cost. We get stuck in the middle, trying to produce silk from sows’ ears. • Unethical contractors, unethical owners. • Loss of joy. • Too much risk for the reward. • It has turned into a cut-throat industry with shops like ours cutting prices to turn dollars and eventually going down. Ran an ad on Craigslist, Oakland Press, and Michigan Works for well over a month and it yielded only 2 applicants—One that wanted more money than I pay myself and the other was not qualified. State and Federal regulations are closing in on the smaller manufacturers and will eventually strangle most businesses. We will have the cleanest unemployed nation in the world. •C onstruction is a risky business with a tremendous amount of stress and a low success rate. •P rofits have pretty much disappeared. • T he industry is too volatile and unpredictable and has a frustrating mix of ignorance and politics. •P oor business/economic outlook. • T he industry as a whole does not have the respect needed from government and/or the public.
owner survey 39
This survey examines the construction industry from the clients’ perspectives. 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. Survey participants were selected at random from CAM’s Daily Construction Project News division, which monitors construction activity throughout the state. The majority of respondents were gleaned from both public and private entities.
39
40
c li e nt p e r s p e c t i v e
1 w your hen doing construction planning, whom do you consult first about project?
39%
48%
11% 2%
2%
Attorney
Accountant
Financial Institution
Contractor
Architect
2 W professionalism hich of the following would best summarize your general experience with the of construction personnel during the building process?
54% 38%
8%
Pleased/ Satisfied
Adequate Disappointed
41
c li e nt p e r s p e c t i v e
3 I less f you answered Adequate or Disappointed, what areas were you than pleased with? • Price negotiations after contract is set. • Lack of preparations, “pay when paid” clauses, not accurate paperwork. • Not engaged fully near end of project. • Planning, subdividing, awkwardly or estimated. • Design details, accurate pricing. • General lack of ability to work together as a team. Inherent mistrust is prevalent between all parties. Lack of understanding of basic construction procedures/timing and scheduling issues. • Overall specific project knowledge in terms of scope and budget. • As an owner I find myself consulting CM and engineering firms more to get performance. The CM firms having to complete have sunk back more into a General Contractor role as much as possible and leave owner representative work to the wayside. It is very apparent. I have been pleased with the comeback of the architecture houses doing more owner advocacy, but they lack very heavily to almost fail coming in on the front end of bond preparation or panning. They have a role and when they stick to it, it falls into place. I find it difficult to get the right teams together to make things happen. I have been doing commercial and industrial construction for 22 years. Last year I purchased around 20 million in construction services. I think the CM services are just bad at keeping schedule. I believe this is the effect of the economy as punch lists linger forever and occupancy is sold as completion. This is a serious trend that has developed in small and large projects. • Getting a quote. • I don’t always feel that the CM is working in our best interest. Money may be spend that could probably be avoided while still achieving the same result. • Lack of integrity. • Trades are slow to get the work completed in a timely manner. • Labor—Very few journeymen or care about their work.
4 W most hat was the overall quality of the construction in your recent project?
44% 26%
24% 6%
Excellent
Good
Satisfactory
Poor
5 Ifthan you answered satisfactory or poor, where was the quality less expected? • Electrical contractors. • CM services. Owners representative services—lack of choices in West Michigan and in some cases involving themselves in the political environment to gain more position or more work. ORS services, Lakeview Construction bad as well as others. Big problem with both. Have not seen this from Architects, Lawyers, or Accounting firms. • Craftsmanship • Budget inadequate to provide good enough quality construction materials • Details missed—poor communication. • As a painting contractor, Drywall contractors are worse. There are few that take pride in their work. • Lean construction and integrated project delivery. 42
6 Woverall hich of the following would best summarize your general experience with the construction process? Proceeded as expected More conflicts than expected Smoother than expected
67% 18% 15%
7 If you answered more conflicts than expected, please describe the conflicts. • Renovation work and redevelopment in downtown setting is extremely difficult. • Contracts that we are being asked to sign are generally completely one sided. Insurance requirements have become a large point of contention. The projects are being poorly planned by the owners/architects/construction managers, almost immediately leading to conflicts. • Scheduling from the beginning. Everybody wants to get done. Too many work orders from Architects, engineers and subs not taking enough time to cover everything in their drawings to bids. • There are industry barriers that have been experienced. Particularly in the areas of bonding and prequalification.
8 W with hich of the following would best summarize your general experience project costs? Greater than expected Equal to expectations Below expectations
29% 49% 22%
9 I f you answered greater than expected, what areas caused the excess costs? • Missing information. • Everything—Structure HVAC, Plumbing, Electrical, Finishes. • Allowance items totally inadequate. • Materials subs trying to change their quotes after they have been awarded the project.
10 Wwith hich of the following would best summarize your general experience project completion times?
38%
35%
9%
12% 0%
On time
Delayed — Contractor Fault
Delayed — No Fault
Delayed — Owner’s Fault
Ahead of schedule
6%
Other
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6%
6%
Other
Communications with Owners
11%
Quality of Labor
20%
Unforeseen Problems
26%
Communications with Subcontractors
31%
Communications with Project Managers
c li e nt p e r s p e c t i v e
11 W project hich of the following generally causes the most delays in completion or closeout?
12 Inwith your opinion, whom should you contact first to address problems your project?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
6% 9% General Contractor/Construction Manager Engineers
15% 71%
Architects Other
13 Wdohatyoupercentage of the fees charged for construction services believe represents profit for General Contractors? Less than 5% 5â&#x20AC;&#x201C;10% 10 â&#x20AC;&#x201C; 20% More than 20%
44
29% 44% 24% 3%
14 Wbelieve hat percentage of the fees charged for construction services do you represents profit for Specialty Contractors? Less than 5% 5–10% 10 – 20% 20 – 30% More than 30%
21% 64% 9% 6% 0%
15 What is your perception of fees earned by the following construction professionals? Engineers
Architects Too High Fair Too Low
32% 58% 10%
13% 77% 10%
23% 54% 23%
35% 58% 7%
Specialty Contractors
General Contractors Too High Fair Too Low
Too High Fair Too Low
Too High Fair Too Low
25% 52% 23%
Tradespeople Too High Fair Too Low
INDUSTRY FACT: National Surveys taken in 2010 indicate the average general contractor’s gross profit was approximately 6 percent of sales, and the average specialty contractor’s gross profit was approximately 16 percent of sales. In addition, the before tax net income of general contractors averaged about 2 percent of sales, and the before tax net income for specialty trade contractors averaged about 4 percent of sales.
45
46
f in an c i al h e al t h an d o u t l o o k
1 Compared to prior year sales, your company’s annual sales for the coming year will:
40% 27%
20%
Decrease more than 10%
Decrease 0–10%
6%
Stay about the same
Increase 1–10%
Increase more than 10%
7%
Profitability trends are up across the board.
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50%
18%
14%
Decrease more than 10%
Decrease 0–10%
Increase 1–10%
7%
Stay about the same
11%
Increase more than 10%
f in an c i al h e al t h an d o u t l o o k
2 C the ompared to the prior year, your company’s profitability for coming year will:
3 O spending ver the next 12–18 months, your anticipated construction will:
30%
20%
20%
Increase more than 10%
Increase 1–10%
Stay about the same
17%
13%
Decrease 0–10%
Decrease more than 10%
Construction spending appears to be trending up.
4 O your ther than the Economy, rank the three most challenging areas facing business in the next two years: (Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
10%
3% 23%
10%
Material/Construction Costs Competition Insurance Costs Other
13%
23% 17%
48
Government Funding Interest Rates Information Technology
5 Generally, how has your business performed over the last 12 months?
Worse than expected As expected Better than expected
23% 60% 17%
6 W thehatnext do you feel the overall outlook is for your business sector in 12â&#x20AC;&#x201C;18 months?
Worse than expected As expected Better than expected
31% 52% 17%
49
50
construction project activity
1 H planning ow many non-residential projects has your organization been involved in and/or constructing within the past year? (Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
7%
3%
17%
45%
2â&#x20AC;&#x201C; 5 projects More than 10 projects 6â&#x20AC;&#x201C;10 projects No projects 1 project
28%
51
construction project activity
2 D non-residential o you anticipate an increase or decrease in the number of projects your company is planning and/or constructing in the next 12â&#x20AC;&#x201C;18 months? Increase Decrease Stay about the same
17 % 33% 50%
3 What type of work was done on the majority of your projects? Renovation/Retrofit Addition/Expansion New construction Maintenance
48% 21% 21% 10%
4 W thehatnext type of work will be done on the majority of your projects over 12â&#x20AC;&#x201C;18 months? Renovation/Retrofit Addition/Expansion New construction Maintenance
48% 17% 24% 10%
5 W most hat category of work is currently providing your company with the opportunities for work?
(Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
2% 2% 5%
5%
16%
7% 14%
7% 9% 9%
52
13% 9%
Residential Education/Cultural/Scientific buildings Office buildings Healthcare buildings/hospitals Interiors/Tenant improvements Public Works Infrastructure Religious buildings Transport/Industrial buildings Renewable energy Hotels Entertainment
6 W opportunities hat category of work do you see providing your company with the most for work over the next 12–18 months? (Categories are listed in descending order of the greatest to least number responses as shown in the pie chart.)
2% 3% 3% 5%
Residential Education/Cultural/Scientific buildings Office buildings
14%
Healthcare buildings/hospitals Interiors/Tenant improvements
8% 13%
8%
Transport/Industrial buildings Renewable energy Infrastructure Public Works
13%
9% 10%
13%
Religious buildings Hotels Entertainment
7 W hat is the average estimated price of your prior projects?
24%
26% 18% 9%
Less than $100K
$100K– $500K
$500K– $1M
$1M– $2M
12%
$2M– $5M
6%
6%
$5– $10M
More than $10M
8 What is the average estimated price of your future projects?
30%
27%
20% 10% 0%
Less than $100K
$100K– $500K
$500K– $1M
$1M– $2M
$2M– $5M
3%
$5– $10M
10%
More than $10M
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54
t e c hn o l o g y / s u s t ain ab ili t y
1 (Building D oes a Contractorâ&#x20AC;&#x2122;s ability to utilize online/electronic technologies such as BIM Information Modeling) influence your decision to hire them? Yes No
34% 66%
2 If yes, do you feel you achieve cost savings by doing so? Yes No
88% 12%
55
t e c hn o l o g y / s u s t ain ab ili t y
3 When hiring a contractor, do you look to see if they are LEED Certified? Yes No
20% 80%
4 What percentage of your projects are currently LEED Certified? 0–20% 20–50% Moran than 50%
89% 7% 4%
5 D theo you anticipate the number of your LEED projects to increase in next 12–18 months? Yes No
48% 52%
6 W building hat is your opinion of the current “Green” and “Sustainable” trends? Approve 36% Neutral 50% Disapprove 14%
7 I af return you are building LEED, “green” or “Sustainable,” do you anticipate on investment over the life of the building? Yes No
56
46% 54%
8 H your ave you utilized BIM Technology (Building Information Modeling) in any of current projects? Yes No
21% 79%
9 I Modeling) f you answered No, do you anticipate using BIM Technology (Building Information in the next 12â&#x20AC;&#x201C;18 months? Yes No
38% 62%
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1 What is your overall perception of the construction industry? • Too competitive. • Very had to make a profit. • Slow • We’re going backwards, materials are going forward. Labor has to be cheaper to get jobs and skill is out the door. Which means your making lower profit and have to get more jobs to counter your income. • Great people in Michigan. Sorry they don’t have more to build. • Needs to adopt lean construction practices to be more productive and provide value to owners. • It has to change. There needs to be more of a partnership between the Owner/ Designer/Constructor, and those trades that work on the project. I want to see more integration and less conflict that impact the quality of the project. • A lot of companies working in the industry that do not understand the rules of the road and are giving the companies that have been here for a long time, fits. It is bad, and if things don’t turn around, it will take a lot of outside contractors to get anything done right. • We are in Michigan and it sucks, to many subcontractors in each trade trying desperately to stay afloat and by giving away their work and not making any profit (usually losing money) and the general contractors/CM’s accepting their unprofessionalism on the job as long as their price is low. The professionalism in this trade has GOT to be at an all-time low. I am personally embarrassed by the quality and attitudes/appearance of our construction industry. The sad part is that the GC/CM does not even care anymore about professionalism. • Dim • Poor
• Subs are busy. Pricing still low. More big contractors holding on but long standard contractors going down and out of business, while the small ones are not growing to the next step. This worries me for the future on competitive bidding. The natural progression of sub-contractors of specialty contractors is getting smaller. There seems to be a gap. It is hard to find someone with experience on my jobs to manage them or provide me with quality consulting. We are missing the 40- to 60-year old gap of professionals that can help these young kids out. • Commercial construction in the area of additions and renovations will continue to play a major role as buildings are modified for new use. Healthcare, the energy industry as well as other smaller emerging industries will help the construction industry rebound. Residential construction will not increase until the Michigan economy becomes more stable, probably in about 5-10 years. • Very sluggish, hopeful for more activity soon. • Too many unqualified people getting into the industry and giving us old timers a bad rap. Architects and engineers need to do a better job screening that they let bid their projects. Lately it seems that they turn their bids out to anyone looking for a mistake to get the project awarded by the owner. How is that fair to the legitimate contractor bidding work? • Costs are too high in Michigan. • Generally good. Details seem to be a problem with the ones I have worked with or heard about.
2 I experience n your opinion, what is the single biggest problem Owners when working with the construction industry?
58
• Government regulations. • Material cost labor cost. • Funding • Workmanship • The trend is prevailing wages as the construction bidding decreases the wages increase. Paying $36 + for an employee to shovel is crazy! • Too fragmented; end up fighting each other. • Communication • Change orders and additional design service requests. 90% of the time the pricing is unreasonable and doesn’t represent the work that has to be done. You make choices early in the process regarding the funds available, and when you want to allocate those funds you don’t get the intended return on that additional investment because of the change order process. • They have to get over the bottom line syndrome. You pay for what you get. But some owners know that and will still
bad-mouth builders that they did a cheap job and give the builder no time to defend themselves when dealing with a cheap owner. • Productivity • Lack of communication. • Profitability • Not retaining employees to keep their quality of services and losing people that work with people. • Defining and expressing expectations and understanding the impact their decisions have on construction schedules. • Penetrating the industry. • Listening to the unqualified builder and not their architect/engineer. • Time is too long, costs are too high. No control. • Generally good. Details seem to be a problem with the ones I have worked with or heard about.
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59
60
61
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