CAM Biennial Business Survey 2013 2014

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BUSINESS SURVEY

CONSTRUCTION ASSOCIATION OF MICHIGAN

2013 2014

BIENNIAL BUSINESS SURVEY OUTLOOK

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BUSINESS SURVEY

GREG ANDRZEJEWSKI FIRST CHAIRMEN OF THE BOARD, CAM Business Development Manager, PPG Industries

Dear Construction Associate, We are pleased to present you with the results of our Biennial Business and Owner Surveys, which examine activity in 2013 and the outlook for the next eighteen 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. 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. 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 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 indicators, we sincerely hope that this will be an upward trend for the construction industry in Michigan. Our mantra, “One Industry, One Resource, One CAM,” is what we strive for continually. CAM works hard legislatively, presents helpful and timely seminars on the issues that will affect our members, and is the number one source for Construction Project Information Services in the state of Michigan. We exist as a service to our members to help make them, and their businesses, successful.

Sincerely,

Greg Andrzejewski CAM Chairman of the Board

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ABOUT

BUSINESS SURVEY

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 129th year in 2014, CAM is the oldest and largest construction association in North America. CAM is headquartered in Bloomfield Hills, MI, 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 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 Dalling and 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 or via the CAM website at: www.cam-online.com.

BUSINESS OUTLOOK

CO-SPONSOR PLANTE MORAN Serving the needs of the construction industry for 90 years.

Plante Moran provides the experience and personal attention the construction industry demands. Plante Moran offers 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 Construction Industry Group Leader: Tom Doyle | 248.223.3402 thomas.doyle@plantemoran.com plantemoran.com

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BUSINESS SURVEY

TABLE

OF CONTENTS PAGE 7 Business survey PAGE 42 Demographics and written comments

PAGE 52 Owners survey PAGE 73 Written comments

BUSINESS OUTLOOK

BUSINESS SURVEY Produced by the Construction Association of Michigan (CAM) and the accounting firm Plante Moran, the Biennial Business Survey has been conducted for more than 20 years. The survey measures contractor opinion in several key categories.

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BUSINESS SURVEY

BUSINESS OUTLOOK

BUSINESS OUTLOOK

Describe your primary business

37%

23% 18% 8% 4% 10%

General contractor Architect/Engineer Equipment/Material supplier Manufacturer of equipment or materials Other

Subcontractor Is your company union or non-union?

100

62% 50

38%

0

Union

Non-union

Average cost range of work that your company is currently performing:

39% Less Than $100,000

2013

2011

100

50

39% 35%

21% 23%

11% 14%

11% 8%

6% 6%

6% 4%

6% 2%

$500K– 1M

$1M– 2M

$2M– 5M

$5M– 10M

Over $10M

0

Less than $100K– $100K 500K

Trend to larger projects continues with over 29% of projects at $1Mil+, a 9 percentage point increase from 2011.

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BUSINESS SURVEY

The average cost range of work you anticipate your company will be performing over the next 12–18 months:

18%

11%

10%

7%

8%

6%

$1 – 2M

$2 – $5M

$5 – $10M

Over $10M

40%

$500,000 – $1M

Less Than $100,000

50

$100,000 – $500,000

40%

100

0

Less than $100,000

10

31% of projects are anticipated to cost $1Mil+. This is an 11 percentage point increase from 2011.

Which type of work is currently providing your company with the most opportunities?

2013

34%

33% 12% 11% 11%

New construction Additions Maintenance Retrofit

24% 15% 19% 13%

New construction Additions Maintenance Retrofit

Renovation 2011

29%

Renovation

New construction and renovation show an up-tick from 2011.

BUSINESS OUTLOOK

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

16%

Health/Welfare Buildings/ Hospitals

15% 13% 13% 10% 9% 7% 6% 3% 3% 3% 1%

Education/Cultural/Scientific buildings Infrastructure Transport/Industrial buildings Residential Interiors/Tenant improvements Office buildings Public works projects Hotels/Motels Entertainment facilities Renewable energy Religious buildings

Which type of construction work do you see providing your company with the most opportunities over the next 12–18 months?

37%

New Construction

33% 13% 10% 7%

Renovation Retrofit Maintenance Additions

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BUSINESS SURVEY

How has the volume of work contracted changed over the past 12 months?

48%

50

16%

3%

8%

7%

10% 9%

15%

Down more than 20%

6%

Down between 10–20%

The 2013 survey indicates a positive trend from 2009.

18%

22%

Down 10% or less

3%

About the same

12% 0

22%

Up less than 10%

About the Same

2009

Up between 10–20%

22%

2013 100

Up more than 20%

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

36%

About the Same

5% 20% 28% 6% 4% 1%

Up more than 20% Up between 10% and 20% Up less than 10% Down 10% or less Down between 10% and 20% Down more than 10% and 20%

89% of respondents anticipate the volume of work to increase or stay the same. This is the most optimistic respondents have been in many years.

BUSINESS OUTLOOK

Are you currently doing work outside the state of Michigan?

Yes

51% of respondents are currently doing work outside of Michigan.

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

33%

27% 20 to 50 percent 25% Less than 10 percent 15% 50 percent or more

10 to 20 Percent Do you anticipate that percentage increasing or decreasing in the next 12–18 months?

71%

Increasing

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BUSINESS SURVEY

Has the Michigan “Right to Work” law affected your business?

No

86% of respondents indicate the law has not affected their business.

Has Michigan’s “Right to Work” law had a positive or negative impact?

52%

Positive Impact Do you anticipate the Michigan “Right to Work” law having an impact in the future?

No

54% of respondents

do not anticipate a future impact.

BUSINESS OUTLOOK

How long will it be before your business is affected?

68%

27% 1 year or less 5% More than 5 years

2–5 Years

Additional “Right to Work” comments related to business impact: • This will help to bring more work to the area.

• It will attract new business.

• I think it’s a great thing and will reduce

• I ’m anticipating lower quality of contractor

construction costs, which will encourage new project starts.

•O ur current work contract will expire before any

impact will be known.

•W orst thing to happen in Michigan. Previous

Michigan Governors (while they may have been for Right to Work) have always respected labor organizations. This was a bad, bad thing that the incumbent Governor has done.

• I firmly support the “Right to Work” law and

feel it will benefit the state of Michigan.

• I feel it should have always been that a person

has the right to choose for them self.

•U nion competitors no longer have a cost

disadvantage.

•T he simple fact that Michigan is right to work

has increased the probability of a potential client coming to Michigan • I t is a good law in the long run. The immediate

impact is negative for a union contractor.

workmanship.

•H opefully we won’t have to pay union wages and

fringes. The cost of labor on a union contract makes it very difficult to make any money when we are already bidding at single digit margins.

Clients have demonstrated a more open mind regarding locating and/or expanding in Michigan •T he law will lower wage rates.

• I think and believe it will have a good impact on

the overall health of the Michigan Business Industry in whole. With this said, I also believe it will benefit the workers as a result of the businesses having a positive impact.

•N ow we can compete with other states.

•T he under funding problem of all of the construction

trades pension funds has all of the contractors that are signatory to an agreement tied to those agreements for a long, long time. New open shop competition will continue to enter the market and further erode the market share of the union contractors.

• I think it’s great.

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BUSINESS SURVEY

SECURING WORK

SECURING WORK

How much new work do you currently have backlogged?

55%

23% 4–6 months 16% 7–12 months 6% More than 1 year Compared to 2009, companies are seeing backlogs stabilize.

1–3 Month Backlog

What primary method do you anticipate using for securing work in the next 12–18 months?

42%

Competitive Bidding— Invitation Only

100

42%

50

17%

13%

25% 3%

0

Open Competitive competitive bidding— bidding— invitation public work only

Referral

Negotiate directly with owner

Other

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BUSINESS SURVEY

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

2013

54%

42% 5–10 bidders 1% 10–15 bidders 3% 15 or more bidders

Less Than 5 Bidders 2009

25%

Less Than 5 Bidders

42% 5–10 bidders 23% 10–15 bidders 10% 15 or more bidders In the current survey only 4% of projects had 10 or more bidders compared to 2009, which had 33%.

Do you anticipate the number of bidders, bidding against you, increasing or decreasing in the next 12–18 months?

68% Increasing

Although the trend shows a decrease in the number of bidders on projects, contractors anticipate that trend changing.

SECURING WORK

How have your profit margins/mark-ups changed in bids submitted over the last 12 months?

35% No change

6% 13% 4% 7% 16% 19%

Increased 5% or more Increased 2%–4% Increased 1% or less Decreased 1% or less Decreased by 2%–4% Decreased by 5% or more

Do you anticipate additional profit margins or mark-up pressure on your bids in the next 12–18 months?

Yes

63% of respondents

anticipate additional profit margin or mark-up pressures.

This year’s survey shows 42% of respondents had a decrease in profit margins/mark-ups with anticipation of additional pressure going forward.

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BUSINESS SURVEY

WORKFORCE PLANS

WORKFORCE PLANS

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

53%

2013

2009

100

0

In 2009, 26% of respondents anticipated layoffs. In 2013, 42% anticipated adding employees.

1% 3%

4%

23%

Layoff full-time employees

6% 6%

Layoff part-time employees

8%

No change

36%

Add part-time employees

No Change

53% 60%

Add full-time employees

50

Is your company experiencing difficulty finding skilled workers?

Yes

53% of respondents are experiencing difficulty finding skilled workers.

General Contractors

Subcontractors

Yes

Yes

55% of respondents are experiencing difficulty finding skilled workers.

58% of respondents are experiencing difficulty finding skilled workers.

Suppliers

Architects & Engineers

Yes

Yes

48% of respondents are experiencing difficulty finding skilled workers.

59% of respondents are experiencing difficulty finding skilled workers.

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BUSINESS SURVEY

Over the next 12–18 months, you anticipate labor availability to:

50%

1% 13% 29% 5%

Increase significantly Increase slightly Decrease slightly Decrease significantly

Stay the Same

Over one-third of respondents indicated a decrease in labor availability in the next 12–18 months.

How should the industry address the decrease in skilled labor?

Education & Training •W e need better training programs in higher

education.

•S tart educating kids to think for themselves to

become the best, most responsible workers they can. Adults need to quit thinking for kids and having them become so dependent. It’s very difficult to change a person’s work ethic during their peak working years, so we need to start young, like we used to in the skilled trades.

•P romote skilled trades in high school and

realize that not all students are college material.

Present a more professional image for the skilled trades.

•W e might need to recruit in other areas of

the country, but also reach out to the various educational organizations here and partner with them.

•O ur industry needs to do a better job

of educating young workers with the concept that our business is not for the low-skilled or uneducated. We have got to elevate the status of our workers to being desirable.

•H ave incentives for people to learn a new

trade or skill.

•M aybe reach out to military organizations

or partner with them in some way?

•P ut shop programs and training back in

schools. Let the kids know that there is pride in doing a good, hard day’s work, and that there are careers out there in construction.

•W e are already training our own younger

staff, in-house.

•W e need to stress the need for young

folks going into trade schools instead of college and stress the benefits of working with your hands.

WORKFORCE PLANS

How should the industry address the decrease in skilled labor? (continued) •E ncourage vocational programs in the schools;

increase training for the sub-trades; publicize the recovering economy to encourage workers to stay in-state and not switch their occupations.

•T he easy answer is to say to train more skilled

tradesmen — but that will be ineffective if there isn’t a sufficient volume of work to employ them!

Other •W e are a union field force. The antiquated,

outdated ways that our union operates, especially in terms of protecting laid-off workers that no company will take at the expense of preventing motivated newcomers into the field, MUST stop. This policy will be the eventual end of a unionized workforce in this area with my trade, but the union will not acknowledge it, let alone talk or implement some meaningful change.

•M ake the trades more attractive to the younger

generation and fire Obama.

•L abor unions need to relax jurisdictional restraints

and recognize that defined benefits do not work anymore.

•T he unions have to start recruiting earlier for

skilled labor. Going into middle schools and high schools would encourage the kids who don’t want to go to college.

•M ichigan’s attack on labor unions via “Right to

Work” has destroyed the apprenticeship programs that really helped employers. Unless we gain a new respect for labor unions and their apprenticeship programs, Michigan will continue to go down the tubes.

•T here have been difficulties for clients/owners/

developers to get the funding they need so they can move forward on their projects. Unless new or easier funding methods are developed, this trend will continue to hurt the construction industry at all levels.

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BUSINESS SURVEY

FINANCIAL HEALTH

FINANCIAL HEALTH

Select the three strategies your company has undertaken to improve profitability: 2013

26% Improve Processes/ Products 2009

32%

Cut Administrative Costs

19% 14% 10% 10% 8% 7% 6%

Cut administrative costs Staff reduction/Right-sizing Enhanced marketing Geographic expansion Design/Build projects Enhanced training Safety/Risk management

25% 17% 10% 9% 4% 1% 2%

Staff reduction/Right-sizing Improve processes/Products Enhanced marketing Geographic expansion Design/Build projects Enhanced training Safety/Risk management

Compared to 2009 there is more focus on improving processes and less on right-sizing cost cutting.

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BUSINESS SURVEY

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

41%

2013

50

0

2013

36%

2011 2009

40%

17%

7%

About the same as last year

37%

51%

Worse than last year

23%

31%

Better than last year About the same as last year Worse than last year

2013

41% 46% 21%

58% 32%

10%

Better than last year

Better than last year

Supplier

2009

100

About the Same as Last Year General Contractor

2011

About the same as last year

23%

33%

Worse than last year

Subcontractor

2013

According to respondents, cash flow has improved since 2009.

2011 2009

Better than last year

30%

25%

7%

36%

About the same as last year

41%

40%

33%

57%

Worse than last year

28%

35%

60%

2011 2009

Architects & Engineers

2013

2011 2009

33%

16%

11%

Better than last year

46%

10%

13%

58%

37%

32%

About the same as last year

30%

55%

13%

8%

47%

57%

Worse than last year

23%

35%

75%

FINANCIAL HEALTH

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

66%

2013

2011

2009

100

66% 65% 50

24% 19%

About the Same as Last Year

0

51%

13%

Better

10%

About the same

16%

35%

Worse

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

51%

33% More than 90 days 16% 30 days

60 Days

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

56% Improving

2013

2011

2009

100

50

56%

41%

28%

44%

59%

72%

0

Improving

Getting worse

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BUSINESS SURVEY

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

2011

2013

Yes

86% of respondents

Yes

68% of respondents

indicated their equity position was sufficient.

indicated their equity position is sufficient.

Do you have access to a line of credit?

Yes

85% of respondents

have access to a line of credit.

Do you anticipate your access to credit improving in the next 12–18 months?

Yes

65% of respondents anticipate credit improvement.

FINANCIAL HEALTH

Have you filed a claim of lien in the past 12 months?

74%

25% 1–5 Claims 1% More than 5 claims

Surveys over the last decade continue to show that most companies do not file claims of lien.

No Claims

What percentage of the work you perform is bonded?

2013

38%

30% 10 percent 23% 20 to 40 percent 9% 41 percent or more

No Bonded Work 2011

42%

28% 10 percent 17% 20 to 40 percent 14% 41 percent or more

No Bonded Work Respondents indicate a slight uptick in bonded work.

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BUSINESS SURVEY

Is your company having more difficulty securing sufficient bonding capacity?

No

81% of respondents

are not having an increased difficulty securing sufficient bonding capacity.

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

78%

21% Stay the same 1% Anticipate decrease in prices

Anticipate Increase in Prices

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

No

48% No 44% Haven’t tried 8% Yes

FINANCIAL HEALTH

Compared to prior year sales, your company’s annual sales for the coming year will: 100

50

33%

15% 10%

9%

28%

40% 20%

10%

21%

14%

Decrease more than 10%

Decrease 0 –10%

Stay about the same

0

Increase 1–10%

Project an Increase

2009

Increase more than 10%

48%

2013

Compared to the prior year, your company’s profitability for the coming year will: 100

32% 28% 6%

14%

29%

12%

26%

Decrease more than 10%

9% 10%

Decrease 0 –10%

0

33%

Stay about the same

50

Increase 1–10%

Project an Increase

2009

Increase more than 10%

42%

2013

Respondents remain optimistic about their sales and profitability for the coming year.

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BUSINESS SURVEY

What are the biggest financial challenges facing your company in the next 12–18 months?

Credit & Capital •A vailable credit •O ur clients are having a difficult time securing

funding for their projects. They have needs but no way to fund them.

•L ack of significant working capital to fund larger

jobs (i.e. access to credit, etc.)

•C ollections are always a problem, especially for

extra work and retentions.

•C ustomers requiring longer payment terms.

•W e have clients that have potential projects

but because of the difficulties with funding we asked to hold up. It is getting difficult to keep the office together and provide quality services when so many of our clients are in a holding pattern.

Cash Flow & Collections •C ash flow due to retentions not being paid in a

timely manner.

•N o revenues to improve equipment needed, and

no monies to increase salaries.

• Cash management and fee suppression.

•C ontinuing to expand in select markets and

finding ways to quickly become cash flow positive in those markets.

•M anage cash flow to support large contracts

with large materials requirements.

•L ength of the sales cycle requiring higher prices,

competition from internet or low overhead suppliers, employees looking for salary increases without enough ROI. •M aking enough money to pay for upgrades to

technology, tools, equipment and people to keep us on top of our industry and still being able to put some money away.

•F inancing the construction projects - not getting

paid soon enough. Owners/CMs need good subs; they should realize the pressure they put on them forcing them to chase money.

•M anaging cash flow without an outside line

of credit.

•C losing out and getting paid on large difficult

projects.

Profit Margins •P rofit margins continue to erode so we are

focusing on positioning ourselves better in the Design Build delivery method which normally produces better results.

•L ow profit margins, low contract backlog,

increases in labor and material costs.

•H aving to bid projects at such low margins

in order to win a contract, but in the end unexpected costs and labor eats up the small profit margin we did have so we end up winning a job but losing money.

•M argin pressure. Growth.

FINANCIAL HEALTH

What are the biggest financial challenges facing your company in the next 12–18 months? (continued) Industry & Market

Other

•T here is simply no money in projects anymore.

•R eplacement of depleted fleet of trucks and

Competitors are performing work at cost.

We do not know how much longer we will bother staying in business. There is no money anywhere. What I mean by that is that the owners are squeezing the architects, who now generally provide horrid drawings and specifications; the general contractors underbid the work because of this, and all the fallout is laid out to the subcontractors. It has become a joke.

•A nticipating and capitalizing on the market

turnaround.

•S taying competitive in the market that is

available.

•F inding work to Negotiate/Design-Build. The

banking industry is the biggest hurdle for small business owners; it needs to loosen up and start offering loans to the smaller developer/business owner. In doing so, I believe the construction industry in Michigan will take off again, and allow people to get back to work and make money.

•T here’s more competition in the field.

•B alanced growth - sales/equipment/personnel

are all growing at the same time.

machines due to hard times. We didn’t replace much of our fleet over the last four years.

• I nterest rates.

•S low economic recovery limiting the amount of

new construction work.

• I ncreased taxes.

•T he effects of the Great Depression, particularly

failure of owners to pay for completed work on projects that became nearly worthless (and therefore liens were of no use), wiped out such a significant amount of equity, that we still cannot obtain surety bonds of the size we need to return our business to anywhere near our past revenues.

I don’t see an end to this problem anytime soon.

•C ontrolling overhead costs to get through the

economic downturn.

•G overnmental obstructions to my business.

•C urrently have no financial problems - we have

been in business for 70 years.

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BUSINESS SURVEY

BUSINESS CONTINUITY

BUSINESS CONTINUITY

What structure best describes your business?

70%

17% Parent company 13% Private branch

Family-owned If family-owned, how many generations has the business been in your family?

37%

34% One generation 29% Three generations or more

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

2013

Yes

2011

56% of respondents

currently have a succession plan in place or in process.

Yes

47% of respondents had a succession plan in place or in process.

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BUSINESS SURVEY

Which of the following is the key element of your strategy?

42% Selling/ Transferring to Family

41% 3% 3% 3% 3% 5%

Selling to key management personnel Selling to a strategic buyer Establishing an ESOP Merging with another company Winding down/Liquidating Other

In the event of your death, your stock would:

54%

Pass to My Heirs Through My Estate

24% Be redeemed by the company 18% Be purchased directly by my partner(s) 4% Other stock plans

BUSINESS CONTINUITY

If you were to leave your company tomorrow:

52%

29% I have management that needs further development 19% I have no capable management and will need to hire someone from outside my organization

I have a team

of strong managers who could easily manage the business in my absence Has the recent economic downturn affected your retirement plans?

40%

Yes — My Plans Are on Hold or Delayed

o — I am proceeding with my plans 32% N 28% I have yet to begin a transition plan

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BUSINESS SURVEY

TECHNOLOGY/ SUSTAINABILITY

TECHNOLOGY/SUSTAINABILITY

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

ONLINE PROJECT MANAGEMENT

84% 64%

70% 46% 6% 8%

Online technologies are being utilized more extensively in the industry.

9%

26% 27%

No interest in this technology

2% 2%

0

7%

Considering implementing

50

Planning to implement

Online Plans and Specifications

100

ONLINE JOB BIDDING

Currently using

84%

ONLINE PLANS AND SPECIFICATIONS

Does your company regularly engage in green or sustainable building practices?

2013

Yes

2011

70% of respondents regularly engage in green/ sustainable building practices.

Yes

52% of respondents regularly engage in green/sustainable building practices.

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BUSINESS SURVEY

Does your company currently utilize:

36%

Prefabrication Techniques

CURRENTLY UTILIZING PLAN TO IMPLEMENT

NO PLAN TO UTILIZE

100

50

0

67%

56%

36%

34% 18% 15%

8%

Prefabrication Techniques

General Contractors

Integrated project delivery

Cloud computing

Subcontractors

45% 10% 45%

26% 15% 59%

46% 18% 36%

38% 9% 53%

14% 14% 72%

27% 24% 49%

Prefabrication techniques

Integrated project delivery

Cloud computing

Prefabrication techniques

Integrated project delivery

Cloud computing

Suppliers

42% 24%

Architects & Engineers

26% 5% 69%

16% 5% 79%

30% 20% 50%

25% 5% 70%

19% 29% 52%

38% 38% 24%

Prefabrication techniques

Integrated project delivery

Cloud computing

Prefabrication techniques

Integrated project delivery

Cloud computing

TECHNOLOGY/SUSTAINABILITY

Which new technologies do you plan on investing in over the next 12–18 months?

22%

CURRENTLY UTILIZING 100

3% 4%

0

Smart phones

69%

68%

54% 22% 24%

Tablets

20%

18% 13%

12%

Software upgrades

ERP systems

Subcontractors

General Contractors Smart phones

Tablets

Software upgrades

93% 7% 0%

46% 32% 21%

60% 30% 10%

ERP systems

13% 9% 78%

Other

Smart phones

Tablets

Software upgrades

ERP systems

Other

0% 0% 100%

89% 4% 7%

55% 13% 33%

66% 18% 16%

12% 13% 75%

9% 0% 91%

Suppliers Smart phones

NO PLAN TO UTILIZE

93%

50

Tablets

PLAN TO IMPLEMENT

Architects & Engineers Tablets

Software upgrades

100% 75% 0% 20% 0% 5%

71% 24% 5%

ERP systems

41% 18% 41%

Other

Smart phones

Tablets

Software upgrades

0% 0% 100%

95% 0% 5%

43% 33% 24%

81% 10% 10%

Do you have plans to invest in any of the following?

Yes

62% 68% 50% 69% 52% 9%

Job safety procedures Staff development/Training Employee benefits programs New technologies Fleet/Equipment Disaster recovery

ERP systems

Other

21% 0% 11% 0% 68% 100%

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BUSINESS SURVEY

DEMOGRAPHICS AND WRITTEN COMMENTS

DEMOGRAPHICS & COMMENTS

Demographics Generally speaking, do you consider yourself:

How long has your company been in business?

8% 68% 17% 12%

20% 20% 10% 5%

Democrat Republican Independent No preference

What is the last grade of school you completed?

26% 49% 16% 5% 4%

Post-graduate degree College degree Some college Vocational/Tech. school High school

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

92% No 8% Yes

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

99% No 1% Yes

Where are you located in the state of Michigan?

33% 24% 14% 10% 1% 18%

Oakland County Wayne County Macomb County Mid-Michigan Balance of Detroit Metro Other

More than 30 years 15 to 30 years 5 to 15 years Less than 5 years

What is your title?

10% 39% 14% 37%

Chief executive officer (CEO) President Chief financial officer (CFO) Other

What is your approximate age?

11% 33% 11% 2%

65 years–over 45–54 years 35–44 years 21–34 years

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

Yes

37% Yes 34% No 29% Unsure

In the 20 year history of the survey, 2011 was the only time respondents replied they would not choose to make their living in construction if they were beginning their career. This trend has reversed in 2013.

Of those who answered “No,” the following are some of their reasons: •T he impact of the economy on the construction

industry creates some uncertainty; so I’m not sure, if I had to decide today.

•W e work too hard for the money we make.

•T here are many other markets/industries one

could enter into, make more money on a more consistent basis. I love what I do, I love making an impact on the communities by building structures that people drive by and be proud to say that is one of my buildings. But I believe I would have been in another industry had my family not already owned and operated a family construction business, allowing me to go to college, then trade-school, and then jump right into the business without having to do any job searching.

• I would most likely pursue something that didn’t

involve managing so many people.

•T here are more career options today that weren’t

available when I was in school, especially the ones related to technology. I might have tried something different.

•T he very high degree of uncertainty, financial

hardships, the lack of opportunity to support intended growth, and other similar factors make the industry extremely stressful with limited opportunity for sustained growth.

•C onstruction cycles have been around forever

but the latest recession makes me wonder if we will ever see years like Michigan saw from 1994 to 2000 again. Perhaps Michigan overbuilt during that time and we are still paying the price today. The loss of goodpaying manufacturing jobs has been another component in the decline of construction. I have had a good career in the business and have enjoyed my relationships with loyal customers. I hope that the next two to five years see Michigan’s economy improve.

•T his profession is too unstable; I think it’s

impossible to reasonably forecast the future.

•S uppliers with deep pockets like Home

Depot and Lowes have marketing funds to overwhelm the marketplace with perceived low cost values. But poor service has forced more legitimate suppliers (with overhead and

DEMOGRAPHICS & COMMENTS

Of those who answered “No,” the following are some of their reasons: (continued) employees that actually report earnings) to lower their margins resulting in little ROI, but deep risk.

Imports from China and other third-world companies provide poor quality and low price, but the client expects similar pricing.

Lack of acceptable ROI for the risk of sales cycles doubling or tripling adding to costs.

•T here’s too much government dictation; too low

of margins for such high risk; and the industry has become very uncaring and rude in my area.

•T he construction business has turned into

a mess of mean-spirited, conniving, price shopping, unqualified people bereft of any real skill, knowledge, or substance of character.

There simply isn’t nearly enough money in it to compensate dealing with the hacks one encounters on a daily basis. Further, there is zero interest from any level of government in caring whether you succeed or fail. Make no mistake – we succeed in spite of government.

• I t is absolutely absurd to calculate our rate of

return versus the risk of loss that we bear as construction company owners. No one in their right mind would view our business/industry as a ‘smart investment’ of financial resources.

•T here is a lack of loyalty and appreciation in this

industry. The amount of pay is not representative of the amount of work or hours we put in.

•P rofit margins are too small for the amount of

project management involved.

• I have enjoyed construction, but the return for the

effort is not there.

• I ’d be in the financial industry.

• I am too old to continue to be battered around

to get project off the ground, then built, and then paid. I think I want to be a policemen or fire fighter so I can help people and be paid for it.

•T he high volatility and stress of the construction

industry is difficult to stomach sometimes.

• I would look into a more profitable business, such

as technology.

•T he culture and economy are both slowly

deteriorating due to the policies and regulations generated by the present government.

•T he barriers of entry are too low - everyone thinks

they can be a general contractor. This creates too much competition, and we kill each other (figuratively) with cheap pricing to get the job. We then suffer through trying to perform with subs that are too cheap, owners that expect everything for nothing, and we get all of the risk!

•S ubcontractors do not receive an adequate

reward for the risk that is taken in the construction industry.

•N o, because it is too stressful - and bidding

projects for free is not worth the return on investment.

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

Concern: Government Regulations Solution: None Concern: Obama Solution: Vote Republican Concern: Continuing economic anxiety has delayed construction starts.

Solution: Need additional tax incentives and stability. A Republican administration.

Concern: Union wages and work rules.

Solution: Local unions need to either combine or allow unlimited portability for union contractors.

Many of our customers are national corporations that don’t care or understand why we aren’t as competitive when we travel outside our area.

Concern: My concern is that the possible abolishment of prevailing wage laws in Michigan will adversely affect my largest union-shop competitors, resulting in their loss of market share and causing them to look down-market into smaller projects and markets which we focus upon Solution: Keep Michigan’s existing prevailing wage laws in force.

Concern: Continued growth so that we can fund our expansion plans in light of possible tightening of monetary policy.

Solution: Fire all the Republicans in Congress.

Concern: The underfunded union pensions.

Solution: Stop the madness! The annual increases in wages will only create a reduction in work hours as the union workers are pricing themselves out of the market. There needs to be a huge adjustment to the benefit structure, and the plans need to be replaced with defined contribution plans.

DEMOGRAPHICS & COMMENTS

At the present time, what is your biggest concern about the construction industry? (continued) Concern: Right to work law is an indicator of the trend in our society to break up the construction unions.

Solution: Repeal the law and restore the unions in the marketplace. This would take major changes by the unions themselves to amend some of their monopolistic policies to become more cost effective in the marketplace.

Concern: Economy Solution: More available credit. Change in federal government.

Concern: INDUSTRIES LEAVING MICHIGAN Solution: Having the communities back off and work with development of new construction.

Concern: Soft economy Solution: Shrink government.

Concern: We are a local company in the supply end--and we see some loss of business directly and thru our customers to on-line providers--e.g. Amazon.com or bricks and mortar companies with a strong on-line marketing program--who have an advantage due to not having to collect sales tax Solution: Support Market Fairness Act-currently before Congress.

Concern: Insurance rates.

Solution: Don’t know.

Concern: Payment on time and skilled labor with a good attitude and a willingness to learn and work.

Solution: I wish I had an answer.

Concern: L ack of ROI caused of inferior competition working for wages and not paying taxes.

Lack of capable applicants for open positions.

Delayed projects or projects being scrapped because budgets where way out of line Solution: Stronger immigration laws and reporting requirements. Tariffs for products manufactured outside the country. Banks required to provide a certain level of construction financing.

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At the present time, what is your biggest concern about the construction industry? (continued) Concern: Eroding profit margins.

Solution: It will take care of itself.

Concern: Without the funding sources clients will not move forward with projects. My fear is many A/E and Construction firms will close or will be so small they can’t do the workload they were capable of.

Solution: The financial institutions need to start investing in projects.

Concern: The constant pressure to lower margins. / The lack of basic technology such as bidding done by fax and not email. / Observable lack of work ethic in the trades as a result of wage reductions and work rule changes.

Solution: An increase in the price of construction so companies can make better profit margins and workers make a livable wage. / / This is not likely to happen.

Concern: Customers only caring about price Solution: Less customers and more time servicing customers that prefer overall value Concern: Lack of skilled workers Solution: More training Concern: There seems to be less and less talent in the field. We find very little talent (nor interest) in actually understanding basic construction techniques nor do we find any real interest in WANTING TO ACTUALLY GET THE WORK DONE. Most all of the projects anymore are immediately adversarial due to unqualified people running them, lack of proper funding, and a ridiculous reliance upon ‘systems’ or ‘I need to check this box off’ mentality instead of building relationships are getting anything accomplished.

Solution: There is none. The construction industry is a microcosm of the rest of our society.

Mean spirited ‘button pushers’ sit in front of a screen and try to run complex projects.

No one is interested in actually meeting people or building relationships or trust. The people we see coming out of college are totally unprepared for the real world, but because of ‘efficiencies’ are immediately put into positions of responsibility with no meaningful experience to back this up.

DEMOGRAPHICS & COMMENTS

At the present time, what is your biggest concern about the construction industry? (continued) Concern: Unrealistic expectations of owners/GC’s - too demanding and people don’t want to tell them no or the truth because of nature of market. / Plus all the qualified people who knew what they were doing were laid off and replaced with people who don’t know anything.

Solution: Fire the idiots Concern: Future skilled workers in the technical field Solution: Increased community college technical training availability Concern: Sustaining the growth we are seeing and having capable knowledgeable people to do the work Solution: Letting students know that it’s ok to be a tradesman...not everyone has to go to college to be successful / better pay and benefits for tradesmen and women. / This is not likely to happen.

Concern: There is not enough new construction activity.

Solution: Change the economic atmosphere being generated in Washington D C. Concern: Lack of projects. Very competitive market. Non-Union competition.

Solution: Stay lean and right size.

Concern: Steady supply of project opportunities that are fully funded. Also, Detroit bankruptcy creating fear of significant cuts/sales that would affect confidence or attractiveness to investment.

Solution: Support/enable investment in Detroit and the surrounding area by investors and public funding. Lobby/educate/encourage Orr to make wise cuts/sales that increase attractiveness and stability and do not negatively impact the city’s attractiveness to businesses and residents (e.g. significantly increased taxes, public safety cuts that increase crime, etc.). Additionally, increasing the competence, accountability, efficiency, and responsiveness of city employees as well as improving processes and requirements to make dealing with the city a ‘reasonable’ task would be highly welcomed and inviting. Working with the city, at present, is an abysmal nightmare.

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At the present time, what is your biggest concern about the construction industry? (continued) Concern: Lack of private commercial development as well as lack of residential home sales.

Solution: Michigan needs to develop improved strategies to bring industries into the state such as more automotive, technology and healthcare Concern: Lack of profitable work to bid. We hear all the time about the “Recovery� but we sure aren’t seeing it. Finding good work to bid and then getting a straight answer on the results reminds me of 2009.

Solution: Relocate company.

Concern: Volume of work.

Solution: Go back to a real free market.

Concern: Lack of profitable work.

Solution: Elect government officials who will bring down the deficit.

Concern: Most projects seem to start later in the year and the first 4 to 5 months of the year are lost. We then play catch up for the late two quarters.

Solution: I would suggest that owners and builders will receive much better pricing earlier in the year when suppliers are hungry for business.

Concern: Poor documents to bid from. Architects not wanting responsibility and forcing more and more on the contractors. Government force feeding the green building which puts most private projects over budget and public projects at a very high cost to build on taxpayers dime. Manufacturers and lobbyist force feeding building codes and energy codes that support their products. This increases the cost of new housing and puts it out of reach for most families.

Solution: Design Build.. Government needs to stand down and let the free America and construction market work. Keep the code system to safety like it was meant to be not a marketing system for the highest giving lobby groups.

DEMOGRAPHICS & COMMENTS

At the present time, what is your biggest concern about the construction industry? (continued) Concern: Small market businesses getting loans from the banking industry.

Solution: I firmly believe that if the banking industry is willing to loan to the smaller market businesses, the construction industry will once again flourish.

Concern: Funding is not stable for projects. No really long term focus by government or private sector for funding.

Solution: Keep educating legislators and the public that you have to invest back into the infrastructure to be a strong nation.

Concern: Win/Lose mentality. Very short-term mindset of most parties.

Solution: Select subs, suppliers, associates very carefully.

Concern: Sustainability Solution: Spend more on reinvestment of the country.

Concern: Lack of construction work and funding of projects.

Solution: I’m not sure but I think changes need to be made with the banks.

Concern: Not enough work especially in governmental infrastructure projects.

Solution: Need to take to politic out of government... they are all arguing about ideologies as our country is losing its ability to compete in a global market.

Concern: Lack of motivated talent to hire / Interest rates Delayed projects or projects being scrapped because budgets where way out of line Solution: Vocational schools Concern: It is not stable yet, just a bump of increased interest today.

Solution: Slowly grow our business and not get stretched too thin.

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BUSINESS SURVEY

OWNERS SURVEY This section of the Biennial Business Survey examines the construction industry from the clients’ perspectives. The focus is on plans for upcoming work, and their perceptions of Michigan’s construction industry and its practices.

DEMOGRAPHICS & COMMENTS

53

54

OWNERS SURVEY

CLIENT PERSPECTIVE

CLIENT PERSPECTIVE

When working on a construction project, whom do you consult first about your project?

44%

36% Architect 13% Financial institution 7% Attorney

Contractor

Best summarize your general experience with the professionalism of construction personnel during the building process:

What areas were you less than pleased with? •D ishonesty •K eeping completion time commitments

0%

6%

Very disappointed

Adequate

0

Disappointed

31% 13%

Satisfied

Satisfied to Very Satisfied

50%

50

Very satisfied

63%

100

55

OWNERS SURVEY

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

6%

0%

Very poor

19%

Poor

19% 0

Satisfactory

Good

56%

50

Good

56%

100

Excellent

56

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

72%

Proceeded as Expected

14% Smoother than expected 14% More conflicts than expected

CLIENT PERSPECTIVE

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

50% Greater Than Expected

100

50

50%

50% 0%

0

Greater than expected

Equal to expectations

Below expectations

What areas caused the excess costs?

•W ood, siding, trades •U nderestimate of materials cost •L ack of competitive bidding for some packages. We have had difficulty

getting any bids on some of our projects.

•M aterials and Labor •S ite prep and water retention

57

OWNERS SURVEY

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

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

59% Unforeseen Problems

25% Communications with subcontractors 8% Communications with owners 8% Other

0%

Delayed— Owner’s fault

17%

0%

Delayed— Contractor’s fault

0

33%

Delayed— No fault

On Time

50%

50

On time

50%

100

Ahead of schedule

58

CLIENT PERSPECTIVE

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

75%

17% Engineers 8% Architects

General Contractor/ Construction Manager Percentage of fees charged for construction services you believe represents profit for GENERAL CONTRACTORS:

55%

10-20% Profit

100

55%

50

27% 0

Less than 5%

9%

5%– 10%

9%

10%– 20%

More than 20%

Percentage of fees charged for construction services you believe represents profit for SPECIALTY CONTRACTORS:

37% 5-10% Profit

100

37%

50

18% 0

Less than 5%

27% 9%

5%– 10%

10%– 20%

9%

20%– More 30% than 20%

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60

OWNERS SURVEY

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

TOO HIGH Architects Engineers General contractors Specialty contractors Tradespeople

42% 33% 25% 33% 17%

FAIR 58% 67% 75% 67% 75%

TOO LOW 0% 0% 0% 0% 8%

Industry Fact: National surveys taken in 2012 indicate •T he average gross profit of general contractor's was approximately 6.5 percent of sales, and the average gross profit of specialty contractor's was approximately 16 percent of sales. •T he before tax net income of general contractors averaged about 1.5 percent of sales, and the before tax net income for specialty trade contractors averaged about 3 percent of sales.

CLIENT PERSPECTIVE

FINANCIAL HEALTH AND OUTLOOK

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OWNERS SURVEY

Compared to the prior year:

56% Increase in Spending

Your company’s annual sales for the coming year will:

23%

Increase more than 10%

22%

44%

11%

0%

Increase 1–10%

Stay about the same

Decrease 0–10%

Decrease more than 10%

Your company’s profitability for the coming year will:

0%

Increase More than 10%

18%

64%

18%

Increase 1–10%

Stay about the same

Decrease 0–10%

0%

Decrease more than 10%

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

33%

Increase More than 10%

23%

44%

0%

0%

Increase 1–10%

Stay about the same

Decrease 0–10%

Decrease more than 10%

FINANCIAL HEALTH AND OUTLOOK

Rank the most challenging areas facing your business in the next 12–18 months:

23% Economy

17% 15% 15% 13% 13% 4%

Competition Government funding Materials/Construction costs Insurance costs Interest rates Other

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

55%

27% Better than expected 18% Worse than expected

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

50% As Expected

42% Better than expected 8% Worse than expected

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64

OWNERS SURVEY

What are the biggest financial challenges facing your company in the next 12–18 months?

•S table customer base and government

regulations •F inancing approval MSHDA & HUD loans •P rofitability •H ealth care reform, IT expenses •T rying to compete with other properties that

are non-union •C ompetition

•C ontinued Economic Recovery and Low

Interest Rates •W e are on a growth trajectory to open new retail

stores in new markets. Getting local government approval of our sites and timely inspection of our construction is a challenge.

• The economy •S low economic growth and uncertainty about

government and economy

CLIENT PERSPECTIVE

CONSTRUCTION PROJECT ACTIVITY

65

66

OWNERS SURVEY

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

50%

8% 34% 0% 8%

6–10 projects 2–5 projects 1 project No projects

More Than 10 Projects

Do you anticipate a change in the number of non-residential projects your company is planning and/or constructing in the next 12 months?

73% Stay About the Same

27% Increase 0% Decrease

CONSTRUCTION PROJECT ACTIVITY

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

42%

41% Renovation/Retrofit 9% Addition/Expansion 8% Maintenance

New Construction

What type of work will be done on the majority of your projects over the next 12–18 months?

50%

New Construction

42% Renovation/Retrofit 8% Maintenance

67

68

OWNERS SURVEY

The range that represents the average estimated price of your projects:

25%

Future Projects Over $10M

FUTURE PROJECTS 100

50

13%

13%

25% 6%

12%

$500K– 1M

$1M– 2M

$2M– 5M

$5M– 10M

Over $10M

13%

7%

7%

20%

20%

$500K– 1M

$1M– 2M

$2M– 5M

$5M– 10M

Over $10M

0

Less than $100K– $100K 500K

25%

6%

PRIOR PROJECTS 100

50

13%

20%

0

Less than $100K– $100K 500K

CONSTRUCTION PROJECT ACTIVITY

TECHNOLOGY/ SUSTAINABILITY

69

70

OWNERS SURVEY

Does a contractor’s ability to utilize online technologies (online job bidding, project management, plans & specs, BIM) influence your decision to hire them?

Yes

67% of respondents

indicate a contractors use of online technologies influences their decision to hire them.

When hiring a contractor, do you look to see if they participate in green or sustainable building practices?

Yes

64% of respondents look to see if contractors participate in green/sustainable building practices when hiring.

TECHNOLOGY/SUSTAINABILITY

What percentage of your projects are currently green or sustainable?

73%

27% More than 50 percent

0–20 Percent Do you anticipate the number of your green or sustainable projects to increase in the next 12–18 months?

Yes

55% of respondents anticipate the number of green/ sustainable projects increasing in the next 12–18 months.

What is your opinion of the current green and sustainable building trends?

64% Approve

18% Neutral 18% Disapprove

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72

OWNERS SURVEY

If you are building green or sustainable projects, do you anticipate an adequate return on investment over the life of the building?

Yes

56% of respondents

anticipate adequate ROI over the life of the building.

Is your organization utilizing, or will you be utilizing, Integrated Project Delivery (IPD) methods on projects?

No

82% of respondents are not, or will not be utilizing IPD methods on projects.

Which current trends or developing technologies are important to you when selecting a contractor?

•S afety rate •Q uality trades •S hared documents — cloud access to data •B IM, Project Management Programs

TECHNOLOGY/SUSTAINABILITY

WRITTEN COMMENTS

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74

OWNERS SURVEY

Written Comments What is your overall perception of the construction industry?

•Q uality tradespeople • I mprovement in credit availability still needed. Industry has a reasonable foundation

under it now and has the potential for a 5 year upward trend, as long as interest rates remain reasonable.

•T here are a good number of very qualified contractors with good ethics. They are

professionals who want to do a good job and earn a fair income.

•A good job and earn a fair income.

•P rogressive, competent, responsive.

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

•C ontrolling Cost •L ess than reputable GC and subs •L ack of communication/trust.

•D uring the recession many small firms closed or big firms lost workers. While most of

our projects are large, we also have many small capital projects that we have difficulty attracting bidders to.

•D elays from poor supervision.

WRITTEN COMMENTS

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BUSINESS SURVEY