Managing Risk In The Current Construction Boom

Managing Risk in the Current Boom

Managing Risk in the Current Boom

 

For the past year, this blog has been dealing with the risks hidden in growth and the strategy and tactics required to deal effectively with a volatile construction market.

 

Let’s listen in to an enlightening discussion among specialty contractors published recently by Gary Tulacz in Engineering News Recordabout how they are managing risk during the boom the construction industry has been enjoying these last years.

 

Top 600 Specialty Contractors:

How Long Will the Boom Last?

2019-10-17, Engineering News-Record

 

Gary Tulacz, (Author):

“The market for large specialty contractors has been growing for nearly a decade (As a group, the Top 600 generated revenue of $135.20 billion in 2018, up 9.0% over $124.04 billion in 2017 and a 20.1% hike from $112.72 billion the year before)

and most see the current market continuing to be robust. However, there is a general feeling that a downturn may be in the offing and many large firms are watching for, and sometimes finding, cracks in the boom…

 

Coleman Jones, (Director of business development at Pioneer Cladding & Glazing Systems):

“Today’s market is unnerving. While we have all seen widespread growth over the past few years, it’s tough to tell what markets will remain stable moving forward.”

 

Seth Anderson, (CEO of Weifield Group Contracting):

“We are seeing a pull back on private development, including apartments. To offset that, we have found there are a lot more public projects, schools, and water/wastewater projects.”

 

Charles A. Bacon III, (CEO of Limbach Facility Services):

“On the contracting side, we are slowing that down a little because of the craft shortage…On the other hand, we expect the firm’s service group to grow at a double-digit rate.” 

 

Russ Baker, (CEO, API Group Inc):

“APi Group Inc. also has been preparing for a possible recession. We have been able to diversify our business through a mergers and acquisition strategy. Doing this has allowed for a more recession-proof model…APi has also focused on growing its service business.”

 

Tom Schott, (CEO of Cupertino Electric):

“Having the mix of long- and short-term work helps to provide a solid backlog, no matter what direction the market is heading.”

 

Tom Donnelly, (President of BrightView Landscape Development):

“As a group, general contractors are doing a much more intensive risk assessment of subcontractors in the pre-contract award phases of a project… questions about safety records, bonding capacity, workforce availability and balance sheet strength are intense.”

 

Gary Tulacz, (Author):

“This caution is well founded. Many firms are beginning to see competitors take on more work than they can handle. This can cause cash-flow and worker shortage problems. It is said that more contractors fail in a boom market than in a recession because they don’t pay attention to their workload.”

 

Ted Lynch, (CEO of Southland Industries):

“We do see some of our competitors getting overextended. Many overstretched contractors end up looking for mergers and acquisitions as an exit strategy when they get into trouble from too much work. “

 

Tony Bond, (President, Bond Bros. Civil & Utility Division):

“(We) now are being more selective about the clients (we) pursue. This includes clients that have a historical book of business that aligns with our core services, as well as new clients where we may be able to offer our services.” 

 

Charles A. Bacon III, (CEO of Limbach Facility Services):

“We have all become extremely selective in the work we pursue…when we see sales by a general contractor beginning to spike, we take that as a warning sign that they may not be able to manage the volume of work…when you see teams you are used to working with, that is fine. But when you see a pick-up team on site, you have to begin to worry…You need a great project superintendent to make a project work.”

 

Thomas C. Schleifer, Ph.D.

Industry CEOs are aware of the risks they are encountering during this boom market and are taking steps to mitigate. I strongly recommend that you read the entire article in the October 14/21 issue of ENR page 53.

Read more about Risk Analysis.