Gauging Contractor Confidence

By Curt Harler | Jan 15, 2010
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If you accept the common wisdom from Wall Street, the bottom of the current market slump came on November 20, 2008; still, in interviews with electrical contractors across the nation conducted a year later in late October and early November 2009, most eagerly awaited the birth of a new and vigorous market. One thing is for sure: this market will not be born prematurely, but people are waiting.

Harry Sassaman, executive vice present at Forest Electric Corp., Edison, N.J., thinks we’ll be waiting a bit longer.

“For us, I think it is going to be tougher in 2010 than in 2009,” he said, adding that there isn’t anything hard and firm in the bid schedule for the first quarter or early second quarter. “We’ll see a sluggish start.”

“We’re hoping 2010 will be improved, but really think any change will be slight,” said Michael Toman, president of Mega Power Electrical Services in Gaithersburg, Md.

“It’s been gloom and doom,” said Jim Abbott, CEO of Abbott Electric Inc., Canton, Ohio.

Although business slowed tremendously in 2009, he said he was able to keep things in the black. Abbott said he expects to see a slight improvement this year with some projects the company bid at the end of 2009.

“Bidding activity has actually increased,” he said.

But more bidding doesn’t necessarily mean better.

“Everything is being bid for nothing. It’s a matter of survival. You have to do your best when you do get a job to salvage something from it,” Abbott said.

Abbott Electric’s base is mainly commercial and industrial, with a lot of fire, security and video projects.

Bruce Shelly, president of Shelly Electric Co., Philadelphia, said 2010 will be more difficult than 2009. Noting that design starts 12–18 months before construction, he sees an empty pipeline in the Philadelphia area.

“At the end of summer [2009], even the unemployment at the union hall went up,” he said.

He sees no thaw until summer 2010 at the earliest. But Shelly said his 90-year-old firm will survive.

“The strength of our company will be a benefit to general contractors,” he said.

On the other hand, tenant improvement projects have dried up, putting a lot of general contractors and their subs out of work.

Customers know times are tough and are bargaining for the best deals possible. Cox has walked away from some projects when the margins simply got too thin. Others, like Shelly, have been forced to rebid jobs.

“This is reminiscent of what we went through in [the] 1979–1984 time frame,” said Tom G. Smith, president of Cox Systems Technology, Oklahoma City. “We saw the same situation in the marketplace when a lot of new players came into the market in the boom years, and those newer entries got hit hard in the slowdown. Their business practices are not as seasoned as ours, so they are quicker to pull the trigger and go down in price.”

“We’re just hoping to hold our own,” said James Young, CEO of Young Electric Co., adding that 2009 was a down year. “Usually, San Francisco is the last geographic area to get hit and the first to come back,” he said, adding that gives him some hope.

Young is benefitting from being in the healthcare market.

“We are more fortunate than most in that healthcare is very strong,” he said.

“I’d imagine things will be picking up this year,” said Mitchel Hughes, president of Hughes Electric Co. Inc., Fort Smith, Ariz.

That’s a big improvement over early 2009, which started out spotty. Hughes Electric does a wide range of commercial, residential, industrial and utility work.

“Our total volume is about the same,” Smith said, adding that a decrease in commercial activity has been replaced by more business in the government and military sectors.

“The total volume is about the same,” he said.

However, in the fourth quarter of 2009, the company’s backlog was about 25 percent lower than normal.

“Here in southern Colorado, I think it’s going to be a down year,” said Marty Adams, president of Adams Electric in Pueblo, Colo. Even at his most optimistic, he sees no improvement until later in the spring.

“Right now you’ve got to hold on to what you’ve got,” said Don W. Jhonson, Interior Electric Inc., Southwest Ranches, Fla. He has moved from active work to consulting and sees a wide range of work across southern Florida.

“I’ve seen growth in hospital and healthcare projects and in public works projects here,” he said.

Florida’s Dade County area has several public projects in progress, including the $500 million Marlins baseball stadium, some city-owned garages, a new museum, a $25 million Metrorail project and some airport work.

In Chattanooga, Tenn., Gregory Bowman, president of Nabco Electric, said his company is coming off a slow year in 2009. He hopes for better this year.

“When you’re coming from way down, anything is better,” he said.

The good news is Nabco is bidding more projects for 2010, including a lot of industrial jobs.

Not so bullish is Mark Rydalch, vice president of Rydalch Electric, Salt Lake City. He expects things to be down again in 2010.

“We’re hopeful,” he said, “but realistically, I don’t expect any improvement until mid-to-late 2010.”

He wishes people would stop running scared.

“The current uncertainty makes it hard for people to get funding for projects,” Rydalch said, noting that several projects the company bid have been pulled off the table.

Stimulus money

Hughes Electric is one company that has benefited from the American Recovery and Reinvestment Act (ARRA). According to Hughes, the company is doing some work on the barracks at Fort Chaffee National Guard base.

Adams said there is no ARRA money making it into his area although he has seen reports of some stimulus-related business in Colorado.

“There is not a lot of stimulus money in the D.C. area,” Toman said. “You’d think there would be more.”

He said it represents less than 10 percent of area jobs.

Noting the lag from design to build, Shelly said it will take 18 months before stimulus money hits Philadelphia’s electrical business.

He said, “2010 will be a pretty difficult year.”

The stimulus money that made it to Tennessee is for Department of Transportation traffic and roadway work, Bowman said.

In Utah, contractors are waiting until the snow melts in second quarter of 2010 for federal dollars to start to flow.

On the West Coast, the ARRA money is mainly going to roadwork. While there might be some street lighting as a result, Young said he does not see any flood of business coming from that area. There is talk around San Francisco of some hospital work and perhaps some transportation-related projects as a downtown bus and rail hub goes up. In Los Angeles, a $1.26 billion renovation at Los Angeles International Airport will help. The question is how soon those jobs will hit the market.

The same is true in the mid-Atlantic/Northeast. The New Jersey Turnpike is undergoing a major lane expansion between exits 8 and 6, and Port Authority of New York and New Jersey (PATH) rail is working a stimulus-aided tunnel project. But other than signals and some road lighting, there is relatively little electrical.

Bright and dark spots

Probably the brightest spot in the market is for outside line contractors. Many echo Don Wilson, president of Wilson Construction Co., Canby, Ore., who said his company has been fairly busy. He sees 2010 as a repeat of 2009 when business was both strong and steady. Among other jobs, Wilson is working on a $30 million transmission project for Bonneville Power.

“If things continue like last year, we’ll be on an upswing,” Wilson said, noting that the company has several sizable projects pending. “If we land one of them, it will be a big year.”

Most of Wilson’s work has been on the transmission side.

Another hopeful note is President Obama’s intention to set aside $3.4 billion for smart grid upgrades. That would require updating power lines, transformers and meters everywhere.

However, the slump in housing has been felt in Oregon, as elsewhere, and has stymied the distribution side of the market.

One exception to that trend is in Canton, Ohio, where Abbott picked up a rehabilitation job on a 119-unit housing complex. He also has seen life in the water treatment and sewage plant areas.

The contractor who can hold or increase market share today will be in the driver’s seat when things return to normal. Still, most observers do not expect any surge of business any time soon.

The housing market in places such as Arizona, California and Florida is all but dead. Jhonson noted that the lack of condo construction in South Florida really ramped up the competition between residential contractors.

Young sees the same in San Francisco—although there, the competition comes from established contractors migrating north from the Central Valley where business has all but dried up.

“Some very stiff competition is driving prices down,” he said. “There is not much area left to bargain.”

Into 2010

Is 2010 the year to buy a new truck for the business? Discounts and deals abound. To think about hiring some new people? A lot of good workers are looking for jobs. Or to consolidate and wait for the light to turn green? After all, the name of the game, long-term, is to survive the current economic downturn.

Hughes looked over the number of jobs that have come out for bid and sees both construction and project work has increased. He said they hired three new people late in 2009 anticipating growth.

Adams said he is optimistic about the future.

“We’re investing in personnel training and education,” he said. He has also invested in some new solar technology.

Smith is another contractor who has taken advantage of the downturn to focus on personnel. He said he is positioning the company for the future.

“Looking long-term, we were able to pick up good, experienced technicians—well-known people with proven integrity and performance,” he said.

Realistically, Smith does not see a turnaround until the third or fourth quarter of 2010.

“It’s like we’re going down the rapids in a boat. We don’t know what’s around the next bend, but we’re working as hard as we can,” Smith said.

He expects the first quarter of 2010 to be a challenge and said national factors will tell the tale. One reason for optimism is the 50-story, $750-million Devon Tower project going up in Oklahoma City. But Smith said he still does not foresee anything approaching normal until late 2010.

Bowman, too, is positioning the company for the future. His company is still investing in capital equipment, with a view to expanding its special project work.

Things will improve, Sassaman said, if we can control unemployment and get the economy turned around. He sees some bright spots.

“The economy is getting better. The stock market is holding up,” he said.

There are hints of some more major data center projects in the area that would make late 2010 a good year.

Toman sees better times if the lenders become less restrictive and more willing to fund projects.

Even with the relatively good quarters Wilson Construction is experiencing, Don Wilson said its capital expenditures will be flat through 2010. While it will replace equipment as the need arises and lifecycles end, he sees no big upswing either in equipment or in personnel.

“We’ll hire as jobs come,” he said.

Young said the consensus of those attending a San Francisco Electrical Workers Pension Trust meeting is that 2010 will be flat until the end of the year. He bought no new vehicles in 2009 and is only buying necessary equipment.

“We’re keeping our belts tight, but we will not shortchange the project,” he said.

Jhonson said he does not expect to see growth in 2010.

“It will be flat,” he said. “If you’re in a pocket like healthcare, you’ll be okay. Otherwise, it will be a struggle.” He said he hopes things will perk up in 2011.

If there is a glimmer of hope for Rydalch, it is that there are a few private projects coming up for bid, which is a welcome move away from institutional work.

Shelly offered a concluding word of advice: “Don’t get sloppy with estimates and bids. In times like these, we need to make a better effort to try to improve what we are doing.”

HARLER, a freelance writer, is based in Strongsville, Ohio. He can be reached at 440.238.4556 and [email protected].

About The Author

Curt Harler, a frequent contributor to SECURITY + LIFE SAFETY SYSTEMS, is based in Strongsville, Ohio. He also can be reached at 440.238.4556.

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