A year ago, contractors were optimistic that 2011 would be the turning point in the industry, and that better times would be ahead. At a roundtable discussion held by The Daily Transcript and sponsored by Neal Electric two weeks ago, most of these same construction executives were singing a different tune.
“I have been in (these) roundtables for the past three years and I think last year, it was much more optimistic… (but) it’s more harsh now than it certainly was a few months ago,” said Wayne Hickey, president and general manager of Suffolk-Roel’s West region.
What makes this downturn in the construction industry different from previous ones, according to Rich Collins, owner of Collins Plumbing, is that in this recession there are hardly any projects for contractors to bid on.
“Basically you have 30 people going after one job,” said Collins, whose firm does work for commercial, multi-family, gaming and military sectors, and is performing work at the new downtown library. “The restrictions keep getting higher and higher and the pricing keeps getting lower and lower. It’s a no-win situation.”
Hickey added that the current model of lowest bid, winning public sector projects is unsustainable because there are too many unqualified contractors bidding down the prices.
This has led to contractors who have little to no experience on public sector projects to go out of business because they underestimate the cost. Despite this, Hickey said there should be approximately 30 percent fewer contractors in the local industry.
Debbie Luhnow, vice president of estimating for Jaynes Corp., said her company is seeing the same thing and this has led to more established contractors taking over projects, as well as a new niche, but still not as much as they would have thought a year ago.
“We are on our sixth takeover (job),” said Luhnow, adding that this type of work is in school construction, and the general and subcontractor cannot complete this work.
John Luft, business development manager for Neal Electric, which is one of the larger subcontractors in San Diego with 350 employees, said it has been taking more than 10 jobs at a time in the past year.
“There is no responsibility at the end of the day,” said Luft.
Luhnow also said there is also a growing amount of work on the engineering side in the public sector for projects in infrastructure, utilities and roadwork, because of available funding from the county and state levels in the last nine months.
Keith Whaley, vice president of operations for BNBuilders Inc., whose company specializes in biotech and health care tenant improvement projects, said there is some movement in these markets but “not a great deal.”
Contactors at the roundtable all seemed to agree that low-bid contracting is not working anymore. They believe it should be more of a best-value system, where the contractors with the most responsible bid and the best experience should win these projects.
“The government has done some of this best-value (contracting) and not necessarily low bid and it’s based on (experience)," said Scott Olpin, president and CEO of The Olpin Group, whose company implements furniture, fixture and storage equipment for schools, health care facilities and the military.
On the private side, Hickey said that what is different from this recession is that there is no lending going on by banks for private sector owners and developers who want to build.
Marco Sessa, senior vice president for Sudberry Properties, said there are two sides to the issue of lending.
“There is the world of the haves and have-nots,” said Sessa. “For class-A quality projects -- particularly on the multi-family sector -- there’s all kinds of availability, but for areas that are maybe ‘B’ locations or slightly out from the urban infill areas, it’s very difficult. Most of the money is flocking to one place.”
Sessa added there is money for well located sites, but these areas are few and far between, and hardly any that have years of environmental hurdles and developmental impact fees.
“School fees are deferred. Water and capacity fees aren’t deferred. There is still much more that can be done very easily to try and promote construction,” said Sessa, adding that they spent $1.5 million on a 30-acre site just on temporary storm water measures.
Sessa also said it all starts with consumer confidence. If consumers feel the economy is getting better, then they will spend and banks will be more susceptible to lending.
Rich Collins, Owner, Collins Plumbing
Wayne Hickey, President & General Manager, West Coast Region, Suffolk-Roel
John Luft, Business Development Manager, Neal Electric (sponsor)
Debbie Luhnow, Vice President, Jaynes Corporation
Scott Olpin, President & CEO, The Olpin Group
Marco Sessa, Senior Vice President, Sudberry Properties
Keith Whaley, Vice President of Operations, BNBuilders