- 5-7 years is a long window in this cycle. In 2008, larger contractors such as Manganaro were still working on projects procured in a very positive market. The recession was clearly affecting acquisition of new work, but for larger contractors, the real impact was a couple of years down the road.
- Government spending in the marketplace has collapsed in the past 2-3 years. Stimulus spending has dried up. BRAC is completed, and the fiscal crisis has resulted in a much smaller pool of Federal construction projects. Where government spending had been holding up the market somewhat, that is no longer true, and private work has had to fill the gap.
- As the market tightened, negotiations became tougher, and owners were able to press for more and more concessions from contractors. The result was to squeeze much of the flexibility out of the market, pitting contractors against one another, and straining relationships on projects. With no slack in schedules or budgets, cooperation and efficiency has suffered.
- There is a significant skilled labor shortage in our market today. The recession seems to have driven many skilled workers out of the industry or the area. As we begin the recovery, sufficient numbers of skilled workers are not available. This puts upward pressure on wages at a time when aggressive negotiation by owners has driven margins downward. Again, with no slack in the budgets, contractors are forced to make difficult choices.
- Material prices are rising, which also puts pressure on tight budgets.
- Increased pressure from government regulation also is adding to the challenges that contractors face. For example, many localities are enforcing local hiring rules that add another layer of complexity to operations. Local governments seem to be pushing the responsibility for their failure to develop qualified workforces onto companies.
- The age-old contracting dilemma is in play more than ever - is it better to have work at low or no margin than to sit and wait for the market to correct? The answer to that question will be the death of many contractors.
- The market may never get "back" to where it was. Contractors who can adapt to the new normal will survive, and those who cannot won't.
John Livingston, Manager of Business Development of Manganaro Midatlantic
