Sax Macy Fromm & Co. Hosts 7th Annual Construction Update
While the construction industry continues to rebound, activity levels are primarily influenced by geography and specialty area, according to an expert panel at the 7th Annual Construction Update. Hosted by Sax Macy Fromm & Co., PC (SMF), the annual symposium addressed the dynamics and challenges of the industry from a contractor, lender and accounting/business advisor perspective.
The program was moderated by Joseph Damiano, CPA, a principal and head of SMF's Construction Industry Service Group. Featured panelists included Andrew Wood, vice president of J. Fletcher Creamer & Son, Inc.; William Schumacher, vice president of commercial banking with M&T Bank; and Ermal Luzaj, SMF principal and director of the Financial Services Industry Service Group.
In advance of the conference, SMF conducted a pre-event survey of industry insiders. The majority of respondents indicated, by a margin of 80 percent to 20 percent, they believe the construction industry as a whole is on the upswing. In terms of pricing, 80 percent also indicated pricing is more aggressive, as compared to the 20 percent who believe it is less aggressive. Almost three-quarters of today's construction activity is concentrated within the private sector and one-quarter in the public sector.
"While the industry as a whole is resurging, it varies based on geographic region and also in terms of area of specialization - heavy equipment is extremely active while electrical contracting is not," said Wood. Overall, construction volume has not completely rebounded to the levels of 2000-2007, "when the market spent $1.2 trillion for construction and businesses ramped up their staffing. From 2008-2010, the industry jumped off a cliff."
Financing also is slowly returning. According to Schumacher, "Banks are back to typical balance-sheet lending, and those companies that are succeeding have cut costs and pared down debt levels."
The state of the economy, of course, factors mightily into industry trends, and while the economy is improving, "construction typically lags behind economic improvement by two to three years," observed Luzaj. "Overall, work is coming out, prices are improving, funding is returning and margins are increasing."
One industry-wide challenge is finding qualified people for project manager and estimator positions. "These professionals left the business during the downturn, and their numbers haven't been replenished," explained Wood. "We need people to lead crews - superintendents, project managers. During the downturn there was a two-million-person exodus from construction, and those people have not come back." This could pose a long-term challenge as well since "engineering school enrollments are down," he noted.
All of the panelists concur that private projects are gaining traction, particularly in the utility, water distribution and electric sectors. Many of these companies are funding projects with a surcharge that allows them to plan and finance capital improvements.
"Success can be found in lower margins and by doing more with less," said Wood. "Being competitive requires cost control; planning out each job before a crew sets foot on a site; safety, safety, safety; and an ability to be flexible by providing value-added services."
Founded in 1956, SMF is one of the largest single-office accounting and business consulting firms in the tri-state area offering best-in-class resources on a national and international level. Effective January 1, 2014, the Clifton, N.J.-based firm will be merging with Bollam, Sheedy, Torani, & Co. LLP, headquartered in Albany, N.Y. The new company, to be named SaxBST, will rank among the "Top 100" firms nationally, with $45 million in combined annual billings.