Financial District: Long Tunnel, No Light
Brooke Wisdom | December 1, 2009
Long Tunnel, No Light
Sobering Report says 2010 will continue to challenge contractors
Treading water. It was a metaphor raised several times during a gloomy press conference to paint a picture of American transportation contracting companies trying to survive.
It arose during the presentation of the findings of the Transportation Construction Coalition’s survey of 527 transportation contractor respondents, member companies of the American Road and Transport Builders Association and/or the Associated General Contractors of America, by a TCC panel (See box).
The outlook, said AGC’s chief economist Ken Simonson, is “dire.” Texas contractor Dean Word called current conditions “brutal.” Terex boss Ron Defeo said “the industry is not getting any oxygen right now.”
The basic message, hammered home again and again, was that while a one-time investment such as the stimulus can help to mitigate the worst of the economy’s hardship, there is no alternative to a long term investment if the industry is to thrive and in turn build and maintain infrastructure and employ more people. That of course will only come with a new six-year surface transportation bill, legislation which is currently stalled in Congress.
“This is a capital investment,” said DeFeo, “and an 18-moth delay is just not acceptable to the industry.”
Perhaps the good news the in the survey’s presentation was an underlying confidence that if a six year bill is passed – with $450 billion for roads and bridges that House Transportation and Infrastructure chairman Jim Oberstar wants – the outlook gets much rosier much faster. The panel conveyed a sense that there was an “if you give us the tools we can do it” attitude just below the outer layer of serious concern.
The survey found that (spoiler alert: this list contains data that might upset you)
More than 80 percent of respondents will not buy new construction equipment in 2010
More than 40 percent anticipate layoffs of non-seasonal employees in 2010
Less than 20 percent plan to purchase new construction equipment (19 percent) or trucks (18 percent) next year
63 percent had to layoff permanent employees this year
More than three quarters of the responding firms anticipate either a “slight” (46 percent) or “severe” (32 percent) decline next year in state markets in which they work
More than 76 percent of the responding firms expect state transportation departments to put out less work to bid next year than they did this year
Only 17 percent of transportation contractors will begin 2010 with a work volume backlog at least as large, by value, as they had at the beginning of this year. A little less than 20 percent will begin the new year with at least 50 percent less backlog than last year and 33 percent report the value of their work backlog will be 25 to 50 percent less going into 2010
Almost 80 percent of road and transit builders expect construction market decline next year
Just five percent anticipate bringing on new, non-seasonal personnel.
Contracting companies are being “extremely cautious” in their bidding and hiring practices, said Simonson, aware that after stimulus money is gone there is no certainty or predictability in future federal funding. They are also worried about state funds, and Simonson’s own prediction is that state funds will decrease next year.
A six-year bill is needed to change this “mindset” among contractors said ARTBA economist and vice president of policy Alison Premo Black. “The situation is having a profound psychological impact on contractors. I think that is what this survey is about.” Congress, she said, can change this psychological outlook with a new six-year bill which will allow contractors to plan some years into the future, something many are now not doing. “The momentum generated by the stimulus would be in peril” without a new bill, she said
Terex chief DeFeo suggested another mindset might be at work, this time in Washington, as politicians resist broad calls to raise the gas and diesel tax to pay for future infrastructure building. The decision makers of the FDR and Eisenhower years built infrastructure so that America could grow, he said, but present generations have been more used to using infrastructure that building it. “Now we are just filling potholes in my view.” That has lead to a failing infrastructure, he said, “that puts people in harm’s way.”
One factor making life even harder for highway and bridge contractors is the movement of contractors from other fields searching – and bidding – for new sources of work. The result is that “competition is as fierce as we have ever seen it,” said Black, with bids coming in as much as 25 percent or more under engineers’ estimates. Dean Word said his transportation construction company has seen bids 50 percent below engineers’ estimates.
“It is impossible to overstate just how difficult current conditions are or how dire the outlook for next year is.”
— Ken Simonson, Associated General Contractors chief economist
The stimulus package was broadly credited by the press conference panel and TCC as saving thousands of construction-related jobs, but it was not enough to prevent widespread lay-offs among road and transit construction business. Stimulus dollars will be vital next year, said the surveyed firms, but they will not stop 44 percent of contractors anticipating having to lay off additional permanent employees due to overall economic conditions. Nearly 70 percent of the firms have received stimulus-funded contracts work so far this year but 63 percent also reported they still had to lay off permanent employees.
“It is impossible to overstate just how difficult current conditions are or how dire the outlook for next year is,” said Simonson. “One-time investments in transportation infrastructure like the stimulus help, but they’re simply no substitute for having a long-term investment strategy in our roads, bridges and transit systems.”
“The industry,” said DeFeo, “is not getting any oxygen right now.”
Mike Acott, president of the National Asphalt Pavement Association, a coalition member said, “The key to sustainable new job creation in the transportation construction industry is congressional passage soon of the overdue, long-term federal highway and transit program funding bill with new resources for the tapped out Highway Trust Fund.”
The TCC points out many state transportation programs have declined over the past several years, victims of program cuts precipitated by the recession’s impact on state revenues. As a result, most transportation contractors have been operating under capacity.
In the case of Dean Word Construction, 50 percent or more of its construction fleet is “parked in our yard with nothing to do,” said Word. “We’ve also got some long term employees who are highly skilled who’ve got nothing to do.” If equipment is needed, he said, “we’ll go lease short term and then turn it right back in.”
The requirement that stimulus-funded projects be “shovel ready,” presented as a major plus in the ARRA legislation, may in fact have contributed to the problems contractors are now facing. The requirement discouraged larger scale and longer-duration projects that sustain long-term personnel and equipment needs from getting funding, according to the TCC.
“Contractors in many states still do not see sustainable, state-funded, market growth on the horizon until the overall economy rebounds significantly,” said Black. “When they hear that the one source of stable funding for the market over the past four years is in doubt—the core federal highway and transit program—it’s not surprising many are tightening operations.”
Work backlogs numbers are also gloomy. These backlogs are a key factor in a contractor’s planning for the future, and contractors depend on maintaining a healthy backlog of future work contracts to ensure the cash flow necessary to maintain or add to their permanent work force.
“Our members have capacity; they’re ready to meet the nation’s needs but the state DOTs can’t offer projects for which there is no stable source or commitment of funding by the federal government,” said Joy Wilson, president and chief executive officer of the National Stone, Sand & Gravel Association.
Word called the current situation “very depressing” and said of his company, founded by his great grandfather in 1890: “We’re just trying to hold things together.” v
The Transportation Construction Coalition is a partnership of 28 national associations and construction unions representing hundreds of thousands of individuals with a direct market interest in federal transportation programs. The TCC was initiated in July 1996 to focus on the federal budget and surface transportation program reauthorization debates. The internet survey was conducted over the first three weeks of October. The complete survey results can be found at transportationconstructioncoalition.org.
Alison Premo Black, Economist & Vice President of Policy, American Road and Transportation Builders Association, Washington, DC
Ken Simonson, Chief Economist, Associated General Contractors of America, Arlington, VA
Ron DeFeo, Chairman & CEO, Terex Corporation, Westport, CT
Dean Word, President, Dean Word Construction, New Braunfels, TX
Joy Wilson, President and CEO of the National Stone, Sand & Gravel Association, Alexandria, VA
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