From the Better Roads 2012 Outlook survey

Government Agencies

Do you anticipate that levels of highway and bridge construction work put up for bids by your agency in 2012 will increase, decrease or stay about the same?

Looking back at their operations over the past five years, most contractors say they have become leaner and more efficient, and those changes came not in the pursuit of expansion or profit but in the struggle for survival. In the coming year a majority of companies say they are seeking out new areas of work (51.4 percent) and nearly half (48.6 percent) say they would work in cooperation with other companies more than they have in the past. More than a quarter (26.4 percent) of contractor companies intend to use more software and digital planning and tracking, and almost one-fifth (19.4 percent) say they will bid a narrower range of work, i.e. specialize more. When asked where they see their companies in three years, a lot of respondents said they expected to be in much the same position they are in today, facing uncertainty and fighting for survival. But some expected to be beyond that stage and expanding.

When it comes to hard numbers, a little over a quarter of contractor respondents believe their financial results will be better this year than last year (26.4 percent), 43.1 percent percent results to be about the same and 30.6 expect a worse year.

Among surveyed agencies, 45.2 percent anticipate that transportation infrastructure in their area a year from now will be in “about the same” condition and 32.7 percent predict it being “worse.” This leaves only 22 percent of agencies who see the state of their infrastructure better a year from now. And nearly two-thirds (64.3 percent) of the agencies expect to make changes in the way they operate in 2012, as they continue to respond to economic pressures. One agency respondent says, “Hope I’m wrong!” and another, “We have already changed operations to a ‘new normal.’”

One major concern among contractors for 2012 is dealing with changing government regulations and practices. Asked if they expected changes in dealing with agencies, a huge 59.7 percent say yes. But how? Uncertainties seems to be present here too, with contractors expecting changes but not really sure what they’ll be. Comments in the survey suggest contractors expect more environmental restrictions, a possible backlog in processes as fewer people in government departments handle the same amount of regulation, and more sustainability requirements. One happy camper reports wryly, “Sure, there is never enough government regulation,” and another responds, “MORE, MORE and MORE REGS.” Says another, “Our government is always changing the way we do business. It is shameful how much time and effort is spent in reinventing the wheel.”

Outside Looking In

FMI, a company that describes itself as the largest provider of management consulting and investment banking for the engineering and construction industry, succinctly sums up the domestic construction market for this year by saying that “the broad picture is not dramatically different from last year.” The company sees a long and slow recovery in construction markets with put-in-place construction volume pushed out to 2015 before it matches the prior peak of 2007. Housing, says FMI, is a cloud hanging over an economic recovery, and another key issue is the expected decline in public spending.

FMI’s President and Chief Executive Officer Hank Harris tells us that he expects “a fairly slow crawl” out of the recession, but he is optimistic about the heavy-highway sector. “I think there’s a lot of good news looking out there five years. There’s bad news, too, of course. There’s government spending being down, continued uncertainty from government until at least after the elections at the earliest and there’s reauthorization. But I think if you had to pick a sector of construction to be in, heavy highway would be a good one.”

One reason for Harris’ optimism: “I think there is immense pent-up demand out there.”

And, says Harris, “If you look at the intermediate and long-term, there’s some very smart money betting on infrastructure, for example, some of the investment banks. People see we are underinvesting in infrastructure, that’s we are way behind. We’ve taught Americans that seeing orange barrels every five miles is normal. It’s not.”

Alison Premo Black, senior economist for the American Road and Transportation Builders Association, says that “no matter how you slice it, the outlook for the 2012 transportation construction market is mixed.” There is, she says, “good news and bad news for 2012, depending on the mode of transportation.” The bad news? “The highway and bridge construction market is expected to contract 6 percent, to $72.6 billion from an estimated $77 billion in 2011.” The value of bridge work is expected to drop by 10 percent from $26.3 billion to $23.6 billion, says Black, “primarily because nearly all projects that include ARRA investments are finished or underway, and state and local DOTs are pulling back on new projects. This is, she says, likely due to a combination of the delayed federal reauthorization bill and the continued state and local budget challenges.

The good news is out there in the form of more investment for ports and railroads. But, says Black, there is also good news in that, “the transportation construction market sector will remain the most stable industry sector as it has been for the past five years.” Black says between 2007 and 2011 the real value of highway and bridge construction, adjusted with the ARTBA Price Index for material prices, wages and inflation, fell only 10 percent. Over the same period, the real value of total construction work in the United States fell by one-third, from $1.1 trillion to an estimated $769 billion. “The historical stability of the transportation market is in large part due to the role of public-sector financing,” says Black.