Better Roads Staff
And “public-sector financing” means reauthorization, which Black calls a “wild card,” and state budgets.
“I am as optimistic as I have ever been about the chances of getting a surface transportation bill done in 2012,” says Janet Kavinoky the U.S. Chamber of Commerce’s leading transportation expert. “Six months ago it would have been a very different story. The House was looking at doing a bill with only Highway Trust Fund money, which would have been a 35-percent cut. There was a lot of talk in the Senate but in fits and starts. In the fall, a lot of things changed, especially when House Speaker John Boehner announced he wanted to move a multi-year transportation bill and was willing to look for the money for it. I can’t tell you how significant that was – especially coming from someone who has never voted for a surface transportation bill. All of this is movement in the right direction. If no one believed a bill was going to get done, I don’t think we would see this progress.
“So I’m going to be positive – it’s been about five years since I said that,” says Kavinoky. “It’s nice to feel good about it for once.”
‘A Sigh of Relief’
But reauthorization is not going to turn on the light switch in a room darkened by the economy. It will take time to begin to help lift transportation infrastructure work back toward old levels.
“We are talking about bills that substantially change federal programs and structures, for example provisions designed to speed up project delivery and others to move more private investment into the system,” says Kavinoky, “and it will probably take a couple of years to get things implemented, and remember we are not talking about adding funding for transportation we are talking about trying to keep levels the same. We’re not seeing a sea change but at least a sigh of relief – so states can move forward with some projects instead of standing around waiting. I’ll take half full.”
Contractors do have some choices this year, says FMI’s Hank Harris, which may be accessible with an entrepreneurial or innovative mindset. Two possibilities in particular that Harris mentions stand out to Better Roads: partnering and unsolicited bidding.
“If you have private jobs,” Harris asks, “how do you get to the markets where the spending stream is likely to be healthier and get yourself participating? We’re not out of the woods in heavy highway. Clients tell us it’s very, very tough, but the good ones are getting through it and doing okay. Margins are not good, and there are very significant challenges. It’s tough, but they are finding work and staying in the black. The key is to avoid taking imprudent risk because you get panicked about your market. Manage your risk and be ready to hit it when things get better, as we think they will. Labor and equipment are the two biggest risks to manage; costs here must be managed and controlled. It’s blocking and tackling, but that’s what isnecessary now.
“But also be ready for growth. And opportunity.”
“There is a lot of partnering opportunity in this industry; some domestic, some with international firms trying to enter the U.S. market. And you can also work for smaller partners,” says Harris. “There are some gigantic jobs out there so big that they need more than one bonding company, let alone one contractor.” A lot of contractors responding to our survey (48.6 percent) indicate that partnering is one of the tactics they intend to pursue this year.
Harris also sees opportunities in 2012 for companies that approach the market without their usual routines and methods. “Companies all have their own culture; engineering firms tend to be analytically oriented and look at how they may project themselves into certain markets.” If contracting companies want to respond to private markets, says Harris, their culture in many cases needs to be more market driven. “Companies that do [transportation infrastructure] work are heavy on equipment and heavy on labor, and, by necessity, very operationally driven cultures. Compound that by them trying to be the low bid on any given day, the mindset of the companies can become a little insular and they can think that that is the only way to work. But there are companies that can do a very good job getting out there and making opportunities and getting in the way of opportunities.”
“We have clients that do unsolicited proposals. Basically that’s going, unasked, to a public entity and saying, ‘Okay there’s been no bids coming from you in while, but you need to do something and you know it, so here’s our design-build, design-build-operate, design-co-own, or whatever structure they present, and it would solve your problem.’ There are mixed reactions, yes. It’s successful in Canada and we are seeing more companies in the United States look into it.”
An Expert Opinion:
Edward J. Sullivan, vice president and chief economist, Portland Cement Association
A year ago the economy seemed poised for stronger, sustainable economic growth. And then, due in large part to the European sovereign debt crisis and rising energy prices, consumer and business confidence waned. Private-sector growth, as a result, entered a period of slowdown. Furthermore, American Recovery and Reinvestment Act (ARRA) stimulus decreased as a positive for economic growth, forcing the Federal Reserve to enact a new round of monetary stimulus (QE2) to avert the potential of a double-dip recession. This was supplemented with fiscal stimulus including the “payroll tax holiday” and extended unemployment benefits.
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