I See Signs That It May Become Safe to Dream Again

Let us be honest with each other. The last couple of years have been tough in the construction industry. The graph below shows this in painful detail.

In recent months we have seen some very public company closings of large Glass Contractors in ASI and Trainor Glass. While both of these companies are in the process of attempting a reorganizing their fate is far from certain and we all wish them the very best.

However, their experiences of being extremely successful in recent years and experiencing tremendous growth and now fighting for survival underscores in real and personal terms how difficult the market conditions have been over the last few years. How long will these trials and tribulations continue? Or, put another way; when can I begin to dream about good times again?
The time may be now. Outlined below are some positive signs that I have noticed lately:

  • The Architectural Billings Index has raised modestly for the third consecutive month. While this index has not shown tremendous growth, it has grown. And we all know that Architects must first have projects to design before we have projects to bid and build.
  • FMI (www.fminet.com), the largest provider of management consulting and investment banking to the engineering and construction industry, announces the release of its Non-Residential Construction Index report for the first quarter of 2012.

The NRCI gained 7.8 points over last quarter to 58.1 this quarter. This positive move to start the new year is not exactly the sign of a bull market for construction, but continuing confirmation that panelists believe that the construction activity is following the lead of the slowly improving economy. There are good signs in hiring plans for 2012, as well as construction-put-in-place predictions. However, panelists indicate that low project pricing and high competition are still driving the market place.

  • Our company has seen a continuing good supply of projects to bid.
  • In all fairness the margins required to book the projects are still challenging; however, there is beginning to be a modest improvement in this critical area.
  • While we wish no one misfortune; the market is self correcting. When companies continue to book work at margins that do not cover direct costs and overhead costs, these companies can not continue with that strategy forever. When these companies depart the industry, the margins for the remaining firms are allowed to increase to sustainable levels.
    These conditions point towards improvement to me.

I have often said that companies do not get into trouble in bad times, they get into trouble in good times, it just shows up in the bad times. When times are good it is easy to spend too much, grow too fast, and generally not making good sustainable business decisions. The fruit of those decisions then become ripe during the tough market times.
It is time to start dreaming of what our companies can become again. I am not talking about wild, speculative ideas. But the market appears to be improving and that allows us the opportunity to make good strategic decisions that have the opportunity to be sustainable.

So, turn off the funeral music, take a deep breath, make strategic investments that make your company more valuable and get ready for the next wild ride in the volatile construction industry that we have chosen to make our life’s work.

Tool of the Week, Day, etc. – Check out the following link from Construction Software Advice: The Best Construction Management Apps for the iPhone and iPad. Many of us have iPhones and they are powerful in part because of the applications written for it. This article presents several applications that you may find helpful.

That is it for today. Post your comments on the Blog and let us stimulate the discussion.

Thanks,

Ted S. Miller