Each quarter, FMI, a provider of management consulting and investment banking to the engineering and construction industries, surveys construction industry executives to discover how they’re feeling about the economic winds. The most recent Nonresidential Construction Index survey showed confidence in the economy taking a huge hit, dropping 24.7 points. “Beware of the upturn,” was the sentiment expressed by a number of panelists who raised concerns that too many contractors have been taking on too much low-bid work just to keep their backlogs full. The result, they contend, will be that businesses won’t be able to finance ongoing losses.
On the rise is the number of contractors participating in self-funded projects as financing partners with owner/developers. One panelist stated, “Eighty-five percent of our work is being funded through self-funding or in some case, equity investors.” This is due in part to fewer bank loans for construction. When you add on rising material and labor costs, as well as lower project management fees and profit margins, the result is an upturn in bankruptcies for industry firms. Nearly a third of NRCI panelists have seen a decline in trade contractors, with more than 10% noting fewer general contractors and design firms.
If there is a bright side, temporary gains in the economy have been enough to boost sales and release some projects that have been on hold for a long time. Panelists report their backlogs have improved somewhat. This is the first time backlogs have shown improvement since the second quarter of 2011.
You can get the entire report at FMI’s website.