CFMA’S Construction Economic Outlook:

6 Month Update

Clare Zempel: Zempel Strategic

Current Downturn Debate

Depression Mindset

Lehman Brothers Shock

Shock and Rebound Scenario

Q4: Sales Collapse + Layoffs

Q1: Sales Stabilize + Inventories Cut

Q2: Sales Rise + Output Stabilizes

Q3: Sales Rise + Output Rises

Real GDP Growth and Shocks

-8%

-4%

0%

4%

8%

12%

16%

68 72 76 80 84 88 92 96 00 04 08

Recession One-Quarter One-Year

NixonResigns

CreditThreat

Lehman Failure

Iraq Invades Kuwait

Interest Rates and Recessions(T-Note Minus T-Bill Spread)

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

60 64 68 72 76 80 84 88 92 96 00 04 08

Recession Spread

Interest Rates and Recessions(New York Fed Recession Probability Model)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

60 64 68 72 76 80 84 88 92 96 00 04 08

Recession Recession Probability

CRB Spot Raw Industrials (Index) (Weekly)

100

150

200

250

300

350

400

450

500

67 71 75 79 83 87 91 95 99 03 07

Recession Actual 4-Week Average

Initial Unemployment Insurance Claims (Thousands) (Weekly)

150

250

350

450

550

650

67 71 75 79 83 87 91 95 99 03 07

Recession Actual 4-Week Average

Commodities/Claims Ratio (CRB/Claims) (Weeks)

0.25

0.45

0.65

0.85

1.05

1.25

1.45

1.65

67 71 75 79 83 87 91 95 99 03 07

Recession Actual 4-Week Average

Commodities/Claims Ratio Signal

-5

-4

-3

-2

-1

0

1

2

3

67 71 75 79 83 87 91 95 99 03 07

Recession Fast Slow

Housing Price/Income Ratio (Medians)

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

82 84 86 88 90 92 94 96 98 00 02 04 06 08

60

75

90

105

120

135

150

165

Recession Price/Income Ratio Affordability Index (Right)

S&P 500 Common Stock Index (11 Bear Markets Since 1960)

10

100

1000

10000

60 64 68 72 76 80 84 88 92 96 00 04 08

S&P 500

SteelCuba

OilWatergateInflationRecession

OilInflationRatesRecession

Crash

Desert Storm

Y2KTech BubbleTerrorismFraud

CFMA’S Construction Economic Outlook:

6 Month Update

Morris Segall: SPG Trend Advisors

Architecture Billings IndexSeptember 2007 – March 2009

Source: The American Institute of Architects

Commercial Real Estate Loans Year-over-Year Percentage Change

September 2002 – March 2009

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Sep-

02

Dec

-02

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Source: Federal Reserve Bank

Source: Intex, Trepp (Deutsche Bank)

Commercial Mortgage Backed Securities Delinquency Rates among Major Investor Groups

January 2008 - March 2009

CFMA’S Construction Economic Outlook:

6 Month Update

Mike Ellis: Moss Adams LLP

Impact on Contractors

Under promise, over deliver

Focus on balance sheet strength

– Ratios, liquidity, distributions, capital

Manage overhead costs tightly

Dial in on maximum efficiencies

Communicate constantly

Outlast your competition!

Operational Strategies

CFMA’S Construction Economic Outlook:

6 Month Update

Brian Moore: FMI

What Should You Do? A Five Point Plan

1. Look beyond your backlog

2. Plan for changing times

3. Align the organization

4. Focus on profitability

5. Remember, you’re a leader!

Internal - look past your backlog report Backlog and pipeline quality indicator – to evaluate the strength of the business development/sales operation Backlog margin spread – to evaluate the future, near-term financial performance of the company Liquidity indicator – to evaluate the cash usage and needs of the company

External Architectural Billings Index FMI Non-residential Construction Index CFMA CONFINDEX Local market data

Examine Data to Support Management Decisions

Performance Problems Will Emerge When Context Changes but Strategy Does Not

New Context

Old Strategy

Understanding the New Context

New Customers/

Markets

NewCompetitors

New Company

New “Climate”

New Context

Strategy

Performance Will Improve When the Old Strategy is Retooled to Fit the New Context

New Context

New Strategy

Contingency Plan Framework

2009 / 2010 Mission

Scenario Plans

Business Development

Plan

Operations Plan

Financial Plan

HR Plan (i.e., People)

• How long and

how deep?

• Determine

trigger points

and actions.

• Find the right

projects with

the right clients

at the right

price.

• Deputize non-

traditional BD

resources.

• Execute all

projects

flawlessly!

• Drive

operational best

practices.

• Cash is King!

• Challenge

budget

assumptions.

• What gets

measured, gets

done.

• Communicate –

Who needs to tell

what to whom

and when?

• Align the

organization with

new priorities.

Prioritizing Strategies

3rd4th

1st2nd

Ease of Implementation

Magnitude of Impact

High

Low

Hard to do/Long lead time

Easy to do/Short lead time

External Alignment – Good Times and Bad

Identify capabilities / competencies.

Allocate resources to achieve alignment today and in the future.

– Identify gaps

– Identify excesses

– Leverage synergies in business development plan

– Create organizational development plan and assign responsibilities

Our ClientsValue

We Possess/Value

Our ClientsValue

We Possess/ValueWe

Possess

Strategy Requires

Internal Alignment – Good Times and Bad

Define performance factors for each position.

Articulate core values through definition statements.

Assess each employee relative to PF and CVs.

Core Values

Per

form

ance

Fac

tors

Performance Management Matrix

PM1

PM2

PM5PM4

PM3

PM6

Communication – What can go wrong?

NoiseNoise

NoiseNoise

NoiseNoise

NoiseNoise

Sender

MessageMessage

Receiver

Channel

FeedbackFeedback

• Email• Phone• In person

Age Old Debate – Cut Overhead vs. Increase Productivity? Arbitrarily reducing overhead is a high-risk / low- return strategy

Labor is one of our largest controllable costs… be aggressive!

1%

19%

49%

21%

6% 4%

0%

10%

20%

30%

40%

50%

60%

I perceivevery little

opportunityto improveproductivity

1 - 4% 5 - 10% 11 - 15% 16 - 20% >21%

% o

f A

ll R

esp

on

ses

What portion of your annual field labor costs do you believe could be saved through better management?

Building Blocks of Productivity

Six Steps to Leading in Challenging Times

1. Face the facts

2. Redirect efforts and refine goals

3. Leverage the strength of teams

4. Develop individual talent

5. Increase effective communication

6. Maintain balance

Says Easy, Does Hard – FOCUS!

Look beyond your backlog

Plan for changing times

Align the organization

Focus on profitability

Remember, you’re a leader!