BUSINESS SURVEY1 CONSTRUCTION ASSOCIATION OF MICHIGAN
2013 2014BIENNIAL BUSINESS SURVEY OUTLOOK
BUSINESS SURVEY2
Dear Construction Associate,
We are pleased to present you with the results of our Biennial Business and Owner Surveys, which examine activity in 2013 and the outlook for the next eighteen months. These two surveys were conducted through the joint efforts of the Construction Association of Michigan (CAM) and Plante Moran, and their continued commitment to provide accurate and timely business information to the construction industry.
This year’s survey was issued online. This enabled a greater response due to the ease of completing and returning the questions. For those of you who took the time to complete the survey, thank you; your participation is greatly appreciated. The responses are online, as well. For those who would like a printed results booklet, please contact either CAM or Plante Moran. The survey information was compiled from the confidential survey responses by an independent survey company and developed as part of collaborative effort by CAM and Plante Moran.
We have combined the results of both surveys into one single publication. The responses tell a great deal about our region, economy, and most specifically the
GREG ANDRZEJEWSKIFIRST CHAIRMEN OF THE BOARD, CAMBusiness Development Manager, PPG Industries
Michigan construction industry. Results are indicative of how contractors and owners cope with the present economy; the future construction climate is also forecasted by those who are directly involved in the Michigan construction industry on a daily basis.
As this year’s survey reflected some positive indicators, we sincerely hope that this will be an upward trend for the construction industry in Michigan. Our mantra, “One Industry, One Resource, One CAM,” is what we strive for continually. CAM works hard legislatively, presents helpful and timely seminars on the issues that will affect our members, and is the number one source for Construction Project Information Services in the state of Michigan. We exist as a service to our members to help make them, and their businesses, successful.
Sincerely,
Greg AndrzejewskiCAM Chairman of the Board
BUSINESS SURVEY4
The Construction Association of Michigan (CAM) was founded in 1885 as the Builders Exchange of Detroit and Michigan. Celebrating its 129th year in 2014, CAM is the oldest and largest construction association in North America. CAM is headquartered in Bloomfield Hills, MI, with a second division in Saginaw, known as CAM Tri-Cities. CAM is a not-for-profit organization comprised of 2,600 members. CAM is supported by annual dues and service fees, and is governed by a 12-member Board of Directors elected annually by the membership. CAM members are comprised of general contractors; subcontractors; equipment and materials suppliers; architects; engineers; and service firms (attorneys, financial management, etc.).
The association is an essential information network for the Michigan construction industry. It publishes Construction Project News, a daily report containing complete details on Michigan projects out for bid. Construction Pre-View, a weekly publication, keeps CAM members “in the know” with news of proposed projects. With advanced software, members can access entire plans and news at their office via CAM-Online.
The CAM Buyers Guide is the most widely-used tool in the construction industry. Published yearly, the Buyers Guide is a directory containing each CAM member firm alphabetically and in classified categories. The CAM Buyers Guide is available in print, online via the CAM website at www.cam-online.com, and is also accessible through a mobile app for Smart Phones. CAM Magazine, “The Voice of the Construction Industry,” is recognized as the leading monthly industry magazine covering construction news, business trends, current projects, and construction technology in Michigan. CAM Magazine is in print and also online at www.cammagazineonline.com and has readers worldwide. The magazine maintains a
THE CONSTRUCTION ASSOCIATION OF MICHIGAN
ABOUT strong social media presence via Facebook, LinkedIn and Twitter.
CAMTEC, the training and education division of CAM, offers industry-specific classes and seminars on relevant topics within today’s construction industry, along with the latest technology and trends. Courses are also available to be conducted onsite. With a full-time qualified Safety Professional/Instructor on staff, the CAMSAFETY department offers free, on-site and hands-on safety training to all CAM members. Under a grant from MIOSHA, training encompasses Focus Four hazards: Falls; Caught-in; Struck by; and Electrocutions. CAMSAFETY also offers many classes, including OSHA 10- and 30-Hour.
The CAM Labor Relations Program provides quality labor relations assistance and information, at no additional cost, to union contractors employing carpenters, cement masons, laborers, or operating engineers in southeast Michigan. CAM retains a full-time lobbyist, Lansing-based Kindsvatter Dalling and Associates. CAM recently formed the CAM Government Affairs Committee, which is run by its on-staff labor attorney. The Government Affairs Committee’s role is to identify governmental issues and/or trends which impact upon the construction industry in Michigan.
Along with the services mentioned above, CAM also offers Health Insurance through CAM Administrative Services; Workers’ Compensation Insurance through CAM Comp; and superior banking service through the Construction Federal Credit Union.
For more information about any of these CAM services, or to inquire about CAM membership, please contact the CAM Marketing Department at 248.972.1000 or via the CAM website at: www.cam-online.com.
5BUSINESS OUTLOOK
Serving the needs of the construction industry for 90 years. Plante Moran provides the experience and personal attention the construction industry demands. Plante Moran offers a full range of services including audit and accounting; federal, state, and local tax planning; information technology and telecommunications consulting; family business succession planning; merger and acquisition assistance; cost segregation studies; and strategic planning.
For more information about Plante Moran’s construction team, please contact Construction Industry Group Leader:
Tom Doyle | 248.223.3402 [email protected]
plantemoran.com
PLANTE MORAN
CO-SPONSOR
BUSINESS SURVEY6 TABLE OF CONTENTS
PAGE 7 Business survey
PAGE 42 Demographics and written comments
PAGE 52 Owners survey
PAGE 73 Written comments
7BUSINESS OUTLOOK
5
BUSINESS SURVEY
Produced by the Construction Association of Michigan (CAM) and the accounting firm Plante Moran, the Biennial Business Survey has been conducted for more than 20 years. The survey measures contractor opinion in several key categories.
BUSINESS SURVEY8
BUSINESS OUTLOOK
9BUSINESS OUTLOOK
Describe your primary business
37%Subcontractor
23% General contractor18% Architect/Engineer 8% Equipment/Material supplier 4% Manufacturer of equipment or materials10% Other
Is your company union or non-union?
100
50
0
Union Non-union
38%
62%
Average cost range of work that your company is currently performing:
39%Less Than $100,000
Trend to larger projects continues with over 29% of projects at $1Mil+, a 9 percentage point increase from 2011.
20132013 2011100
50
0
$100K– 500K
Less than$100K
$1M– 2M
$5M– 10M
$500K– 1M
$2M– 5M
Over $10M
6% 4%6% 6%11% 8%11% 14%21% 23%39% 35%
6% 2%
BUSINESS SURVEY10
31% of projects are anticipated to cost $1Mil+. This is an 11 percentage point increase from 2011.
The average cost range of work you anticipate your company will be performing over the next 12–18 months:
40%Less Than $100,000
100
50
0
Less
than
$1
00,0
00
$500
,000
–
$1M
$2 –
$5M
$100
,000
–
$500
,000
$1 –
2M
$5 –
$10
M
Ove
r $10
M
40%18% 11% 10% 7% 8% 6%
Which type of work is currently providing your company with the most opportunities?
2013
2011
34%Renovation
Renovation
33% New construction12% Additions11% Maintenance11% Retrofit
29%24% New construction15% Additions19% Maintenance13% Retrofit
New construction and renovation show an up-tick from 2011.
11BUSINESS OUTLOOK
Which type of construction work do you see providing your company with the most opportunities over the next 12–18 months?
37%New Construction
33% Renovation13% Retrofit10% Maintenance 7% Additions
What category do you anticipate providing your company the most opportunities for work in the next 12–18 months?
16%Health/Welfare Buildings/ Hospitals
15% Education/Cultural/Scientific buildings13% Infrastructure13% Transport/Industrial buildings10% Residential 9% Interiors/Tenant improvements 7% Office buildings 6% Public works projects 3% Hotels/Motels 3% Entertainment facilities 3% Renewable energy 1% Religious buildings
BUSINESS SURVEY12
36%How do you anticipate the volume of work changing over the next 12–18 months?
89% of respondents anticipate the volume of work to increase or stay the same. This is the most optimistic respondents have been in many years. About the Same
5% Up more than 20%20% Up between 10% and 20%28% Up less than 10% 6% Down 10% or less 4% Down between 10% and 20% 1% Down more than 10% and 20%
How has the volume of work contracted changed over the past 12 months?
The 2013 survey indicates a positive trend from 2009. D
own
mor
e th
an 2
0%
Dow
n 10
%
or le
ss
Dow
n be
twee
n 10
–20%
Abo
ut th
e sa
me
Up
mor
e th
an 2
0%
22%About the Same
2013100
50
0
2009
12%3% 6% 3% 8%
22%9%
48%
Up
less
th
an 1
0%
16%
Up
betw
een
10–2
0%
18% 22%7% 10% 15%
13BUSINESS OUTLOOK
33%10 to 20 Percent
27% 20 to 50 percent25% Less than 10 percent15% 50 percent or more
Are you currently doing work outside the state of Michigan?
YesIf you answered yes, what percentage of your total volume of work is performed outside the state of Michigan?
51% of respondents are currently doing work outside of Michigan.
71%Increasing
Do you anticipate that percentage increasing or decreasing in the next 12–18 months?
BUSINESS SURVEY14
Positive Impact
Do you anticipate the Michigan “Right to Work” law having an impact in the future?
Has the Michigan “Right to Work” law affected your business?
No
No
86% of respondents indicate the law has not affected their business.
54% of respondents do not anticipate a future impact.
52%Has Michigan’s “Right to Work” law had a positive or negative impact?
15BUSINESS OUTLOOK
How long will it be before your business is affected?
68%2–5 Years
27% 1 year or less 5% More than 5 years
Additional “Right to Work” comments related to business impact:
• This will help to bring more work to the area.
• I think it’s a great thing and will reduce construction costs, which will encourage new project starts.
• Our current work contract will expire before any impact will be known.
• Worst thing to happen in Michigan. Previous Michigan Governors (while they may have been for Right to Work) have always respected labor organizations. This was a bad, bad thing that the incumbent Governor has done.
• I firmly support the “Right to Work” law and feel it will benefit the state of Michigan.
• I feel it should have always been that a person has the right to choose for them self.
• Union competitors no longer have a cost disadvantage.
• The simple fact that Michigan is right to work has increased the probability of a potential client coming to Michigan
• It is a good law in the long run. The immediate impact is negative for a union contractor.
• It will attract new business.
• I’m anticipating lower quality of contractor workmanship.
• Hopefully we won’t have to pay union wages and fringes. The cost of labor on a union contract makes it very difficult to make any money when we are already bidding at single digit margins. Clients have demonstrated a more open mind regarding locating and/or expanding in Michigan
• The law will lower wage rates.
• I think and believe it will have a good impact on the overall health of the Michigan Business Industry in whole. With this said, I also believe it will benefit the workers as a result of the businesses having a positive impact.
• Now we can compete with other states.
• The under funding problem of all of the construction trades pension funds has all of the contractors that are signatory to an agreement tied to those agreements for a long, long time. New open shop competition will continue to enter the market and further erode the market share of the union contractors.
• I think it’s great.
BUSINESS SURVEY16
SECURING WORK
17SECURING WORK
Compared to 2009, companiesare seeing backlogs stabilize.
What primary method do you anticipate using for securing work in the next 12–18 months?
42%Competitive Bidding— Invitation Only
100
50
0
Open competitive bidding—
public work
17%
Referral
13%
Competitive bidding— invitation
only
42%
Negotiate directly
with owner
25%
Other
3%
How much new work do you currently have backlogged?
55%1–3 Month Backlog
23% 4–6 months16% 7–12 months 6% More than 1 year
BUSINESS SURVEY18
If you are bidding competitive work, what is the average number of bidders who have been bidding against you on each project?
Do you anticipate the number of bidders, bidding against you, increasing or decreasing in the next 12–18 months?
54%Less Than 5 Bidders
42% 5–10 bidders 1% 10–15 bidders 3% 15 or more bidders
68%Increasing
42% 5–10 bidders23% 10–15 bidders10% 15 or more bidders
2013
2009
Less Than 5 Bidders
25%In the current survey only 4% of projects had 10 or more bidders compared to 2009, which had 33%.
Although the trend shows a decrease in the number of bidders on projects, contractors anticipate that trend changing.
19SECURING WORK
How have your profit margins/mark-ups changed in bids submitted over the last 12 months?
Do you anticipate additional profit margins or mark-up pressure on your bids in the next 12–18 months?
35%No change
6% Increased 5% or more 13% Increased 2%–4% 4% Increased 1% or less 7% Decreased 1% or less16% Decreased by 2%–4%19% Decreased by 5% or more
Yes 63% of respondents anticipate additional profit margin or mark-up pressures.
This year’s survey shows 42% of respondents had a decrease in profit margins/mark-ups with anticipation of additional pressure going forward.
BUSINESS SURVEY20
WORKFORCE PLANS
21WORKFORCE PLANS
What plans do you have for your workforce over the next 12–18 months?
53%
Yes
No Change
2013100
50
0
2009
Add
full-
time
empl
oyee
s
36%
8% 6%
60%
3%23%
No
chan
ge
53%
Add
par
t-tim
e em
ploy
ees
6%
Layo
ff pa
rt-tim
e em
ploy
ees
1%
Layo
ff fu
ll-tim
e em
ploy
ees
4%
Is your company experiencing difficulty finding skilled workers?
Yes
Yes
Yes
Yes
55% of respondents are experiencing difficulty finding skilled workers.
48% of respondents are experiencing difficulty finding skilled workers.
58% of respondents are experiencing difficulty finding skilled workers.
59% of respondents are experiencing difficulty finding skilled workers.
In 2009, 26% of respondents anticipated layoffs. In 2013, 42% anticipated adding employees.
General Contractors Subcontractors
Suppliers Architects & Engineers
53% of respondents are experiencing difficulty finding skilled workers.
BUSINESS SURVEY22
Over the next 12–18 months, you anticipate labor availability to:
50%Stay the Same
1% Increase significantly13% Increase slightly 29% Decrease slightly 5% Decrease significantly
Over one-third of respondents indicated a decrease in labor availability in the next 12–18 months.
How should the industry address the decrease in skilled labor?
Education & Training
• We need better training programs in higher education.
• Start educating kids to think for themselves to become the best, most responsible workers they can. Adults need to quit thinking for kids and having them become so dependent. It’s very difficult to change a person’s work ethic during their peak working years, so we need to start young, like we used to in the skilled trades.
• Promote skilled trades in high school and realize that not all students are college material. Present a more professional image for the skilled trades.
• We might need to recruit in other areas of the country, but also reach out to the various educational organizations here and partner with them.
• Our industry needs to do a better job of educating young workers with the concept that our business is not for the low-skilled or uneducated. We have got to elevate the status of our workers to being desirable.
• Have incentives for people to learn a new trade or skill.
• Maybe reach out to military organizations or partner with them in some way?
• Put shop programs and training back in schools. Let the kids know that there is pride in doing a good, hard day’s work, and that there are careers out there in construction.
• We are already training our own younger staff, in-house.
• We need to stress the need for young folks going into trade schools instead of college and stress the benefits of working with your hands.
23WORKFORCE PLANS
• Encourage vocational programs in the schools; increase training for the sub-trades; publicize the recovering economy to encourage workers to stay in-state and not switch their occupations.
• The easy answer is to say to train more skilled tradesmen — but that will be ineffective if there isn’t a sufficient volume of work to employ them!
Other
• We are a union field force. The antiquated, outdated ways that our union operates, especially in terms of protecting laid-off workers that no company will take at the expense of preventing motivated newcomers into the field, MUST stop. This policy will be the eventual end of a unionized workforce in this area with my trade, but the union will not acknowledge it, let alone talk or implement some meaningful change.
• Make the trades more attractive to the younger generation and fire Obama.
• Labor unions need to relax jurisdictional restraints and recognize that defined benefits do not work anymore.
• The unions have to start recruiting earlier for skilled labor. Going into middle schools and high schools would encourage the kids who don’t want to go to college.
• Michigan’s attack on labor unions via “Right to Work” has destroyed the apprenticeship programs that really helped employers. Unless we gain a new respect for labor unions and their apprenticeship programs, Michigan will continue to go down the tubes.
• There have been difficulties for clients/owners/developers to get the funding they need so they can move forward on their projects. Unless new or easier funding methods are developed, this trend will continue to hurt the construction industry at all levels.
How should the industry address the decrease in skilled labor? (continued)
BUSINESS SURVEY24
FINANCIAL HEALTH
25FINANCIAL HEALTH
Select the three strategies your company has undertaken to improve profitability:
26%Improve Processes/Products
19% Cut administrative costs14% Staff reduction/Right-sizing10% Enhanced marketing10% Geographic expansion 8% Design/Build projects 7% Enhanced training 6% Safety/Risk management
25% Staff reduction/Right-sizing 17% Improve processes/Products10% Enhanced marketing 9% Geographic expansion 4% Design/Build projects 1% Enhanced training 2% Safety/Risk management
2013
2009
Cut Administrative Costs
32%
Compared to 2009 there is more focus on improving processes and less on right-sizing cost cutting.
BUSINESS SURVEY26
How does your present cash flow situation compare to last year?
Better than last year
41%About the Same as Last Year
2013100
50
0
2011 2009
36%21%
46%33%
10%
32%
58%41%
Worse than last year
23%
About the same as last year
According to respondents, cash flow has improved since 2009.
40% 17% 7%
37% 51% 36%
23% 31% 57%
2013 20092011
Better than last year
Worse than last year
About the same as last year
33% 16% 11%
58% 37% 32%
8% 47% 57%
2013 20092011
Better than last year
Worse than last year
About the same as last year
46% 10% 13%
30% 55% 13%
23% 35% 75%
2013 20092011
Better than last year
Worse than last year
About the same as last year
30% 25% 7%
41% 40% 33%
28% 35% 60%
2013 20092011
Better than last year
Worse than last year
About the same as last year
General Contractor Subcontractor
Supplier Architects & Engineers
27FINANCIAL HEALTH
In the next 12–18 months, how do you anticipate your cash flow position?
What is the average length of time it takes your company to receive final payment for work performed or materials provided?
66%About the Same as Last Year
2013100
50
0
2011 2009
66% 65%51%
About the same
Worse
10% 16%35%
Better
24% 19% 13%
51%60 Days
33% More than 90 days16% 30 days
56%Improving
Do you anticipate the average time it takes to be paid, improving or getting worse in the next 12–18 months?
2013
100
50
0
2011 2009
Improving Getting worse
59%44%
72%56%
41%28%
BUSINESS SURVEY28
Is your equity position sufficient to manage your cash flow needs?
Do you have access to a line of credit?
Do you anticipate your access to credit improving in the next 12–18 months?
Yes Yes
Yes
Yes
86% of respondents indicated their equity position is sufficient.
68% of respondents indicated their equity position was sufficient.
85% of respondents have access to a line of credit.
65% of respondents anticipate credit improvement.
2013 2011
29FINANCIAL HEALTH
Have you filed a claim of lien in the past 12 months?
What percentage of the work you perform is bonded?
74%No Claims
38%No Bonded Work
30% 10 percent23% 20 to 40 percent 9% 41 percent or more
25% 1–5 Claims 1% More than 5 claims
Surveys over the last decade continue to show that most companies do not file claims of lien.
28% 10 percent17% 20 to 40 percent14% 41 percent or more
2011
No Bonded Work42%
2013
Respondents indicate a slight uptick in bonded work.
BUSINESS SURVEY30
Is your company having more difficulty securing sufficient bonding capacity?
Do you anticipate materials prices changing in the next 12–18 months?
78%Anticipate Increase in Prices
81% of respondents are not having an increased difficulty securing sufficient bonding capacity.No
Have you been able to obtain escalation clauses in your contracts?
No48% No44% Haven’t tried 8% Yes
21% Stay the same 1% Anticipate decrease in prices
31FINANCIAL HEALTH
Compared to prior year sales, your company’s annual sales for the coming year will:
48%Project an Increase
2013100
50
0
2009
Dec
reas
e m
ore
than
10
%
14%
40%
Sta
y ab
out
the
sam
e
28%20% 21%
Dec
reas
e 0
–10%
10%9%
Incr
ease
1–
10%
33%10%
Incr
ease
m
ore
than
10
%
15%
Respondents remain optimistic about their sales and profitability for the coming year.
Compared to the prior year, your company’s profitability for the coming year will:
42%Project an Increase
2013100
50
0
2009
Dec
reas
e 0
–10%
14%29%
Dec
reas
e m
ore
than
10
%
12%26%
Incr
ease
m
ore
than
10
%
9% 10%
Incr
ease
1–
10%
33%
6%
Sta
y ab
out
the
sam
e
32% 28%
BUSINESS SURVEY32
What are the biggest financial challenges facing your company in the next 12–18 months?
Credit & Capital
• Available credit
• Our clients are having a difficult time securing funding for their projects. They have needs but no way to fund them.
• Lack of significant working capital to fund larger jobs (i.e. access to credit, etc.)
• Collections are always a problem, especially for extra work and retentions.
• Customers requiring longer payment terms.
• We have clients that have potential projects but because of the difficulties with funding we asked to hold up. It is getting difficult to keep the office together and provide quality services when so many of our clients are in a holding pattern.
Cash Flow & Collections
• Cash flow due to retentions not being paid in a timely manner.
• No revenues to improve equipment needed, and no monies to increase salaries.
• Cash management and fee suppression.
• Continuing to expand in select markets and finding ways to quickly become cash flow positive in those markets.
• Manage cash flow to support large contracts with large materials requirements.
• Length of the sales cycle requiring higher prices, competition from internet or low overhead suppliers, employees looking for salary increases without enough ROI.
• Making enough money to pay for upgrades to technology, tools, equipment and people to keep us on top of our industry and still being able to put some money away.
• Financing the construction projects - not getting paid soon enough. Owners/CMs need good subs; they should realize the pressure they put on them forcing them to chase money.
• Managing cash flow without an outside line of credit.
• Closing out and getting paid on large difficult projects.
Profit Margins
• Profit margins continue to erode so we are focusing on positioning ourselves better in the Design Build delivery method which normally produces better results.
• Low profit margins, low contract backlog, increases in labor and material costs.
• Having to bid projects at such low margins in order to win a contract, but in the end unexpected costs and labor eats up the small profit margin we did have so we end up winning a job but losing money.
• Margin pressure. Growth.
33FINANCIAL HEALTH
Industry & Market
• There is simply no money in projects anymore. Competitors are performing work at cost. We do not know how much longer we will bother staying in business. There is no money anywhere. What I mean by that is that the owners are squeezing the architects, who now generally provide horrid drawings and specifications; the general contractors underbid the work because of this, and all the fallout is laid out to the subcontractors. It has become a joke.
• Anticipating and capitalizing on the market turnaround.
• Staying competitive in the market that is available.
• Finding work to Negotiate/Design-Build. The banking industry is the biggest hurdle for small business owners; it needs to loosen up and start offering loans to the smaller developer/business owner. In doing so, I believe the construction industry in Michigan will take off again, and allow people to get back to work and make money.
• There’s more competition in the field.
• Balanced growth - sales/equipment/personnel are all growing at the same time.
Other
• Replacement of depleted fleet of trucks and machines due to hard times. We didn’t replace much of our fleet over the last four years.
• Interest rates.
• Slow economic recovery limiting the amount of new construction work.
• Increased taxes.
• The effects of the Great Depression, particularly failure of owners to pay for completed work on projects that became nearly worthless (and therefore liens were of no use), wiped out such a significant amount of equity, that we still cannot obtain surety bonds of the size we need to return our business to anywhere near our past revenues. I don’t see an end to this problem anytime soon.
• Controlling overhead costs to get through the economic downturn.
• Governmental obstructions to my business.
• Currently have no financial problems - we have been in business for 70 years.
What are the biggest financial challenges facing your company in the next 12–18 months? (continued)
BUSINESS SURVEY34
BUSINESS CONTINUITY
35BUSINESS CONTINUITY
What structure best describes your business?
If family-owned, how many generations has the business been in your family?
70%
37%
Family-owned
Two Generations
17% Parent company13% Private branch
34% One generation29% Three generations or more
Do you currently have a business succession plan in place or in process?
Yes Yes56% of respondents currently have a succession plan in place or in process.
2013 2011
47% of respondents had a succession plan in place or in process.
BUSINESS SURVEY36
Which of the following is the key element of your strategy?
In the event of your death, your stock would:
42%
54%
Selling/ Transferring to Family
Pass to My Heirs Through My Estate
41% Selling to key management personnel 3% Selling to a strategic buyer 3% Establishing an ESOP 3% Merging with another company 3% Winding down/Liquidating 5% Other
24% Be redeemed by the company18% Be purchased directly by my partner(s) 4% Other stock plans
37BUSINESS CONTINUITY
If you were to leave your company tomorrow:
Has the recent economic downturn affected your retirement plans?
52%
40%
I have a team of strong managers who could easily manage the business in my absence
Yes — My Plans Are on Hold or Delayed
29% I have management that needs further development
19% I have no capable management and will need to hire someone from outside my organization
32% No — I am proceeding with my plans28% I have yet to begin a transition plan
BUSINESS SURVEY38
TECHNOLOGY/ SUSTAINABILITY
39TECHNOLOGY/SUSTAINABILITY
Which of the following online technologies is being utilized by your company?
Does your company regularly engage in green or sustainable building practices?
No
inte
rest
in
this
tech
nolo
gy
Cur
rent
lyus
ing
84%Online Plans andSpecifications
ONLINE PLANS ANDSPECIFICATIONS
100
50
0
Con
side
ring
impl
emen
ting
Pla
nnin
g to
impl
emen
t
84%
2% 6% 9%
64%
2% 8%26%
46%
7%
70%
27%
ONLINE JOB BIDDING ONLINE PROJECTMANAGEMENT
Yes 70% of respondents regularly engage in green/ sustainable building practices.
Online technologies are being utilized more extensively in the industry.
52% of respondents regularly engage in green/sustainable building practices.
Yes2013 2011
BUSINESS SURVEY40
Prefabrication Techniques
100
50
0
Cloud computing
Integrated project delivery
36%
18%34%
8% 15% 24%
56%67%
42%
CURRENTLY UTILIZING PLAN TO IMPLEMENT NO PLAN TO UTILIZE
Does your company currently utilize:
36%Prefabrication Techniques
General Contractors Subcontractors
Suppliers Architects & Engineers
Prefabrication techniques
Prefabrication techniques
53%9%
38%
70%5%
25%
Prefabrication techniques
Prefabrication techniques
45%10%45%
69%5%
26%
Integrated project delivery
Integrated project delivery
72%14%14%
52%29%19%
Integrated project delivery
Integrated project delivery
59%15%26%
79%5%16%
Cloud computing
Cloud computing
49%24%27%
24%38%38%
Cloud computing
Cloud computing
36%18%46%
50%20%30%
41TECHNOLOGY/SUSTAINABILITY
Which new technologies do you plan on investing in over the next 12–18 months?
Do you have plans to invest in any of the following?
Yes62% Job safety procedures68% Staff development/Training50% Employee benefits programs69% New technologies52% Fleet/Equipment 9% Disaster recovery
CURRENTLY UTILIZING PLAN TO IMPLEMENT NO PLAN TO UTILIZE
Smart phones
Smart phones
Software upgrades
Software upgradesTablets Tablets
Suppliers Architects & Engineers
0%0%
100%
5%0%
95%
5%20%75%
24%33%43%
5%24%71%
10%10%81%
41%18%41%
68%11%21%
100%0%0%
100%0%0%
Other OtherERP
systemsERP
systems
Smart phones
Smart phones
Software upgrades
Software upgradesTablets Tablets
General Contractors Subcontractors
0%7%
93%
7%4%
89%
21%32%46%
33%13%55%
10%30%60%
16%18%66%
78%9%13%
75%13%12%
100%0%0%
91%0%9%
Other OtherERP
systemsERP
systems
100
50
0
Smart phones
93%
3% 4%
Tablets
54%
22% 24%
Software upgrades
68%
20% 12%
ERP systems
18% 13%
69%22%Tablets
BUSINESS SURVEY42
DEMOGRAPHICS AND WRITTEN COMMENTS
43DEMOGRAPHICS & COMMENTS
Generally speaking, do you consider yourself:
What is the last grade of school you completed?
Is a woman a majority-owner (51% or more) of this business?
Is this a minority-owned (excluding female-owned) business?
8% Democrat 68% Republican17% Independent12% No preference
92% No 8% Yes
99% No 1% Yes
Demographics
Where are you located in the state of Michigan?33% Oakland County24% Wayne County14% Macomb County10% Mid-Michigan 1% Balance of Detroit Metro18% Other
26% Post-graduate degree 49% College degree16% Some college 5% Vocational/Tech. school 4% High school
How long has your company been in business?20% More than 30 years20% 15 to 30 years10% 5 to 15 years 5% Less than 5 years
What is your title?10% Chief executive officer (CEO) 39% President14% Chief financial officer (CFO)37% Other
What is your approximate age?11% 65 years–over33% 45–54 years11% 35–44 years 2% 21–34 years
44
Would you still choose to make your living in the construction industry if you were beginning your career today?
Yes37% Yes34% No29% Unsure
In the 20 year history of the survey, 2011 was the only time respondents replied they would not choose to make their living in construction if they were beginning their career. This trend has reversed in 2013.
• The impact of the economy on the construction industry creates some uncertainty; so I’m not sure, if I had to decide today.
• We work too hard for the money we make.
• There are many other markets/industries one could enter into, make more money on a more consistent basis. I love what I do, I love making an impact on the communities by building structures that people drive by and be proud to say that is one of my buildings. But I believe I would have been in another industry had my family not already owned and operated a family construction business, allowing me to go to college, then trade-school, and then jump right into the business without having to do any job searching.
• I would most likely pursue something that didn’t involve managing so many people.
• There are more career options today that weren’t available when I was in school, especially the ones related to technology. I might have tried something different.
• The very high degree of uncertainty, financial
Of those who answered “No,” the following are some of their reasons:
hardships, the lack of opportunity to support intended growth, and other similar factors make the industry extremely stressful with limited opportunity for sustained growth.
• Construction cycles have been around forever but the latest recession makes me wonder if we will ever see years like Michigan saw from 1994 to 2000 again. Perhaps Michigan overbuilt during that time and we are still paying the price today. The loss of good-paying manufacturing jobs has been another component in the decline of construction. I have had a good career in the business and have enjoyed my relationships with loyal customers. I hope that the next two to five years see Michigan’s economy improve.
• This profession is too unstable; I think it’s impossible to reasonably forecast the future.
• Suppliers with deep pockets like Home Depot and Lowes have marketing funds to overwhelm the marketplace with perceived low cost values. But poor service has forced more legitimate suppliers (with overhead and
45DEMOGRAPHICS & COMMENTS
employees that actually report earnings) to lower their margins resulting in little ROI, but deep risk. Imports from China and other third-world companies provide poor quality and low price, but the client expects similar pricing. Lack of acceptable ROI for the risk of sales cycles doubling or tripling adding to costs.
• There’s too much government dictation; too low of margins for such high risk; and the industry has become very uncaring and rude in my area.
• The construction business has turned into a mess of mean-spirited, conniving, price shopping, unqualified people bereft of any real skill, knowledge, or substance of character. There simply isn’t nearly enough money in it to compensate dealing with the hacks one encounters on a daily basis. Further, there is zero interest from any level of government in caring whether you succeed or fail. Make no mistake – we succeed in spite of government.
• It is absolutely absurd to calculate our rate of return versus the risk of loss that we bear as construction company owners. No one in their right mind would view our business/industry as a ‘smart investment’ of financial resources.
• There is a lack of loyalty and appreciation in this industry. The amount of pay is not representative of the amount of work or hours we put in.
• Profit margins are too small for the amount of project management involved.
• I have enjoyed construction, but the return for the effort is not there.
• I’d be in the financial industry.
• I am too old to continue to be battered around to get project off the ground, then built, and then paid. I think I want to be a policemen or fire fighter so I can help people and be paid for it.
• The high volatility and stress of the construction industry is difficult to stomach sometimes.
• I would look into a more profitable business, such as technology.
• The culture and economy are both slowly deteriorating due to the policies and regulations generated by the present government.
• The barriers of entry are too low - everyone thinks they can be a general contractor. This creates too much competition, and we kill each other (figuratively) with cheap pricing to get the job. We then suffer through trying to perform with subs that are too cheap, owners that expect everything for nothing, and we get all of the risk!
• Subcontractors do not receive an adequate reward for the risk that is taken in the construction industry.
• No, because it is too stressful - and bidding projects for free is not worth the return on investment.
Of those who answered “No,” the following are some of their reasons: (continued)
46
At the present time, what is your biggest concern about the construction industry?
Written Comments
Concern: Government Regulations Solution: None
Concern: Obama Solution: Vote Republican
Concern: Continuing economic anxiety has delayed construction starts. Solution: Need additional tax incentives and stability. A Republican administration.
Concern: Union wages and work rules. Solution: Local unions need to either combine or allow unlimited portability for union contractors.
Many of our customers are national corporations that don’t care or understand why we aren’t as competitive when we travel outside our area.
Concern: My concern is that the possible abolishment of prevailing wage laws in Michigan will adversely affect my largest union-shop competitors, resulting in their loss of market share and causing them to look down-market into smaller projects and markets which we focus upon
Solution: Keep Michigan’s existing prevailing wage laws in force.
Concern: Continued growth so that we can fund our expansion plans in light of possible tightening of monetary policy.
Solution: Fire all the Republicans in Congress.
Concern: The underfunded union pensions.Solution: Stop the madness! The annual increases in wages will only create a reduction in work
hours as the union workers are pricing themselves out of the market. There needs to be a huge adjustment to the benefit structure, and the plans need to be replaced with defined contribution plans.
47DEMOGRAPHICS & COMMENTS
Concern: Right to work law is an indicator of the trend in our society to break up the construction unions.
Solution: Repeal the law and restore the unions in the marketplace. This would take major changes by the unions themselves to amend some of their monopolistic policies to become more cost effective in the marketplace.
Concern: EconomySolution: More available credit. Change in federal government.
Concern: INDUSTRIES LEAVING MICHIGANSolution: Having the communities back off and work with development of new construction.
Concern: Soft economySolution: Shrink government.
Concern: We are a local company in the supply end--and we see some loss of business directly and thru our customers to on-line providers--e.g. Amazon.com or bricks and mortar companies with a strong on-line marketing program--who have an advantage due to not having to collect sales tax
Solution: Support Market Fairness Act-currently before Congress.
Concern: Insurance rates.Solution: Don’t know.
Concern: Payment on time and skilled labor with a good attitude and a willingness to learn and work.
Solution: I wish I had an answer.
Concern: Lack of ROI caused of inferior competition working for wages and not paying taxes. Lack of capable applicants for open positions. Delayed projects or projects being scrapped because budgets where way out of line
Solution: Stronger immigration laws and reporting requirements. Tariffs for products manufactured outside the country. Banks required to provide a certain level of construction financing.
At the present time, what is your biggest concern about the construction industry? (continued)
48
Concern: Eroding profit margins.Solution: It will take care of itself.
Concern: Without the funding sources clients will not move forward with projects. My fear is many A/E and Construction firms will close or will be so small they can’t do the workload they were capable of.
Solution: The financial institutions need to start investing in projects.
Concern: The constant pressure to lower margins. / The lack of basic technology such as bidding done by fax and not email. / Observable lack of work ethic in the trades as a result of wage reductions and work rule changes.
Solution: An increase in the price of construction so companies can make better profit margins and workers make a livable wage. / / This is not likely to happen.
Concern: Customers only caring about priceSolution: Less customers and more time servicing customers that prefer overall value
Concern: Lack of skilled workersSolution: More training
Concern: There seems to be less and less talent in the field. We find very little talent (nor interest) in actually understanding basic construction techniques nor do we find any real interest in WANTING TO ACTUALLY GET THE WORK DONE. Most all of the projects anymore are immediately adversarial due to unqualified people running them, lack of proper funding, and a ridiculous reliance upon ‘systems’ or ‘I need to check this box off’ mentality instead of building relationships are getting anything accomplished.
Solution: There is none. The construction industry is a microcosm of the rest of our society. Mean spirited ‘button pushers’ sit in front of a screen and try to run complex projects. No one is interested in actually meeting people or building relationships or trust. The people we see coming out of college are totally unprepared for the real world, but because of ‘efficiencies’ are immediately put into positions of responsibility with no meaningful experience to back this up.
At the present time, what is your biggest concern about the construction industry? (continued)
49DEMOGRAPHICS & COMMENTS
Concern: Unrealistic expectations of owners/GC’s - too demanding and people don’t want to tell them no or the truth because of nature of market. / Plus all the qualified people who knew what they were doing were laid off and replaced with people who don’t know anything.
Solution: Fire the idiots
Concern: Future skilled workers in the technical fieldSolution: Increased community college technical training availability
Concern: Sustaining the growth we are seeing and having capable knowledgeable people to do the work
Solution: Letting students know that it’s ok to be a tradesman...not everyone has to go to college to be successful / better pay and benefits for tradesmen and women. / This is not likely to happen.
Concern: There is not enough new construction activity.Solution: Change the economic atmosphere being generated in Washington D C.
Concern: Lack of projects. Very competitive market. Non-Union competition.Solution: Stay lean and right size.
Concern: Steady supply of project opportunities that are fully funded. Also, Detroit bankruptcy creating fear of significant cuts/sales that would affect confidence or attractiveness to investment.
Solution: Support/enable investment in Detroit and the surrounding area by investors and public funding. Lobby/educate/encourage Orr to make wise cuts/sales that increase attractiveness and stability and do not negatively impact the city’s attractiveness to businesses and residents (e.g. significantly increased taxes, public safety cuts that increase crime, etc.). Additionally, increasing the competence, accountability, efficiency, and responsiveness of city employees as well as improving processes and requirements to make dealing with the city a ‘reasonable’ task would be highly welcomed and inviting. Working with the city, at present, is an abysmal nightmare.
At the present time, what is your biggest concern about the construction industry? (continued)
50
Concern: Lack of private commercial development as well as lack of residential home sales.Solution: Michigan needs to develop improved strategies to bring industries into the state such
as more automotive, technology and healthcare
Concern: Lack of profitable work to bid. We hear all the time about the “Recovery” but we sure aren’t seeing it. Finding good work to bid and then getting a straight answer on the results reminds me of 2009.
Solution: Relocate company.
Concern: Volume of work.Solution: Go back to a real free market.
Concern: Lack of profitable work.Solution: Elect government officials who will bring down the deficit.
Concern: Most projects seem to start later in the year and the first 4 to 5 months of the year are lost. We then play catch up for the late two quarters.
Solution: I would suggest that owners and builders will receive much better pricing earlier in the year when suppliers are hungry for business.
Concern: Poor documents to bid from. Architects not wanting responsibility and forcing more and more on the contractors. Government force feeding the green building which puts most private projects over budget and public projects at a very high cost to build on taxpayers dime. Manufacturers and lobbyist force feeding building codes and energy codes that support their products. This increases the cost of new housing and puts it out of reach for most families.
Solution: Design Build.. Government needs to stand down and let the free America and construction market work. Keep the code system to safety like it was meant to be not a marketing system for the highest giving lobby groups.
At the present time, what is your biggest concern about the construction industry? (continued)
51DEMOGRAPHICS & COMMENTS
Concern: Small market businesses getting loans from the banking industry. Solution: I firmly believe that if the banking industry is willing to loan to the smaller market
businesses, the construction industry will once again flourish.
Concern: Funding is not stable for projects. No really long term focus by government or private sector for funding.
Solution: Keep educating legislators and the public that you have to invest back into the infrastructure to be a strong nation.
Concern: Win/Lose mentality. Very short-term mindset of most parties.Solution: Select subs, suppliers, associates very carefully.
Concern: SustainabilitySolution: Spend more on reinvestment of the country.
Concern: Lack of construction work and funding of projects.Solution: I’m not sure but I think changes need to be made with the banks.
Concern: Not enough work especially in governmental infrastructure projects.Solution: Need to take to politic out of government... they are all arguing about ideologies as our
country is losing its ability to compete in a global market.
Concern: Lack of motivated talent to hire / Interest rates Delayed projects or projects being scrapped because budgets where way out of line
Solution: Vocational schools
Concern: It is not stable yet, just a bump of increased interest today.Solution: Slowly grow our business and not get stretched too thin.
At the present time, what is your biggest concern about the construction industry? (continued)
BUSINESS SURVEY52
OWNERS SURVEY This section of the Biennial Business Survey examines the construction industry from the clients’ perspectives. The focus is on plans for upcoming work, and their perceptions of Michigan’s construction industry and its practices.
53DEMOGRAPHICS & COMMENTS
5
OWNERS SURVEY54
CLIENT PERSPECTIVE
55CLIENT PERSPECTIVE
When working on a construction project, whom do you consult first about your project?
What areas were you less than pleased with?
Best summarize your general experience with the professionalism of construction personnel during the building process:
44%
63%
Contractor
Satisfied to Very Satisfied
36% Architect13% Financial institution 7% Attorney
100
50
0
Very
sa
tisfie
d
13%
Sat
isfie
d
50%
Ade
quat
e
31%D
isap
poin
ted
0%Ve
ry
disa
ppoi
nted
6%
• Dishonesty
• Keeping completion time commitments
OWNERS SURVEY56
What was the overall quality of the construction in your most recent project?
56%Good
100
50
0
Exc
elle
nt
19%
Goo
d
56%
Sat
isfa
ctor
y
19%
Poor
6%
Very
poo
r
0%
Which of the following would best describe your general experience with the overall construction process?
72%Proceeded as Expected
14% Smoother than expected14% More conflicts than expected
57CLIENT PERSPECTIVE
Which of the following would best summarize your general experience with project costs?
What areas caused the excess costs?
50%Greater Than Expected
100
50
0
Greater than expected
50%
Equal to expectations
50%
Below expectations
0%
• Wood, siding, trades
• Underestimate of materials cost
• Lack of competitive bidding for some packages. We have had difficulty getting any bids on some of our projects.
• Materials and Labor
• Site prep and water retention
OWNERS SURVEY58
Which of the following would best summarize your general experience with project completion times?
Which of the following generally causes the most delays in project completion or closeout?
50%On Time
100
50
0
Ahe
ad o
f sc
hedu
le
0%
On
time
50%
Del
ayed
—
No
faul
t
33%
Del
ayed
—
Con
tract
or’s
faul
t
17%
Del
ayed
—
Ow
ner’s
faul
t
0%
59%Unforeseen Problems
25% Communications with subcontractors 8% Communications with owners 8% Other
59CLIENT PERSPECTIVE
In your opinion, whom should you contact first to address problems with your project?
Percentage of fees charged for construction services you believe represents profit for GENERAL CONTRACTORS:
Percentage of fees charged for construction services you believe represents profit for SPECIALTY CONTRACTORS:
75%
55%
37%
General Contractor/Construction Manager
10-20% Profit
5-10% Profit
17% Engineers 8% Architects
100
50
0
18%
Less than 5%
37%
5%– 10%
27%
10%– 20%
9%
20%– 30%
9%
More than 20%
100
50
0
27%
Less than 5%
9%
5%– 10%
55%
10%– 20%
9%
More than 20%
OWNERS SURVEY60
What is your perception of fees earned by the following construction professionals?
Architects 42% 58% 0% Engineers 33% 67% 0% General contractors 25% 75% 0% Specialty contractors 33% 67% 0%Tradespeople 17% 75% 8%
TOO HIGH FAIR TOO LOW
Industry Fact:National surveys taken in 2012 indicate
• The average gross profit of general contractor's was approximately 6.5 percent of sales, and the average gross profit of specialty contractor's was approximately 16 percent of sales.
• The before tax net income of general contractors averaged about 1.5 percent of sales, and the before tax net income for specialty trade contractors averaged about 3 percent of sales.
61CLIENT PERSPECTIVE
FINANCIAL HEALTH AND OUTLOOK
OWNERS SURVEY62
Compared to the prior year:
56%Increase in Spending
Your company’s annual sales for the coming year will:
Your company’s profitability for the coming year will:
Over the next 12–18 months, your anticipated construction spending will:
Increase more than 10%
Increase More than 10%
Increase More than 10%
Increase 1–10%
Increase 1–10%
Increase 1–10%
Decrease 0–10%
Decrease 0–10%
Decrease 0–10%
Stay about the same
Stay about the same
Stay about the same
Decrease more than 10%
Decrease more than 10%
Decrease more than 10%
23%
0%
33%
22%
18%
23%
44%
64%
44%
11%
18%
0%
0%
0%
0%
63FINANCIAL HEALTH AND OUTLOOK
Rank the most challenging areas facing your business in the next 12–18 months:
Generally, how has your business performed over the last 12 months?
23%
55%
Economy
As Expected
17% Competition15% Government funding15% Materials/Construction costs13% Insurance costs13% Interest rates 4% Other
27% Better than expected18% Worse than expected
What do you feel the overall outlook is in your sector in the next 12–18 months?
50%As Expected
42% Better than expected 8% Worse than expected
OWNERS SURVEY64
What are the biggest financial challenges facing your company in the next 12–18 months?
• Stable customer base and government regulations
• Financing approval MSHDA & HUD loans
• Profitability
• Health care reform, IT expenses
• Trying to compete with other properties that are non-union
• Competition
• Continued Economic Recovery and Low Interest Rates
• We are on a growth trajectory to open new retail stores in new markets. Getting local government approval of our sites and timely inspection of our construction is a challenge.
• The economy
• Slow economic growth and uncertainty about government and economy
65CLIENT PERSPECTIVE
CONSTRUCTION PROJECT ACTIVITY
OWNERS SURVEY66
How many non-residential projects has your organization been involved in planning and/or constructing in the past year?
Do you anticipate a change in the number of non-residential projects your company is planning and/or constructing in the next 12 months?
50%
73%
More Than 10 Projects
Stay About the Same
8% 6–10 projects 34% 2–5 projects 0% 1 project 8% No projects
27% Increase 0% Decrease
67CONSTRUCTION PROJECT ACTIVITY
What type of work was done on the majority of your projects?
What type of work will be done on the majority of your projects over the next 12–18 months?
42%
50%
New Construction
New Construction
41% Renovation/Retrofit 9% Addition/Expansion 8% Maintenance
42% Renovation/Retrofit 8% Maintenance
OWNERS SURVEY68
The range that represents the average estimated price of your projects:
25%Future ProjectsOver $10M
PRIOR PROJECTS
100
50
0
$5M– 10M
20%
$1M– 2M
7%
$2M– 5M
7%
$500K– 1M
13%
$100K– 500K
20%
Less than$100K
13%
Over $10M
20%
FUTURE PROJECTS
100
50
0
$5M– 10M
12%
$2M– 5M
6%
$1M– 2M
6%
$500K– 1M
25%
Less than$100K
13%
$100K– 500K
13%
Over $10M
25%
69CONSTRUCTION PROJECT ACTIVITY
TECHNOLOGY/ SUSTAINABILITY
OWNERS SURVEY70
Does a contractor’s ability to utilize online technologies (online job bidding, project management, plans & specs, BIM) influence your decision to hire them?
When hiring a contractor, do you look to see if they participate in green or sustainable building practices?
Yes
Yes
67% of respondents indicate a contractors use of online technologies influences their decision to hire them.
64% of respondents look to see if contractors participate in green/sustainable building practices when hiring.
71TECHNOLOGY/SUSTAINABILITY
What percentage of your projects are currently green or sustainable?
73%0–20 Percent
Do you anticipate the number of your green or sustainable projects to increase in the next 12–18 months?
Yes 55% of respondents anticipate the number of green/ sustainable projects increasing in the next 12–18 months.
What is your opinion of the current green and sustainable building trends?
64%Approve
27% More than 50 percent
18% Neutral18% Disapprove
OWNERS SURVEY72
If you are building green or sustainable projects, do you anticipate an adequate return on investment over the life of the building?
Is your organization utilizing, or will you be utilizing, Integrated Project Delivery (IPD) methods on projects?
Which current trends or developing technologies are important to you when selecting a contractor?
Yes
No
56% of respondents anticipate adequate ROI over the life of the building.
82% of respondents are not, or will not be utilizing IPD methods on projects.
• Safety rate
• Quality trades
• Shared documents — cloud access to data
• BIM, Project Management Programs
73TECHNOLOGY/SUSTAINABILITY
WRITTEN COMMENTS
OWNERS SURVEY74
What is your overall perception of the construction industry?
In your opinion, what is the single biggest problem owners experience when working with the construction industry?
• Quality tradespeople
• Improvement in credit availability still needed. Industry has a reasonable foundation under it now and has the potential for a 5 year upward trend, as long as interest rates remain reasonable.
• There are a good number of very qualified contractors with good ethics. They are professionals who want to do a good job and earn a fair income.
• A good job and earn a fair income.
• Progressive, competent, responsive.
• Controlling Cost
• Less than reputable GC and subs
• Lack of communication/trust.
• During the recession many small firms closed or big firms lost workers. While most of our projects are large, we also have many small capital projects that we have difficulty attracting bidders to.
• Delays from poor supervision.
Written Comments
75WRITTEN COMMENTS
BUSINESS SURVEY76