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BUSINESS SURVEY
CONSTRUCTION ASSOCIATION OF MICHIGAN
2013 2014
BIENNIAL BUSINESS SURVEY OUTLOOK
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BUSINESS SURVEY
GREG ANDRZEJEWSKI FIRST CHAIRMEN OF THE BOARD, CAM Business Development Manager, PPG Industries
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
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 Andrzejewski CAM Chairman of the Board
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ABOUT
BUSINESS SURVEY
THE CONSTRUCTION ASSOCIATION OF MICHIGAN 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
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.
BUSINESS OUTLOOK
CO-SPONSOR PLANTE MORAN 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 thomas.doyle@plantemoran.com plantemoran.com
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BUSINESS SURVEY
TABLE
OF CONTENTS PAGE 7 Business survey PAGE 42 Demographics and written comments
PAGE 52 Owners survey PAGE 73 Written comments
BUSINESS OUTLOOK
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.
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BUSINESS SURVEY
BUSINESS OUTLOOK
BUSINESS OUTLOOK
Describe your primary business
37%
23% 18% 8% 4% 10%
General contractor Architect/Engineer Equipment/Material supplier Manufacturer of equipment or materials Other
Subcontractor Is your company union or non-union? 100
62% 50
38%
0
Union
Non-union
Average cost range of work that your company is currently performing:
39% Less Than $100,000
2013
2011
100
50
39% 35%
21% 23%
11% 14%
11% 8%
6% 6%
6% 4%
6% 2%
$500K– 1M
$1M– 2M
$2M– 5M
$5M– 10M
Over $10M
0
Less than $100K– $100K 500K
Trend to larger projects continues with over 29% of projects at $1Mil+, a 9 percentage point increase from 2011.
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BUSINESS SURVEY
The average cost range of work you anticipate your company will be performing over the next 12–18 months:
18%
11%
10%
7%
8%
6%
$1 – 2M
$2 – $5M
$5 – $10M
Over $10M
40%
$500,000 – $1M
Less Than $100,000
50
$100,000 – $500,000
40%
100
0
Less than $100,000
10
31% of projects are anticipated to cost $1Mil+. This is an 11 percentage point increase from 2011.
Which type of work is currently providing your company with the most opportunities? 2013
34%
33% 12% 11% 11%
New construction Additions Maintenance Retrofit
24% 15% 19% 13%
New construction Additions Maintenance Retrofit
Renovation 2011
29%
Renovation
New construction and renovation show an up-tick from 2011.
BUSINESS OUTLOOK
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% 13% 13% 10% 9% 7% 6% 3% 3% 3% 1%
Education/Cultural/Scientific buildings Infrastructure Transport/Industrial buildings Residential Interiors/Tenant improvements Office buildings Public works projects Hotels/Motels Entertainment facilities Renewable energy Religious buildings
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% 13% 10% 7%
Renovation Retrofit Maintenance Additions
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BUSINESS SURVEY
How has the volume of work contracted changed over the past 12 months?
48%
50
16%
3%
8%
7%
10% 9%
15%
Down more than 20%
6%
Down between 10–20%
The 2013 survey indicates a positive trend from 2009.
18%
22%
Down 10% or less
3%
About the same
12% 0
22%
Up less than 10%
About the Same
2009
Up between 10–20%
22%
2013 100
Up more than 20%
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How do you anticipate the volume of work changing over the next 12–18 months?
36%
About the Same
5% 20% 28% 6% 4% 1%
Up more than 20% Up between 10% and 20% Up less than 10% Down 10% or less Down between 10% and 20% Down more than 10% and 20%
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.
BUSINESS OUTLOOK
Are you currently doing work outside the state of Michigan?
Yes
51% of respondents are currently doing work outside of Michigan.
If you answered yes, what percentage of your total volume of work is performed outside the state of Michigan?
33%
27% 20 to 50 percent 25% Less than 10 percent 15% 50 percent or more
10 to 20 Percent Do you anticipate that percentage increasing or decreasing in the next 12–18 months?
71%
Increasing
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BUSINESS SURVEY
Has the Michigan “Right to Work” law affected your business?
No
86% of respondents indicate the law has not affected their business.
Has Michigan’s “Right to Work” law had a positive or negative impact?
52%
Positive Impact Do you anticipate the Michigan “Right to Work” law having an impact in the future?
No
54% of respondents
do not anticipate a future impact.
BUSINESS OUTLOOK
How long will it be before your business is affected?
68%
27% 1 year or less 5% More than 5 years
2–5 Years
Additional “Right to Work” comments related to business impact: • This will help to bring more work to the area.
• It will attract new business.
• I think it’s a great thing and will reduce
• I ’m anticipating lower quality of contractor
construction costs, which will encourage new project starts. •O ur current work contract will expire before any
impact will be known. •W orst 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. •U nion competitors no longer have a cost
disadvantage. •T he simple fact that Michigan is right to work
has increased the probability of a potential client coming to Michigan • I t is a good law in the long run. The immediate
impact is negative for a union contractor.
workmanship. •H opefully 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 •T he 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. •N ow we can compete with other states. •T he 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.
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BUSINESS SURVEY
SECURING WORK
SECURING WORK
How much new work do you currently have backlogged?
55%
23% 4–6 months 16% 7–12 months 6% More than 1 year Compared to 2009, companies are seeing backlogs stabilize.
1–3 Month Backlog
What primary method do you anticipate using for securing work in the next 12–18 months?
42%
Competitive Bidding— Invitation Only
100
42%
50
17%
13%
25% 3%
0
Open Competitive competitive bidding— bidding— invitation public work only
Referral
Negotiate directly with owner
Other
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BUSINESS SURVEY
If you are bidding competitive work, what is the average number of bidders who have been bidding against you on each project? 2013
54%
42% 5–10 bidders 1% 10–15 bidders 3% 15 or more bidders
Less Than 5 Bidders 2009
25%
Less Than 5 Bidders
42% 5–10 bidders 23% 10–15 bidders 10% 15 or more bidders In the current survey only 4% of projects had 10 or more bidders compared to 2009, which had 33%.
Do you anticipate the number of bidders, bidding against you, increasing or decreasing in the next 12–18 months?
68% Increasing
Although the trend shows a decrease in the number of bidders on projects, contractors anticipate that trend changing.
SECURING WORK
How have your profit margins/mark-ups changed in bids submitted over the last 12 months?
35% No change
6% 13% 4% 7% 16% 19%
Increased 5% or more Increased 2%–4% Increased 1% or less Decreased 1% or less Decreased by 2%–4% Decreased by 5% or more
Do you anticipate additional profit margins or mark-up pressure on your bids in the next 12–18 months?
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.
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BUSINESS SURVEY
WORKFORCE PLANS
WORKFORCE PLANS
What plans do you have for your workforce over the next 12–18 months?
53%
2013
2009
100
0
In 2009, 26% of respondents anticipated layoffs. In 2013, 42% anticipated adding employees.
1% 3%
4%
23%
Layoff full-time employees
6% 6%
Layoff part-time employees
8%
No change
36%
Add part-time employees
No Change
53% 60%
Add full-time employees
50
Is your company experiencing difficulty finding skilled workers?
Yes
53% of respondents are experiencing difficulty finding skilled workers.
General Contractors
Subcontractors
Yes
Yes
55% of respondents are experiencing difficulty finding skilled workers.
58% of respondents are experiencing difficulty finding skilled workers.
Suppliers
Architects & Engineers
Yes
Yes
48% of respondents are experiencing difficulty finding skilled workers.
59% of respondents are experiencing difficulty finding skilled workers.
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BUSINESS SURVEY
Over the next 12–18 months, you anticipate labor availability to:
50%
1% 13% 29% 5%
Increase significantly Increase slightly Decrease slightly Decrease significantly
Stay the Same
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 •W e need better training programs in higher
education. •S tart 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. •P romote skilled trades in high school and
realize that not all students are college material. Present a more professional image for the skilled trades. •W e might need to recruit in other areas of
the country, but also reach out to the various educational organizations here and partner with them.
•O ur 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. •H ave incentives for people to learn a new
trade or skill. •M aybe reach out to military organizations
or partner with them in some way? •P ut 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. •W e are already training our own younger
staff, in-house. •W e need to stress the need for young
folks going into trade schools instead of college and stress the benefits of working with your hands.
WORKFORCE PLANS
How should the industry address the decrease in skilled labor? (continued) •E ncourage 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. •T he 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 •W e 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. •M ake the trades more attractive to the younger
generation and fire Obama.
•L abor unions need to relax jurisdictional restraints
and recognize that defined benefits do not work anymore. •T he 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. •M ichigan’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. •T here 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.
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BUSINESS SURVEY
FINANCIAL HEALTH
FINANCIAL HEALTH
Select the three strategies your company has undertaken to improve profitability: 2013
26% Improve Processes/ Products 2009
32%
Cut Administrative Costs
19% 14% 10% 10% 8% 7% 6%
Cut administrative costs Staff reduction/Right-sizing Enhanced marketing Geographic expansion Design/Build projects Enhanced training Safety/Risk management
25% 17% 10% 9% 4% 1% 2%
Staff reduction/Right-sizing Improve processes/Products Enhanced marketing Geographic expansion Design/Build projects Enhanced training Safety/Risk management
Compared to 2009 there is more focus on improving processes and less on right-sizing cost cutting.
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BUSINESS SURVEY
How does your present cash flow situation compare to last year?
41%
2013
50
0
2013
36%
2011 2009
40%
17%
7%
About the same as last year
37%
51%
Worse than last year
23%
31%
Better than last year About the same as last year Worse than last year
2013
41% 46% 21%
58% 32%
10%
Better than last year
Better than last year
Supplier
2009
100
About the Same as Last Year General Contractor
2011
About the same as last year
23%
33%
Worse than last year
Subcontractor
2013
According to respondents, cash flow has improved since 2009.
2011 2009
Better than last year
30%
25%
7%
36%
About the same as last year
41%
40%
33%
57%
Worse than last year
28%
35%
60%
2011 2009
Architects & Engineers
2013
2011 2009
33%
16%
11%
Better than last year
46%
10%
13%
58%
37%
32%
About the same as last year
30%
55%
13%
8%
47%
57%
Worse than last year
23%
35%
75%
FINANCIAL HEALTH
In the next 12–18 months, how do you anticipate your cash flow position?
66%
2013
2011
2009
100
66% 65% 50
24% 19%
About the Same as Last Year
0
51%
13%
Better
10%
About the same
16%
35%
Worse
What is the average length of time it takes your company to receive final payment for work performed or materials provided?
51%
33% More than 90 days 16% 30 days
60 Days
Do you anticipate the average time it takes to be paid, improving or getting worse in the next 12–18 months?
56% Improving
2013
2011
2009
100
50
56%
41%
28%
44%
59%
72%
0
Improving
Getting worse
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BUSINESS SURVEY
Is your equity position sufficient to manage your cash flow needs? 2011
2013
Yes
86% of respondents
Yes
68% of respondents
indicated their equity position was sufficient.
indicated their equity position is sufficient.
Do you have access to a line of credit?
Yes
85% of respondents
have access to a line of credit.
Do you anticipate your access to credit improving in the next 12–18 months?
Yes
65% of respondents anticipate credit improvement.
FINANCIAL HEALTH
Have you filed a claim of lien in the past 12 months?
74%
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.
No Claims
What percentage of the work you perform is bonded? 2013
38%
30% 10 percent 23% 20 to 40 percent 9% 41 percent or more
No Bonded Work 2011
42%
28% 10 percent 17% 20 to 40 percent 14% 41 percent or more
No Bonded Work Respondents indicate a slight uptick in bonded work.
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BUSINESS SURVEY
Is your company having more difficulty securing sufficient bonding capacity?
No
81% of respondents
are not having an increased difficulty securing sufficient bonding capacity.
Do you anticipate materials prices changing in the next 12–18 months?
78%
21% Stay the same 1% Anticipate decrease in prices
Anticipate Increase in Prices
Have you been able to obtain escalation clauses in your contracts?
No
48% No 44% Haven’t tried 8% Yes
FINANCIAL HEALTH
Compared to prior year sales, your company’s annual sales for the coming year will: 100
50
33%
15% 10%
9%
28%
40% 20%
10%
21%
14%
Decrease more than 10%
Decrease 0 –10%
Stay about the same
0
Increase 1–10%
Project an Increase
2009
Increase more than 10%
48%
2013
Compared to the prior year, your company’s profitability for the coming year will: 100
32% 28% 6%
14%
29%
12%
26%
Decrease more than 10%
9% 10%
Decrease 0 –10%
0
33%
Stay about the same
50
Increase 1–10%
Project an Increase
2009
Increase more than 10%
42%
2013
Respondents remain optimistic about their sales and profitability for the coming year.
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BUSINESS SURVEY
What are the biggest financial challenges facing your company in the next 12–18 months? Credit & Capital •A vailable credit •O ur clients are having a difficult time securing
funding for their projects. They have needs but no way to fund them. •L ack of significant working capital to fund larger
jobs (i.e. access to credit, etc.) •C ollections are always a problem, especially for
extra work and retentions. •C ustomers requiring longer payment terms. •W e 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 •C ash flow due to retentions not being paid in a
timely manner. •N o revenues to improve equipment needed, and
no monies to increase salaries. • Cash management and fee suppression. •C ontinuing to expand in select markets and
finding ways to quickly become cash flow positive in those markets. •M anage cash flow to support large contracts
with large materials requirements.
•L ength of the sales cycle requiring higher prices,
competition from internet or low overhead suppliers, employees looking for salary increases without enough ROI. •M aking 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. •F inancing 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. •M anaging cash flow without an outside line
of credit. •C losing out and getting paid on large difficult
projects.
Profit Margins •P rofit margins continue to erode so we are
focusing on positioning ourselves better in the Design Build delivery method which normally produces better results. •L ow profit margins, low contract backlog,
increases in labor and material costs. •H aving 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. •M argin pressure. Growth.
FINANCIAL HEALTH
What are the biggest financial challenges facing your company in the next 12–18 months? (continued) Industry & Market
Other
•T here is simply no money in projects anymore.
•R eplacement of depleted fleet of trucks and
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. •A nticipating and capitalizing on the market
turnaround. •S taying competitive in the market that is
available. •F inding 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. •T here’s more competition in the field. •B alanced growth - sales/equipment/personnel
are all growing at the same time.
machines due to hard times. We didn’t replace much of our fleet over the last four years. • I nterest rates. •S low economic recovery limiting the amount of
new construction work. • I ncreased taxes. •T he 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. •C ontrolling overhead costs to get through the
economic downturn. •G overnmental obstructions to my business. •C urrently have no financial problems - we have
been in business for 70 years.
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BUSINESS SURVEY
BUSINESS CONTINUITY
BUSINESS CONTINUITY
What structure best describes your business?
70%
17% Parent company 13% Private branch
Family-owned If family-owned, how many generations has the business been in your family?
37%
34% One generation 29% Three generations or more
Two Generations Do you currently have a business succession plan in place or in process? 2013
Yes
2011
56% of respondents
currently have a succession plan in place or in process.
Yes
47% of respondents had a succession plan in place or in process.
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BUSINESS SURVEY
Which of the following is the key element of your strategy?
42% Selling/ Transferring to Family
41% 3% 3% 3% 3% 5%
Selling to key management personnel Selling to a strategic buyer Establishing an ESOP Merging with another company Winding down/Liquidating Other
In the event of your death, your stock would:
54%
Pass to My Heirs Through My Estate
24% Be redeemed by the company 18% Be purchased directly by my partner(s) 4% Other stock plans
BUSINESS CONTINUITY
If you were to leave your company tomorrow:
52%
29% I have management that needs further development 19% I have no capable management and will need to hire someone from outside my organization
I have a team
of strong managers who could easily manage the business in my absence Has the recent economic downturn affected your retirement plans?
40%
Yes — My Plans Are on Hold or Delayed
o — I am proceeding with my plans 32% N 28% I have yet to begin a transition plan
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BUSINESS SURVEY
TECHNOLOGY/ SUSTAINABILITY
TECHNOLOGY/SUSTAINABILITY
Which of the following online technologies is being utilized by your company? ONLINE PROJECT MANAGEMENT
84% 64%
70% 46% 6% 8%
Online technologies are being utilized more extensively in the industry.
9%
26% 27%
No interest in this technology
2% 2%
0
7%
Considering implementing
50
Planning to implement
Online Plans and Specifications
100
ONLINE JOB BIDDING
Currently using
84%
ONLINE PLANS AND SPECIFICATIONS
Does your company regularly engage in green or sustainable building practices? 2013
Yes
2011
70% of respondents regularly engage in green/ sustainable building practices.
Yes
52% of respondents regularly engage in green/sustainable building practices.
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BUSINESS SURVEY
Does your company currently utilize:
36%
Prefabrication Techniques
CURRENTLY UTILIZING PLAN TO IMPLEMENT
NO PLAN TO UTILIZE
100
50
0
67%
56%
36%
34% 18% 15%
8%
Prefabrication Techniques
General Contractors
Integrated project delivery
Cloud computing
Subcontractors
45% 10% 45%
26% 15% 59%
46% 18% 36%
38% 9% 53%
14% 14% 72%
27% 24% 49%
Prefabrication techniques
Integrated project delivery
Cloud computing
Prefabrication techniques
Integrated project delivery
Cloud computing
Suppliers
42% 24%
Architects & Engineers
26% 5% 69%
16% 5% 79%
30% 20% 50%
25% 5% 70%
19% 29% 52%
38% 38% 24%
Prefabrication techniques
Integrated project delivery
Cloud computing
Prefabrication techniques
Integrated project delivery
Cloud computing
TECHNOLOGY/SUSTAINABILITY
Which new technologies do you plan on investing in over the next 12–18 months?
22%
CURRENTLY UTILIZING 100
3% 4%
0
Smart phones
69%
68%
54% 22% 24%
Tablets
20%
18% 13%
12%
Software upgrades
ERP systems
Subcontractors
General Contractors Smart phones
Tablets
Software upgrades
93% 7% 0%
46% 32% 21%
60% 30% 10%
ERP systems
13% 9% 78%
Other
Smart phones
Tablets
Software upgrades
ERP systems
Other
0% 0% 100%
89% 4% 7%
55% 13% 33%
66% 18% 16%
12% 13% 75%
9% 0% 91%
Suppliers Smart phones
NO PLAN TO UTILIZE
93%
50
Tablets
PLAN TO IMPLEMENT
Architects & Engineers Tablets
Software upgrades
100% 75% 0% 20% 0% 5%
71% 24% 5%
ERP systems
41% 18% 41%
Other
Smart phones
Tablets
Software upgrades
0% 0% 100%
95% 0% 5%
43% 33% 24%
81% 10% 10%
Do you have plans to invest in any of the following?
Yes
62% 68% 50% 69% 52% 9%
Job safety procedures Staff development/Training Employee benefits programs New technologies Fleet/Equipment Disaster recovery
ERP systems
Other
21% 0% 11% 0% 68% 100%
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BUSINESS SURVEY
DEMOGRAPHICS AND WRITTEN COMMENTS
DEMOGRAPHICS & COMMENTS
Demographics Generally speaking, do you consider yourself:
How long has your company been in business?
8% 68% 17% 12%
20% 20% 10% 5%
Democrat Republican Independent No preference
What is the last grade of school you completed? 26% 49% 16% 5% 4%
Post-graduate degree College degree Some college Vocational/Tech. school High school
Is a woman a majority-owner (51% or more) of this business? 92% No 8% Yes
Is this a minority-owned (excluding female-owned) business? 99% No 1% Yes
Where are you located in the state of Michigan? 33% 24% 14% 10% 1% 18%
Oakland County Wayne County Macomb County Mid-Michigan Balance of Detroit Metro Other
More than 30 years 15 to 30 years 5 to 15 years Less than 5 years
What is your title? 10% 39% 14% 37%
Chief executive officer (CEO) President Chief financial officer (CFO) Other
What is your approximate age? 11% 33% 11% 2%
65 years–over 45–54 years 35–44 years 21–34 years
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Would you still choose to make your living in the construction industry if you were beginning your career today?
Yes
37% Yes 34% No 29% 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.
Of those who answered “No,” the following are some of their reasons: •T he impact of the economy on the construction
industry creates some uncertainty; so I’m not sure, if I had to decide today. •W e work too hard for the money we make. •T here 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. •T here 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. •T he very high degree of uncertainty, financial
hardships, the lack of opportunity to support intended growth, and other similar factors make the industry extremely stressful with limited opportunity for sustained growth. •C onstruction 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 goodpaying 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. •T his profession is too unstable; I think it’s
impossible to reasonably forecast the future. •S uppliers 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
DEMOGRAPHICS & COMMENTS
Of those who answered “No,” the following are some of their reasons: (continued) 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. •T here’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. •T he 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. • I t 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. •T here 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. •P rofit 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. •T he high volatility and stress of the construction
industry is difficult to stomach sometimes. • I would look into a more profitable business, such
as technology. •T he culture and economy are both slowly
deteriorating due to the policies and regulations generated by the present government. •T he 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! •S ubcontractors do not receive an adequate
reward for the risk that is taken in the construction industry. •N o, because it is too stressful - and bidding
projects for free is not worth the return on investment.
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Written Comments At the present time, what is your biggest concern about the construction industry? 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.
DEMOGRAPHICS & COMMENTS
At the present time, what is your biggest concern about the construction industry? (continued) 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: Economy Solution: More available credit. Change in federal government. Concern: INDUSTRIES LEAVING MICHIGAN Solution: Having the communities back off and work with development of new construction. Concern: Soft economy Solution: 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: L ack 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.
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At the present time, what is your biggest concern about the construction industry? (continued) 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 price Solution: Less customers and more time servicing customers that prefer overall value Concern: Lack of skilled workers Solution: 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.
DEMOGRAPHICS & COMMENTS
At the present time, what is your biggest concern about the construction industry? (continued) 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 field Solution: 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.
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At the present time, what is your biggest concern about the construction industry? (continued) 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.
DEMOGRAPHICS & COMMENTS
At the present time, what is your biggest concern about the construction industry? (continued) 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: Sustainability Solution: 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.
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BUSINESS SURVEY
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.
DEMOGRAPHICS & COMMENTS
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54
OWNERS SURVEY
CLIENT PERSPECTIVE
CLIENT PERSPECTIVE
When working on a construction project, whom do you consult first about your project?
44%
36% Architect 13% Financial institution 7% Attorney
Contractor
Best summarize your general experience with the professionalism of construction personnel during the building process:
What areas were you less than pleased with? •D ishonesty •K eeping completion time commitments
0%
6%
Very disappointed
Adequate
0
Disappointed
31% 13%
Satisfied
Satisfied to Very Satisfied
50%
50
Very satisfied
63%
100
55
OWNERS SURVEY
What was the overall quality of the construction in your most recent project?
6%
0%
Very poor
19%
Poor
19% 0
Satisfactory
Good
56%
50
Good
56%
100
Excellent
56
Which of the following would best describe your general experience with the overall construction process?
72%
Proceeded as Expected
14% Smoother than expected 14% More conflicts than expected
CLIENT PERSPECTIVE
Which of the following would best summarize your general experience with project costs?
50% Greater Than Expected
100
50
50%
50% 0%
0
Greater than expected
Equal to expectations
Below expectations
What areas caused the excess costs? •W ood, siding, trades •U nderestimate of materials cost •L ack of competitive bidding for some packages. We have had difficulty
getting any bids on some of our projects. •M aterials and Labor •S ite prep and water retention
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OWNERS SURVEY
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?
59% Unforeseen Problems
25% Communications with subcontractors 8% Communications with owners 8% Other
0%
Delayed— Owner’s fault
17%
0%
Delayed— Contractor’s fault
0
33%
Delayed— No fault
On Time
50%
50
On time
50%
100
Ahead of schedule
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CLIENT PERSPECTIVE
In your opinion, whom should you contact first to address problems with your project?
75%
17% Engineers 8% Architects
General Contractor/ Construction Manager Percentage of fees charged for construction services you believe represents profit for GENERAL CONTRACTORS:
55%
10-20% Profit
100
55%
50
27% 0
Less than 5%
9%
5%– 10%
9%
10%– 20%
More than 20%
Percentage of fees charged for construction services you believe represents profit for SPECIALTY CONTRACTORS:
37% 5-10% Profit
100
37%
50
18% 0
Less than 5%
27% 9%
5%– 10%
10%– 20%
9%
20%– More 30% than 20%
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OWNERS SURVEY
What is your perception of fees earned by the following construction professionals? TOO HIGH Architects Engineers General contractors Specialty contractors Tradespeople
42% 33% 25% 33% 17%
FAIR 58% 67% 75% 67% 75%
TOO LOW 0% 0% 0% 0% 8%
Industry Fact: National surveys taken in 2012 indicate •T he 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. •T he 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.
CLIENT PERSPECTIVE
FINANCIAL HEALTH AND OUTLOOK
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OWNERS SURVEY
Compared to the prior year:
56% Increase in Spending
Your company’s annual sales for the coming year will:
23%
Increase more than 10%
22%
44%
11%
0%
Increase 1–10%
Stay about the same
Decrease 0–10%
Decrease more than 10%
Your company’s profitability for the coming year will:
0%
Increase More than 10%
18%
64%
18%
Increase 1–10%
Stay about the same
Decrease 0–10%
0%
Decrease more than 10%
Over the next 12–18 months, your anticipated construction spending will:
33%
Increase More than 10%
23%
44%
0%
0%
Increase 1–10%
Stay about the same
Decrease 0–10%
Decrease more than 10%
FINANCIAL HEALTH AND OUTLOOK
Rank the most challenging areas facing your business in the next 12–18 months:
23% Economy
17% 15% 15% 13% 13% 4%
Competition Government funding Materials/Construction costs Insurance costs Interest rates Other
Generally, how has your business performed over the last 12 months?
55%
27% Better than expected 18% Worse than expected
As 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
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OWNERS SURVEY
What are the biggest financial challenges facing your company in the next 12–18 months? •S table customer base and government
regulations •F inancing approval MSHDA & HUD loans •P rofitability •H ealth care reform, IT expenses •T rying to compete with other properties that
are non-union •C ompetition
•C ontinued Economic Recovery and Low
Interest Rates •W e 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 •S low economic growth and uncertainty about
government and economy
CLIENT PERSPECTIVE
CONSTRUCTION PROJECT ACTIVITY
65
66
OWNERS SURVEY
How many non-residential projects has your organization been involved in planning and/or constructing in the past year?
50%
8% 34% 0% 8%
6–10 projects 2–5 projects 1 project No projects
More Than 10 Projects
Do you anticipate a change in the number of non-residential projects your company is planning and/or constructing in the next 12 months?
73% Stay About the Same
27% Increase 0% Decrease
CONSTRUCTION PROJECT ACTIVITY
What type of work was done on the majority of your projects?
42%
41% Renovation/Retrofit 9% Addition/Expansion 8% Maintenance
New Construction
What type of work will be done on the majority of your projects over the next 12–18 months?
50%
New Construction
42% Renovation/Retrofit 8% Maintenance
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OWNERS SURVEY
The range that represents the average estimated price of your projects:
25%
Future Projects Over $10M
FUTURE PROJECTS 100
50
13%
13%
25% 6%
12%
$500K– 1M
$1M– 2M
$2M– 5M
$5M– 10M
Over $10M
13%
7%
7%
20%
20%
$500K– 1M
$1M– 2M
$2M– 5M
$5M– 10M
Over $10M
0
Less than $100K– $100K 500K
25%
6%
PRIOR PROJECTS 100
50
13%
20%
0
Less than $100K– $100K 500K
CONSTRUCTION PROJECT ACTIVITY
TECHNOLOGY/ SUSTAINABILITY
69
70
OWNERS SURVEY
Does a contractor’s ability to utilize online technologies (online job bidding, project management, plans & specs, BIM) influence your decision to hire them?
Yes
67% of respondents
indicate a contractors use of online technologies influences their decision to hire them.
When hiring a contractor, do you look to see if they participate in green or sustainable building practices?
Yes
64% of respondents look to see if contractors participate in green/sustainable building practices when hiring.
TECHNOLOGY/SUSTAINABILITY
What percentage of your projects are currently green or sustainable?
73%
27% More than 50 percent
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
18% Neutral 18% Disapprove
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OWNERS SURVEY
If you are building green or sustainable projects, do you anticipate an adequate return on investment over the life of the building?
Yes
56% of respondents
anticipate adequate ROI over the life of the building.
Is your organization utilizing, or will you be utilizing, Integrated Project Delivery (IPD) methods on projects?
No
82% of respondents are not, or will not be utilizing IPD methods on projects.
Which current trends or developing technologies are important to you when selecting a contractor? •S afety rate •Q uality trades •S hared documents — cloud access to data •B IM, Project Management Programs
TECHNOLOGY/SUSTAINABILITY
WRITTEN COMMENTS
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OWNERS SURVEY
Written Comments What is your overall perception of the construction industry? •Q uality tradespeople • I mprovement 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. •T here 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. •P rogressive, competent, responsive.
In your opinion, what is the single biggest problem owners experience when working with the construction industry? •C ontrolling Cost •L ess than reputable GC and subs •L ack of communication/trust. •D uring 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. •D elays from poor supervision.
WRITTEN COMMENTS
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BUSINESS SURVEY