January 15, 2009

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COMMERCIAL BUILDING & CONSTRUCTION

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COMMERCIAL BUILDING & CONSTRUCTION

January 15, 2009

Like most industries across the Beehive State, commercial building and construction are feeling a slowdown and leaders are bracing themselves for an even slower year in 2009. Experts say quality standards remain key as workers transition from the residential market, while green building continues to gain momentum. Our group of industry leaders also discussed workforce skills, concerns about material availability and the impact of delivery systems. We’d like to give a special thank you to Rich Thorn, president of Associated General Contractors Utah, for moderating the discussion, and to Holland & Hart for hosting the event. Participants: Seated: Alex Roundtree, Granite Construction Company; Rich Thorn, Associated General Contractors Utah; Bill Garff, Garff Construction; Bob Tempest, Tempest Enterprises. Middle Row: Melissa Orien, Holland & Hart; Jim Gramoll, Gramoll Construction; David Wadman, Wadman Corporation; Forrest McNabb, Big-D Construction; Michael Kurz, Staker Parson Co.; Dave Hogan, Wadman Corporation; David Freston, R & O Construction; John Evans, Okland Construction. Back Row: Martin Lewis, Utah Business; Jason Kilgore, Kilgore Paving; James Overright, Cache Valley Electric; Terry Buckner, The Buckner Company; David Zimmerman, Holland & Hart; Kip Wadsworth, Ralph L. Wadsworth Construction; Paul Clyde, Clyde Companies; Chris Smith, Layton Construction; Lonnie Bullard, Jacobsen Construction; Ed Cooper, Ash Grove Cement Company What is the current state of Utah’s commercial building and construction industry? McNABB: We’re like everybody else in the industry—we see a flattening out here, obviously going on the downside. We’re kind of sheltered here in Utah between the two coasts, so we’re hoping that the bubble is a little shallower here in Utah. Things that have hit the East Coast and West Coast a year ago are closing in on us. I think that is apparent to everybody. I’ve talked to the subcontractors in the market and they are just grasping for work to bid on. SMITH: I’m seeing a lot of intensity in the amount of people that are going after projects too, which is a little disheartening. Nobody minds competition, but you know, when we get some crazy numbers out there and people that are not qualified to do the kind of work that we do, that we have to compete against—I think some of the people you have here are premium contractors in the state, and most of us have a big log on the fire that will keep us through to 2009 as far as our backlog. But once that is burned up, we’re going to be looking for work—probably around the next eight to 10 months. And that is when it is going to get scarier. GARFF: Speaking as a smaller contractor, our logs are not as big. My economic indicator is how big the bidders lists are. We are also seeing projects cancelled. Owners are saying “postponed,” but we are seeing a lot of projects, smaller projects, especially from private people that are just being put off indefinitely, and that is affecting small contractors a lot right now. Is the building slowdown happening in both the private and public sectors? GRAMOLL: I think what we are seeing is that there is the same amount of work for us out there, but what I’m seeing is people moving into the market that didn’t used to be there. And I think that is caused by the slowdown in the development. BUCKNER: I’ve seen residential contractors moving into large apartment complexes, and I’m starting to see them tackle large projects they have not done before, entering into an arena that commercial contractors have been doing. McNABB: We are seeing a big wave of that in the subcontractor market—strictly residential subcontractors that are looking at concrete, framing and are just way over their head. How is the slowdown affecting the heavy and highway construction sector? KURZ: We are seeing the same things that the builders are experiencing: an influx of people moving into that medium sized commercial type work, venturing into new areas and performing some work that maybe they are not familiar with. And a lot of that is due to the residential slowdown—it’s causing a lot more competition on these bids that are out there. As far as failures, it’s early, but let’s hope they are not there. We work in several areas in the western United States and we, in Utah, are fortunate here. It’s been a little slow coming. KILGORE: Business is slowing down for us on the paving side. A municipality bid about three weeks ago had 19 bidders. It all goes back to: who is qualified to do the job? ROUNTREE: We’ve seen the same thing in the northern area: an increase in bidding and that smaller agency dollar value, a million up to five million dollars. How are these guys being able to bond and come into that arena where we’ve had three or four bidders and now we are having 12 on a lot of our recent bids? What about underground and utility work? TEMPEST: We are really starting to look into survival mode. You know, we’re fortunate because we are a small niche contractor. We have some long-term contracts in place that will carry a core group of people through. But the type of work we’ve been looking at during the past four or five or six years where the expansion mode has been going on—we are not looking that direction anymore. It is shrinking down and we’re looking to just maintain. How has the financial turmoil affected your business operations? Are you having trouble securing financing for your projects? WADMAN: It is interesting how the banking and credit industry have manipulated and changed our industry so quickly. A year ago we were pretty optimistic over the next two or three years, and today we are very concerned about the next two to three years. EVANS: I think that is a point that has not been brought up here is that we are overlooking the financial institutions. There are a lot of projects out there that are willing and ready to get built, but there are owners who literally cannot get the money to build the projects. That’s especially true in light of multi-family residential or condominium type projects. [Financial institutions] have just literally almost put a stopgap on lending money. We have three or four projects that are ready to get built, but the developer just cannot get funding. FRESTON: The [financing troubles] have essentially taken a whole sector of our marketplace off the table right now because so many of us have dealt with private developers that there is virtually no private development being done because they cannot get money. And in the case of retail—tenants are very skittish as well. So the combination has created something we have not had to deal with before. Generally we can see with these slowdowns a light out there and something that we can build toward. We don’t know what that is yet and these are very uncertain times now because of it. CLYDE: We have found the public sector to be pretty strong, especially UDOT, which has come out with a lot of big design build projects and also attracts outside people into our marketplace. So there is a lot of money being spent in design build right now and more to come. What we’re concerned about is as the revenues drop off with the municipalities and the counties and the state, then they will start to withdraw. We know that they have already withdrawn money from UDOT. So we see this contraction coming as the revenues drop for these public entities and we look at that to contract that kind of work for us. McNABB: I was in a meeting last week provided by a surety company, and what they said is so true: the economic outlook is decreased tax revenue. We’re seeing spending dry up, a heightened contractor risk, increased claims activity, shrinking surety bond market and the underlying focus of reevaluating risk. There’s an emphasis on liquidity. All of us are looking at our financial statements and saying what are the liquid assets of the company in real terms today? There’s a new administration in the White House and changes in both the House and Senate on a national and state level. How are these leadership changes affecting your business? COOPER: There are so many different variables out there that we have never dealt with—the credit trouble, the new president—so it’s hard to know how that is all going to shake out. We are looking at just a survival mode nationally and it funnels down to the states. If the states don’t have monies to continue to fund projects, which we’re starting to question even though they’ve got these plans out there, we are starting to see more and more delays. CLYDE: I’m a trustee at Utah Valley University and we’ve been told that there will be no new money for buildings in this legislature. So that’s the word that is passing down through the educational arena. Utah’s unemployment rate is currently 3.7 percent. Is manpower an issue for you? OVERRIGHT: We aren’t seeing a shortage coming and we’re pretty optimistic that we are going to be keeping a lot of folks busy over the next 12 months. There are two very large data centers going into West Jordan right now. We have one of those under contract. We’re pretty optimistic the other one will happen in the next month. We’ll probably have 300 total working in the field in West Jordan by March and a lot of prospects downtown yet to come. We’re also pretty optimistic that some of the larger backlogs available in the state are going to be ours and that the manpower that it takes to do those jobs is available. We still have quite a large project going out on the west desert. There seems to be plenty of help available for us. KURZ: We are seeing similar things as far as manpower. Obviously, in winter we taper off a little bit. But going forward we don’t see manpower as a major problem. I think we’ll be able to get the folks that are needed to handle our backlogs and anything that is coming up. So hopefully we can put those folks to work and keep our unemployment rate down where it is. WADSWORTH: I agree that there’s no issue with labor right now. The issue is keeping them busy, not trying to attract them. Does the workforce have the needed skills to be productive? WADSWORTH: The skilled workers are there and you can find a skilled worker or two if you need. A couple of years ago that was pretty tough, and that was the biggest barrier for us as far as growth. Now it is trying to keep the skilled workers you have busy. GRAMOLL: What I’m seeing are those guys who jumped ship for a few dollars more—they are going to be out of work because they will be the first ones gone. KILGORE: I’m thankful that my employees stuck around and were loyal. You’ve got those guys that jump around for two bucks or a dollar more an hour. Those are the guys that you see that are chasing jobs right now because there was no loyalty there. Loyalty is going to play a big factor in this market going forward, not only with employees but with relationships within the community and with businesses. McNABB: One of our customers summed it up best. He said, “I’m hiring people I didn’t interview years ago.” As constructors, we have a rare opportunity to keep the best of the best in our groups. We tend to look in the front of the car instead of in the rear view mirror and all of us have that opportunity now—we have a rare opportunity in our businesses to clean house and keep the best of the best. KURZ: It is a great time to strengthen our teams and bring on some good, qualified people. So that part is a fairly positive thing for our industry. Are you seeing any challenges getting the materials you need? ROUNTREE: In regards to oil, I think we’ll get the oil we need. Hopefully we’ll get some good winter fill and some of our suppliers will get stocked up, and then we can look forward to a better 2009 season than what we had in 2008. KURZ: I think there are some unanswered questions in our industry right now, and as we go forward there will be some pretty significant changes as far as trying to bring somebody in here to fill some of these gaps that have been created by one of the suppliers having some problems last year. But the key to this is winter fill. That’s taking place in a lot of these locations. That will help us stay out of what we would call the so called shortage. How is the concrete sector fairing? COOPER: If you look at this August versus last August, concrete in the state of Utah is down about 22 percent. And really the major paving work was about the same this year as last year, so a tremendous decrease. So as far as cement manufacturing and product, there won’t be an issue that I can see for the next 10 or 15 years. The thing that we are seeing is energy costs are not going to go down. Coal has gone triple. It’s not going to go back down. You can buy wind power, generated power for 79 cents more than you can coal fired. BULLARD: What advice do we give to owners who are now looking at the declining oil prices and other material prices and asking the question, “Should I pull the project and wait for six months until construction costs come down?” FRESTON: For many, the only incentive to build is because they see prices falling. Take developers, for example, the tenants are not making the kind of deals that they were willing to make when construction prices were higher and the economy was fueling that. They are coming back now, but they struggling to get loans. McNABB: We’ve seen owners go out and they do a pro forma on a $15 million project, for example. The appraisal comes back at $11 million and the bank comes back and says, “We’ll give you 80 percent of that.” And that is the good news. So people are saying, “How do we drive the cost of the project down?” This totally changes the project. You know, part of it they are seeing is at the gas pump. It went from $3.30 to $1.91 a gallon in less than a month and a half. Where is my benefit as an owner? And they think it should be real-time and it’s stopping some of the projects. Worse than that is the lending institutions are injecting themselves in these projects and saying, “Time out, we’ve got to take a closer look.” The biggest challenge we have as contractors is termination for convenience. When people say, “We’re going to just stop the job. Let’s board it up and see what happens in the next six months to a year.” GARFF: The danger of deflation. OVERRIGHT: Ten years ago most of the people in my industry couldn’t have cared less where China was. And two years ago, when we were starting IMC, I can remember being in construction meetings, preconstruction meetings with Okland wondering how to set up the concrete schedule because the cement was going offshore. On a regular commercial project, the electrical and mechanical are going to run between 20 and 30 percent of the cost of that project. On the electrical side, 70 percent of that cost is probably material, and probably 90 percent of that material is coming to this country from offshore. Copper reacts daily and copper prices change daily, but the rest of the commodities that escalated into the clouds last year are still there. Light fixtures, gear, conduit, fittings—all of that stuff is being manufactured now off of this shore. The majority of it is being manufactured offshore and it is coming back here. There are so many influences on material prices for us in the commodity market that it is almost impossible to figure out what is going to come next. But the interesting thing is that the people that managed to get those prices up and kind of hold us hostage are not real reluctant to let go of those dollars. So steel products, for instance, light fixtures, manufactured goods on the commodities side—they are not coming down. And whether there is going to be an economic force in the world that starts bringing that stuff back down into equilibrium with what we are seeing in fuel prices—that is anybody’s guess at this point. TEMPEST: One of the most interesting conversations I’ve had in the last few weeks was with Dave Folger with Scott Equipment. They are feeling the impact of this on the equipment side of things. Dave [Folger] said that Scott Machinery is sitting on the largest inventory they have ever had in their history. So, it’s a great time to be buying machinery. The problem is that nobody—at least small contractors like us—don’t want to spend the money to go out and buy stuff. So, there’s that whole component, too. There is more equipment out there than there has ever been, just sitting. Are you seeing many companies having to close up shop? ORIEN: I don’t know that we’ve seen it as much here in Utah, but on the work that I do in Vegas, I’ve seen a lot of middle tier subcontractors just disappearing off the face of the planet. And people get liens from remote subcontractors and suppliers that they don’t know were out there, and they can’t figure out what happened to the guy in the middle. Obviously on the owner’s side, you have projects across the skyline that are just stopped and have been for months, but there are a lot of people in the middle places—the chain is just going up and it has been causing problems with respect to payment, trying to figure out where the materials went that the job has been liened for. EVANS: What we are definitely seeing is your drywaller, for example, who has been doing homes in Midway or Park City, who is definitely now trying to compete on commercial work. I think it behooves us as an industry to really look at that and make sure that we are pushing our owners to prequalify. It is of no interest and it is of no benefit to us to hire folks who are not capable of performing the large commercial jobs, even though they are out there wanting it and seeking it. I get calls daily from folks of interest to bid work, but their portfolio is residential in Midway. But residential work has dried up and now they are scrambling for anything. But, we’ve got to watch ourselves and make sure that we are not getting in bed with folks that really are not qualified or capable of doing the work that we do. ZIMMERMAN: We are seeing issues where banks are pulling financing or there are other financing issues. I’m being approached more with issues with respect to the contractor running into getting involved with the owner and the bank creating problems. The contractors we’re dealing with are generally looking for the high quality generals or subconstractors, so we’re not seeing those kinds of failures of the subjects at this point, yet. As the residential construction sector moves into nonresidential construction, are you seeing spikes in accidents? HOGAN: In the last two months, we have had two contractors go bankrupt on three of our jobs. And that’s had obviously a huge impact on those jobs. They were not residential contractors. They were contractors building in the commercial industry. And quite frankly, they didn’t own their equipment. They were paying lease payments on it. As soon as they started going under, we were getting contacted from all kinds of suppliers that were not even on our job. So, we’re already starting to see the effects of subcontractors that are feeling the crunch. BUCKNER: Coming off that same trend, where we are seeing failures is in the subdivision areas. And if you see people who have been doing subdivision work waiting for payment from developers, they may be hung out to dry on some stuff, which then compounds the issue across other jobs they are doing right now. We have a significant amount of subdivision bond claim activity happening right now on the surety side. WADSWORTH: I think you are seeing what you are going to see in the labor pool. You are going to see the subcontractors being weeded out and you are going to be left with the best, and you are going to be able to have a good, solid subcontractor foundation after this bubble is over. You are going to weed out those guys who are not strong and don’t have the cash flow and don’t have the expertise. We bid a little job a couple of weeks ago where we had prices from guys I’d never heard of before coming out of St. George and Las Vegas. And I think that is what is going to be happening for six or 12 months until they either decide to get out of the business or they go bankrupt because there just isn’t enough work for the guys on the lower end to keep up. McNABB: We are finding out that we are paying subcontractors and then getting calls a month to a month and a half later that second and third tiers underneath them are not getting the same timely payment. We got lazy about it and our risk management is going to have to raise the bar on that. FRESTON: That is the other shoe that has fallen. Owners can look up and see declining prices, but there are a number of sub-bids we are getting on every single job where subcontractors are basically looking to make payroll and go broke on a job. So the amount of risk that we are dealing with has increased even greater at this point. Having an office in Las Vegas, we’ve seen it and have been prepared. But that trend is absolutely, positively here. And suddenly on bid day, especially in a more competitive market than it’s ever been, you are faced with a decision of taking a risky sub bid or not having work for your people. You make that decision; you deal with the subcontractor; you go broke. Pretty soon you are upside down on that job and the domino effect just continues. So it’s a real challenge. CLYDE: Our challenge this year has been in the residential area with material supply, building material supply and construction material supply as well as putting product in place and getting paid. But winter is always tough on heavy highway-type contractors. I see a lot of falling out of these people trying to cross over from the residential market into the nonresidential market and things like that. I see a lot them never making it out of this winter this year. How is green building affecting your business? GRAMOLL: I think we are all on board with green building. We’ve all educated ourselves, and I think in the next few years it will become the norm rather than the exception. It may already be becoming that. And I think you will continue to see the programs develop, but the concept behind green building is with us to stay, and we’re all building that way. There are things that we are now doing that actually benefit our construction. As an outgrowth of paying attention to these items, we’re seeing a benefit in how we build. CLYDE: What is the cost differential? GRAMOLL: I’m seeing it come down, and it depends on what level of green you are building to. It’s almost like a curve. The first bit is very easy to get with almost no cost. Once you start getting to higher levels of green building the cost can become quite significant, like 5 percent. McNABB: I sit on the National Committee of Green Builders. LEED may be a fad but sustainable construction won’t be—it’s here to stay. We’ve got four LEED certified projects in the state of Utah and we have 12 in preconstruction and construction awaiting certification. I was recently at a dedication on a Platinum building and the spokesman from The Nature Conservancy said, “We don’t inherit our earth from our ancestors. We borrow it from our children.” And that is really what is drawing the attention to this. Most projects designed today could reach LEED certified level. With the electric and mechanical design criteria today coupled with responsible design, you can obtain LEED certification. I think we will see owners continue to drive LEED certification of whatever level they choose, but what is going to drive green building is what jurisdictions do with it. Big cities, like Chicago, will turn around building permits quicker and allow reduced fees for green building. Actions like that will drive more buildings going up LEED certified. Someone asked me last week to define “green.” Here’s what I did: I asked him to close his eyes and think about a place he would rather be—his happy place. Most people think of somewhere outside. That gentlemen said, “That is what sustainable green construction is inside out.” And that is what we are dealing with here and it won’t go away. When you think of your grandchildren, you think about all the construction waste we’ve generated through our history. My dad was an iron worker. I think about how much steel, how much rebar, how much concrete and timber we threw in a landfill—it’s absolutely scary how much each of us has wasted through our projects. ORIEN: If you look around the country, there are a lot of municipalities mandating LEED certified buildings for all new construction, which means that LEED is going to be around here for a while. I didn’t see it that much in the contracts that came up a year ago. Now I’m seeing LEED Silver pop up all over the place. And sometimes it is scary where it pops up, and it means that there is some education that needs to be done at the client level. Sometimes it is more of a problem with the bigger contractors where there is more of a disconnect between the sales and operations end. A couple of months ago, I had been working on a contract and saw the scope document—LEED Silver was just a line item in the bottom of the scope. And now it’s one of my first questions that I ask when I’m involved in a project, “Is it LEED certificated?” And I’m surprised how often the answer is yes, but there haven’t been steps to modify the contract accordingly. I’ve also seen someone promise to deliver a LEED project where it hadn’t been designed to LEED standards. So, there is some education in the industry that needs to happen. We need to help educate people regarding: What is LEED? What is your role in building LEED? How do we work together to build LEED? Are the architect and design communities up to speed regarding green building? McNABB: I think there is a niche market, and those design firms that have grasped this, they are going to pull away from the pack. The biggest challenge is, as contractors, LEED is called energy and environmental design. Never does it say construction. But who delivers that? We had an owner who came to us and said, “Well, I’m not the first LEED Platinum building in Utah. You cost me and the designer.” We said, “There are projects a year ahead of us in the queue.” But someone is selling the owner a project that they are going to deliver and they are going to be the first green LEED Platinum building in the state of Utah. I’m saying, “Hey, we never signed up for that in our contract.” So it is an education. You get people speaking out there and it’s like any new thing that is out there. I go to seminars and people are saying, “LEED.” So, everybody is an expert on it, but they are really not. But, the design firms are grasping it. GRAMOLL: Melissa [Orien] was touching on a subject that we are all going to have to be real sensitive to and that is guaranteeing LEED certification. We’re not in a position to do that, and we need to be very careful because it depends on owner decisions, design decisions, 80 percent more than what we do in the field. ORIEN: Well, it is a third party organization that does the certification. You don’t control the process. You don’t control all the players. In a design circumstance, you would lean more toward does your owner know what a LEED building is going to look like at the end of the day? Who is telling them that there is going to be all this extra daylight? Is that something they want? FRESTON: Simply defining sustainability is a big part of it. A lot of owners look at sustainability and they think of something that is going to last longer. Green buildings don’t last longer. Sustainable products are designed to break down and go back and leave very little impact on the environment. Being able to explain to an owner that you are getting this green benefit, but you are going to pay more for it, and it’s very likely that your building is not going to last–that is a fine line for us. Being able to explain that to them so that they know what they are getting through the entire design and construction process is critical. You have to have the team involved from the outset. COOPER: I think originally when we started talking LEED in the state, a lot of that was driven by the federal government. A lot of the money that came into the state was LEED. And I think looking into the future with the next administration, you might even see tax credits. So it is here to stay. FRESTON: It is not conceptual. It is matter of fact. COOPER: Yeah, and I think it could be mandated from the White House this go round. What is the future of green building on the heavy highway side? KURZ: In the heavy highway industry, LEED may not be the word, but green is definitely the word. And green means a lot of things—from recycled products to using natural reserves to reducing input into the air. There is also a big movement with the high cost of energy and oil, so we’re seeing a big push in that area. With the downtick the industry is experiencing, how are you marketing your company to make sure it stays competitive? KILGORE: You know, I get concerned about customers looking at price more so than service and quality, and in today’s market with all these subcontractors we’ve been talking about, price is huge. There is a huge difference in someone trying to make payroll and not worrying about making his equipment payment. Somehow we’ve got to educate customers and the owners that price isn’t always the determining factor. But, how do you educate your customer that we may not be the lowest, but we’re the best. You can’t go and slander another company, saying that they’re not making their payments. It is price driven 100 percent. SMITH: The only alternative is to find a safe harbor to weather the storm. We’re going to have to work with good owners, good subcontractors and take less revenue and be more choosy because we don’t want to have a subcontractor failure take us down, and we don’t want to have the owner failure take us down. When our owners come with a project and the bank metrics don’t work or the pro formas don’t work, we are looked at to solve that problem with maybe a bridge loan or some stopgap funding. We’re being asked some out of the box type of questions to help solve their problem and we’re having to come up with some of those solutions. WADMAN: It goes back to relationships. We’ve spent the last “x” amount of years working with clients and some of them will continue to build, some of them won’t. It’s not always based on a low bid, even though that is a driving factor in our industry. But, we have found that the relationship is stronger than that in some cases. As we talk here, it’s doom and gloom and depressing. And yet for me, it’s exciting. It’s a time to regroup and enhance our skills and sharpen our people and the processes that we do. And there is going to be a slowdown, but there is a time of growth of our organizations and of people that I look forward to. CLYDE: I agree with that. We’ve been at such a breakneck growth mode that I think we all got a little sloppy. We should look at this as a time to really sharpen our saw up and retrench a little bit. But we feel there are some opportunities out there and we have to be finding those opportunities and coming out of this time in a stronger position and that is the way we view it. EVANS: We spent a lot of time over the last few years educating owners on value, not just low price. And, I think a very key point going forward is that we don’t lose that traction that we have gained over the last five, six, seven years and let ourselves as an industry revert back to just competing on price. There is a time and place for that, but there are a lot of projects that value needs to be a part of the process. Has anybody seen owners trying to move away from that as price becomes more important? Are you going to see a reversion back to design-bid-build? McNABB: We’ve got some great long- term customers and some who are retail, and they went from the negotiated standpoint to accounting. We’ve got great customers here in town who have always limited it to three or four and said, “Let’s go for CMGC proposals,” and I got word on one yesterday that said, “Hey, we are going to finish design and hard bid it.” The challenge we all have is there are plenty of qualified subs, but unless you drive all the things we’ve worked for to the levels throughout pre-qualifying mechanical, electrical, that ship is destined to fail because we are the ones that are going to have to bear it, and we are the ones that are going to be driven by the low cost industry again, which we’ve always chosen to say we are not a commodity as contractors. BULLARD: Part of the problem with project delivery is that during those periods of intense pressure on prices upward, some clients felt like we should have controlled that process. And the CMGC in the end is a reflection of the market—it becomes a reflection of the market as you set pricing, but if we were caught in situations where part of the backlash is, what am I getting out of the CMGC, you didn’t control my pricing and prices went up. Now we are in a situation where they want prices to come down. I’m clearly seeing some owners going back to hard bid in order to get that out of the market place. CLYDE: Some of our material supplier competitors have provided real low pricing but have not provided service and quality. Now there is so much capacity in the industry, they can provide the service, but with a pressure on price quality might be a different issue. So it becomes a little bit harder to differentiate yourself from them because with them sitting around with capacity in their yards, then their services have improved. OVERRIGHT: It seems to us that more and more of what we are getting involved in is becoming price based and price focused rather than some of the other value added things that we felt put us into a better position. If we look at our backlog right now, the overwhelming majority of our backlog was negotiated or was in some sort of a value based bid scenario. We’re seeing where that is becoming less and less available. And unfortunately, price seems to be what determines whether we book the job now more than ever. WADSWORTH: There is no question that price is starting to become a bigger factor on the private side especially. UDOT still has a value portion of their selection but it’s getting smaller. I think the last job, it was six percent if I recall correctly. Six percent of the grading could be swayed by the value and 94 percent was price. The CMCG jobs that UDOT had coming out are starting to slow down a bit. We’re not seeing as many of those either. And UDOT, with the revenue collections being off, they are slowing down quite a bit now. And they have saved a lot of money over the last 90 days on low bid. They are coming up against constraints for their budgets and funding and so they are trying to find the best way they can and one of them is to get out there and be competitive. Are you planning to travel throughout the state or neighboring states to seek more business or are your operations staying put? GARFF: Our employees like to sleep in their own beds at night, but probably 10 years ago we were traveling. We were going to Elko and Idaho and other places to get work. And when work got better here, we stopped going there. So we haven’t started to look outside of the Wasatch Front. We have a office in St. George. That is where we’ve concentrated. But we may be going back to looking further afield. BUCKNER: I’m not sure we have a better economy to travel to. People are traveling here more than traveling out. The traveling would be to here. COOPER: There will be opportunities in energy-based areas—like Vernal or Craig, Colo.—they are even having trouble finding qualified contractors.
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