Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

Will the Construction Industry Rebound in 2012? The Debate Rages On

Will the Construction Industry Rebound in 2012? The Debate Rages OnFor this week’s Guest Post Friday here at Musings, we welcome Alex Levin. Alex is a writer for several surety organizations. Although much is unknown about them, surety bonds are a necessary requirement for many small businesses to open and are required on almost all major construction projects.

With an unemployment rates holding steady around 9%, the effects of the recession are still surrounding us. The construction industry, one of the hardest hit, still struggles to recover. But, what many want to know is if the worst is behind us. Has the construction industry hit the bottom, and as we ring in a New Year can we look forward to more job opportunities and projects for contractors?

Some fear we’ve only just begun to dig ourselves out from the rubble and more struggles are imminent. In fact, the Engineering News Record reports the level of unemployment for construction is at a record high of 16% compared to 7% in 2007.

Within the last two years bankruptcies have overwhelmed the industry and there is evidence that there could be many more closures for the New Year. One warning sign? Much of the work currently being completed by contractors are only backlog projects from the construction industry’s busiest years of 2005 to 2007. This means new work isn’t coming in and many are struggling to complete work from years prior. Due to this, several companies are most likely headed for voluntary closure or, in the worst case bankruptcy.

In North Carolina alone, Carolinas AGC reported a 40 percent total monetary loss in contract awards from 2010 to 2011. As companies aren’t bringing in income, many financial construction supporters, such as surety agents, will be expected to finish work that their bonded principals simply cannot complete. Banks providing construction loans, project owners and subcontractors expecting payment are others also subject to face losses in this declining industry.

But, some are optimistic. The Associated General Contractors of Las Vegas reports the average hours worked and hourly wages for construction workers have spiked in recent months. Although major projects may not be awarded, this small increase in prosperity gives hope to one of the areas most affected by the recession. In 2006, 92,000 construction jobs were cut. While the projects contractors are focusing efforts on are unlike the typical megaresorts that once were the main source of employment for Vegas contractors, an increase in small buildings has allowed many to continue working.

Another source demanding workers is in refurbishing and remodeling. In fact, MGM Resorts International reported spending $78 million within the third quarter and expects to spend $275 million for the year. Their projects include remodeling the Bellagio and MGM Grand and unveiling eight new food outlets within their properties.

Some also feel the bottoming out of the industry means opportunity for new businesses and partnerships. Contracting companies that are profitable during times of a weakened economy are in prime position to create smart mergers. Bonding companies and banks can also help prompt an upswing within the industry by financially supporting these new acquisitions. As the debate between the optimists and pessimists wages on, it appears that time will be our indicator of what lies ahead for the future of construction.

As always, Alex and I welcome your comments below. Also, please subscribe to keep up with this and all of the Guest Post Fridays here at Musings.

Will the Construction Industry Rebound in 2012? The Debate Rages On
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6 Responses to Will the Construction Industry Rebound in 2012? The Debate Rages On

  1. The American Road & Transportation Builders Assoc. expects the pavement market to bottom out in 2012, and stay there until 2015, and the volume of bridge, runway and transit work to fall in 2012 as well (see http://www.forconstructionpros.com/news/10522812/paving-market-to-hit-bottom-in-2012). Realtors expect home prices to finally reach bottom in 2012, and economists are offering little hope of housing recovery until 2013 or later.

  2. Our thoughts are set out in detail in our latest FMI 2012 Overview. Drop me an email if you’d be interested in the .pdf version.

    Some notes: 1. Housing will continue to be a damper through 2012, 2. Public spending constraints will also cause slowed growth, 3. The Great Recession directly effected the flow of capital and availability for projects 4. Recovery will continue to be slow, but there will be recovery. More insights on what we see ahead and sector by sector analysis/breakdown if you’d like. In spite of these challenges, many contractors have prepared and are in the midst of adjusting to the ‘new normal’.

    Now is the best time for firms to plan and prepare for the recovery. Many companies are focused on ensuring they are as effective as they can be in “Getting Work” and “Doing Work” (work acquisition and execution.) Both areas that greatly reduce litigation concerns as well. These two areas can make a huge difference on bid day and on financial statements vs. ‘the rest of the industry’. Despite the challenging conditions, many clients had their ‘best year’ during the downturn. Great contractors can successfully adapt.

    Best wishes for a Great 2012!

    Jim

  3. Hey Christopher
    The industry has suffered quite a loss, however hopefully this year it will bring back several of jobs to the unemployment line. Great insight here hope for the best.
    Wishing everyone a successful year
    Wahidi

  4. The clarity in your post is simply cool and I could assume you’re an expert on this subject. As a first time visitor to your blog I am very impressed. Say thanks a lot for your efforts to have decided to put these things together on this blog. Continue with the great work on the site. Thank you.

  5. Construction is one industry that has it ups and downs but look on the brightside we will consistently need home builders… Great insight

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