Cycles

Ingram's launched the Industry Outlook series 2-1/2 years ago with an exploration of the building trades. When launched, the concern was that there would not be enough fresh material a year or so later. Given the variability in the economy and in the world situation, how- ever, this is one problem that has not materialized.

Last year, the consensus as to the greatest challenge facing the industry was the shortage of skilled labor. Although still a concern, that shortage was no longer on the front burner.

For Terry Dunn of J.E. Dunn Construction the greatest challenge was balancing risk and reward. Given the cyclical nature of the business Dunn worried that financially weak subcontractors were "taking on projects they are not capable of taking on." Over the next year or two, Dunn expressed concern that the industry was going to experience "significant shake-out."

Pat McCown of McCownGordon Construction concurred that the "risk-reward factor in dealing with the supplier base" was a crucial consideration. Spencer Thomson agreed that given the financial issues facing the small companies especially, a shake-out was inevitable. "Contractors that were once strong," he lamented, "are not as strong now."

Speaking from the perspective of a subcontractor, Rosie Privitera Biondo of Mark One Electric noted that the increased competition for jobs has led to over-aggressive and inappropriate bidding. "Frankly," she said, "what I see is that the one who is making a mistake on the job is the one who's getting the job." She regretted that people were going broke "just to do business."

Following up on Biondo's comments, Susan McGreevy of Husch & Eppenberger asked the bankers in the room that if their clients are in a comparable position to Biondo's and don't want to take on inappropriate jobs, "How do [they] explain to the bank that [they] don't have backlog?"

Bob Arthur responded without hesitating, "Don't get into something that you don't know how to get out of." He added that he would rather see his clients not do something than "to do something that is going to expose them to a greater level of risk than we think is prudent."

The excess competition has been hurting architects as well as contractors. Jim Calcara of CDFM2 warned of a trend in "regional raiding." "As jobs get scarce larger firms from out of town are looking at jobs in Kansas City "that would not have been big enough in the past to bring them into town."

Greg Nook largely concurred about the surge in competition and its effect on the financial side of the deal. This cycle has had less effect on the larger and small projects than on those in between, the bread and butter for firms like Gould Evans Goodman.

"The mid-size projects in our business have evaporated," Nook contended. This, in turn, has made it difficult for his firm and others "to maintain human capital."

Jim Calcara told of how every firm in a nation-wide industry roundtable in which he participates has had a major lay-off in the past 15 months, and these are firms that perform in the top quartile of their industry. "If you need skilled architects," he noted wryly, "right now is a good time."

As testament to the change within this industry, just three years ago, Greg Nook noted, there was "an unprecedented demand for architects." The problem is compounded in the Midwest, he added, because there tends to be more of a bond between employers and employees, and architects are less likely to follow projects the way they might in the south and west.