Industry Outlook - Commercial Builders

by Utah Business

Though Utah's building boom has slowed since the Olympics, construction companies are optimistic that an influx of people and businesses to our state will result in new projects. UB's first executive roundtable of 2003 involved local leaders in the commercial construction industry.

Participants included George Ambrose, The Layton Companies; Bud Bailey, Bud Bailey Construction; Kim Briggs, Marsh, Inc.; Bob Campbell, CAMCO Construction; Tom Case, Granite Construction; Paul Clyde, W.W. Clyde & Co.; Bill Garff, Garff Construction; Jim Gramoll, Gramoll Construction; Todd Hughes, Hughes General Construction; Richard Hunt, R.C. Hunt Electric; Richard Kirkham, Jacobsen Construction Company; Jim Laub, Cache Valley Electric; Tom Mabey, Sahara Inc.; Ben Nilsen, Oakland Construction; Scott Parson, Staker & Parson Companies; Al Schellenberg, Geneva Rock Products; Bill Smith, Big-D Construction; and Cal Wadsworth, Cal Wadsworth Construction.

Special thanks to Richard Thorn, president and CEO of Associated General Contractors, for moderating this month's discussion.

What's the state of commercial construction in Utah?

PARSON: There is overcapacity in our market. We track construction values each month and compare them with last year the same time period. Back in June and July, permitted values were down about 25 percent. To the end of November, they were down about 18 percent. That's hopefully a sign that the economy is recovering, that there is some construction being permitted that should happen next year.

AMBROSE: We are seeing quite a bit of remodel work being done, and the vacancy rate is pretty high for developers. They're having to just about give away profit just to get people into the lease. We're seeing quite a bit of activity there compared to last year. It's competitive. It's weeding out the weaker subcontractors. You have to screen them closer.

How can the construction industry work in harmony with our environment?

CASE: A couple of issues. One's air quality. Utah's in a non-attainment area, which limits the amount of air quality permits that can be obtained. The other is land-use planning. Utah needs a comprehensive land-use planning commitment effort. It's one county against another. It's one city against another. It costs a lot of money. It takes a lot of time, and you're not guaranteed anything.

PARSON: It all comes back to education, and people have such limited knowledge of what goes into their home and their roads. They think that you can go find sand and gravel everywhere, that if you go dig a hole any place in Utah, you can get sand and gravel, and we don't.

CLYDE: As an industry, we need to use best practices in our facilities to be as good as we can in the environment. There are some limitations on what we can do, but we need to do what we can do to make the situation better.

AMBROSE: We've gone as far as having to feed bald eagles during winter so they maintain their nests close to projects we were building in Idaho. When we got the Conference Center, there was a big issue about quarrying granite. They were concerned that when we were through, it would be restored equal to or better than what we did. It was a challenge to get people to trust us and to trust the county and the contractors to restore that.

PARSON: I'm sure that a great job was done, and yet we don't promote that afterwards. We do a very poor job in our industry promoting the positive aspect of what we do.

Risk management, performance guarantees, and the insurance industry in general have a huge impact on the construction industry's ability to conduct business. What do you see in the near term regarding these areas of the industry?

PARSON: Everything I read in Utah is our work comp claims drop every year. What's driving this 25 percent increase?

BRIGGS: As hard as the market is right now, you are paying rates that you were paying about four or five years ago. From 1990 through the year 2000 was the longest soft market the insurance industry has ever experienced. It's simply a function of profitabilities on the part of insurance carriers. Insurance carriers are going bankrupt. They're having to merge. They're going out of business. Insurance markets soften slowly. They harden overnight, and 9/11 exacerbated the entire problem, because that was somewhere between a $30 and a $50 billion hit to the insurance industry, and that changed all the rules overnight with that one event.

KIRKHAM: In a lot of areas, we're taking on more risk and trying to manage the risk ourselves. It's like in the bonding market. Nationally, subcontractors are bonded at close to 100 percent in many areas and situations. In Utah, bonding doesn't happen as much, and we have to manage that risk or we go out of business. We take on the responsibility of determining the qualifications of the subcontractors we deal with and we manage the payments as close as we can. We're looking at potentially doing the same in the insurance side of the business, and it's taking on additional risk.

The construction industry is highly regulated. Does this cause the industry any special problems?

BAILEY: I remember the days pre-OSHA, and we had no protection for workers. We were in such a blamed hurry. We wouldn't insist that people be tied on, no protection at all. So the government has to force it down our throat, and I'm sure all of us remember how we fought that. Now, we try to partner with OSHA because we believe in it.

WADSWORTH: A lot of regulations cause the taxpayer undue burden. There's so many good things that come of it and yes, OSHA is great, but some of these quotas that we're asked to meet I don't feel benefit anybody.

What do you see the future construction worker looking like, and what will his or her education levels be?

PARSON: There's a great demand for our firm to hire educated people. For a while, we've had a perception that nobody wanted to pursue construction. We've been involved in helping get this program started at Weber State along the line of Salt Lake Community College, but in the course of three or four years, over 200 students declared majors in studying construction management. BYU has a vibrant program as well.

What do you see the future of mergers and acquisitions in our state, and will it continue?

PARSON: I don't foresee that there will be a lot more activity in our market. Our company has been involved in a lot of mergers and acquisitions here over the last several years, and the model of Old Castle is much different than other companies. They buy companies and basically leave them intact to support their management. In the construction business, most of the value that we can generate comes from the relationships that we have within our market.
  NEWS | PROJECTS | COMMUNITY