Construction.

• Position: Industry Outlook - Interview

Utah's construction industry is still reeling from the Great Recession, but the group agrees the worst is over. As they begin focusing on the future, their attention turns to the retiring workforce and the lack of qualified replacements. The group also discusses the impact of the 2012 elections. the cost of supplies and opportunities for growth.

PARTICIPANTS:

Back Row:

Randy Anderson, Staker Parson Companies; Paul Campbell, Wheeler Machinery Company; Richard Hunt, Hunt Electric, Inc.; Jason Klaumann, Granite Construction Company; Dave Hogan, Wadman Corporation; Jason Kilgore, Kilgore Companies; David Zimmerman, Holland & Hart; Jeff Beecher, Layton Construction; Wil Van Der Stappen, Advanced Paving & Construction

Front Row:

Melissa Beutler, Holland & Hart; Jeremy Blanck, Okland Construction; Jim Gramoll, Gramoll Construction Company; Dale Campbell, R&O Construction; Jim Golding, Geneva Rock Products; Alan Johnson, 1MS Masonry; Mike Tolboe, Far West Builders; Rob Moore, Big-D Construction

Seated:

Doug Snow, Beehive Insurance Agency; Jack Wixom, Jacobsen Construction; David Tempest, Tempest Enterprises; Darin Zwick, Zwick Construction Company Rich Thorn, AGC

What is the current state of our industry? Let's break that down into different sectors--what's happening in the building industry?

MOORE: We can all see some shifts in the marketplace. For instance, only 28 percent of our work right now is government, whether it's federal, state or local. That's a shift from two years ago when it was probably just the other way.

We're all looking at our backlogs and wondering how to support the companies that we've either resized or upsized. While there is some work out there, is there enough? In 2008 and 2009, we had about $1.5 billion of work in the building industry that we could go after. Now we're down to about $586 million, and we're the same number of guys all going after that work.

The state of our industry is very similar to what it was three years ago. We all thought that maybe in three years we were going to be out of this, and now we're looking at three years and saying, "Hmmm, I wonder if we're going to be out of this."

And we've got the same challenges in front of us. How do we keep our companies going? How do we keep the overhead in check, the volume? Everyone around the table is saying, "Gee, I've got to do about twice the volume to get the same amount of fee and return on my investment." It's going to be pretty aggressive for the next three years with strong competition, a tough marketplace.

What have you seen in the heavy civil side?

KLAUMANN: On the heavy civil side, we're seeing a lot of the major projects coming to an end. This week we're going to see the 1-15 corridor and Mountain View corridor open up, which represents a lot of capacity in the heavy civil world that has to go get work.

At the same time, we're seeing reduced funding from the Department of Transportation. The DOT is taking a very conservative stance, with the state paying off some bond debt. This year looks like a procurement year with DOT not building anything until '14.

One thing we think about is all the employees and what they are going to do in '13 coming off of these major jobs, so we can sustain them and their families and then have them in '14 when we need them.

D. CAMPBELL: It's kind of flat; there are some ups and downs throughout the year. You get a little excited because you have a lot of opportunities, and then all of a sudden they're put on hold. So we're all fighting for the same crumbs.

GOLDING: For heavy civil, I project it to be down 10 percent for 2013.

Funding is a huge issue. If we all remember back in '97 before the 1-15 widening through Salt Lake County, that's probably the similar funding methods that UDOT is projecting over the next few years. They're not looking at a lot of bonding in 2014.

We need to take an active role as an industry to work with the legislature and make sure that funding starts to come in place for the capacity projects that are needed through Davis, Weber and Box Elder counties--and to continue moving forward on Legacy, going north through Davis and in the Mountain View corridor, going south through Utah County. Those are the capacity projects we need to take to our state legislators and see what we can do.

Let's look at the subcontractor point of view. What are you seeing?

HUNT: We're seeing a little more activity from the private sector, but things are fairly static and have been for three years. We are seeing people that have been sitting on cash starting to put more money in other facilities. We're doing more upgrades on existing facilities and a little more private work.

JOHNSON: We're seeing lot of activity this year with very, very low margins. Our company is spreading out of state to fill that capacity up. It's the same or similar margins, but there's a little bit more of it. We're putting an aggressive push out in the middle of nowhere--out where there's no competition.

What are you seeing on the equipment-supply side?

P. CAMPBELL: The industry is up from very low numbers. Our industry dropped about a third of what it was. So we're up. Easy comparables, so nowhere near where we were.

The biggest shift we are seeing is those who need equipment--ifs primarily replacement, nobody's really expanding. And those who do replace prefer to rent rather than purchase. Everybody is trying to avoid risk or commitment due to the uncertainty out there. That's throughout the industry and, actually, throughout the country.

Dave, what are you predicting on the underground side?

TEMPEST: It's interesting to hear Paul--we're in that boat where we're renting. There's an opportunity to take a third write-off this year, but we took a look at it, and we don't really want to make that purchase--take advantage of the tax credit, write it down in a three-year time period instead of a seven-year time period. And we don't want to buy it and have it sitting in our yard for two years, wondering what it's going to do. It's one of those times where you hope for the best, prepare for the worst, and hang on with both hands.

You guys don't build homes, but you do build subdivision infrastructure--water/sewer, fiber, curb and gutter, sidewalks. I understand that the housing inventory has come down and that building permits are up. Are those numbers real?

KILGORE: We are seeing an improvement on the residential side from our ready mix division, and also the number of subdivisions we are quoting. We've quoted a lot more subdivisions in the last 12 months than we did the prior year.

Today, we might only be a third of where we were at from the high point. It might be worse from the subdivision standpoint. The news might be reporting a 30 percent increase, for example, but 30 percent of nothing is still not a lot. So the reports are probably accurate, but when you look at the actual numbers, it's not a lot.

GOLDING: Regarding building materials, a lot of lumber has gone to multifamily projects, and we're seeing quite an uptick in residential on the lumber and truss side of things, and ready mix also.

I'm hearing that a lot of the land inventory that was developed five, six, seven years ago is now being bought and they're starting to build on it.

KILGORE: I recently spoke with a banker about that. They rank their lots A, B, C and D, and all the good lots are pretty much taken...