SIC 1611 Highway and Street Construction

 
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SIC 1611

This industry covers general and special trade contractors primarily engaged in the construction of roads, streets, alleys, public sidewalks, guardrails, parkways, and airports. Special trade contractors primarily engaged in the construction of private driveways and sidewalks are classified in SIC 1771: Concrete Work.

NAICS CODE(S)

234110

Highway and Street Construction

INDUSTRY SNAPSHOT

In 2001 the United States maintained 3.95 million miles of highways, the vast majority of which were under the control of local entities. Highway-user revenues totaled $128.7 billion. In 2001 highway systems were also helped by federal aid of $26.5 billion from the highway trust fund and $7.6 billion from the Federal Transportation Administration. According to the U.S. Census Bureau's Statistical Abstract of the United States, in 2001 there were 10,889 contractors involved in highway and street construction that employed over 265,000 workers. The value of new construction put in place during 2001 totaled $54 billion.

Three-quarters of highway construction is for roads, called flatwork. In 1998 the Transportation Equity Act for the 21st Century (TEA-21) was signed into law, allowing nearly $200 billion for highway construction and maintenance between 1998 and 2003. Most of the money for federally subsidized highway and airport projects comes from excise taxes on fuel, airplane fares, trucks, and related products. Americans also spend more than $1 billion annually on tolls. In 2003 the Bush administration was working with Congress to develop a replacement package for TEA-21, which expired in September of 2003.

These numbers reflect the significant impact the industry has on the nation's economy. For instance, the U.S. Department of Commerce estimates that every dollar spent on construction results in $2.23 generated in the economy on a short-term basis. In terms of the specific contribution to the economy from investment in road construction, each $1 million generates 63 jobs (13 at job sites, 13 by suppliers, and 37 through related service industry jobs created).

The total impact of the highway and street construction industry ranks it as one of the major industries in the country. According to the American Road & Transportation Builders Association (ARTBA), in 2002 the industry generated more than $200 billion annually in U.S. economic activity and provided jobs for approximately 2.2 million workers.

ORGANIZATION AND STRUCTURE

There are a number of different categories of independent contractors that make up the highway and street construction industry. Each of these specializes in a different facet of the industry. The employment change for highway maintenance workers was expected to decline in 2006, but employment prospects were expected to grow rapidly. The total number of highway and street construction employees is estimated at more than 274,144. There are more than 100,000 firms in the construction industry, a figure that far outnumbers the total of firms in all other manufacturing sectors.

Despite the vast number of firms, the average size of most firms is relatively small. Many of these, in fact, are composed of only one individual performing a specialized task in the construction project. Although there are a number of exceptions to this, the overwhelming majority of contract construction firms have no employees at all, except for the self-employed owner and operator of the firm. Despite this, small firms in the industry account for only 6 percent of the industry's total volume. About two-thirds of the construction activity in the industry is carried out by small to medium-sized contracting firms with fewer than 100 employees.

Construction contractors typically limit their activity to a specific, local jurisdiction. More often than not, these are the states in which they are located. In fact, only one in eight contractors performs out-of-state work.

The construction contracting business can be a precarious one. Contractors hire employees on an ad hoc basis after securing contracts. Very rarely are two contracting jobs the same, and contractors have to meet the labor and material requirements of each job and its particular specifications. Also, contractors have very little control over the development of new business or increased demand for their services. The industry and nature of the work also demand that contractors adhere to strict completion schedules. The nature of the industry mandates that contractors and the heavy construction machinery they need to do the job must be mobile. Each contracting firm must be able to restructure and equip his organization according to the requirements of the contract, as well as transport crew and materials to the construction site. Inevitably, this leads to increased management problems and expense and requires specific organizational skills on the part of the contractor.

The most common reason that contracting businesses fail is that individual contractors have to cover the cost of labor and machinery rentals, usually within 10 to 30 days. This leaves most contractors operating with a minimum of working capital. As a result, most contractors show a lower profit margin than other major industries. Because of the risk involved in underwriting the construction project, most general contractors subcontract different aspects of the project to specialty contractors. This minimizes their investment and risk, and increases the likelihood they will earn a reasonable profit from each job. Street and highway construction contractors, however, use their own equipment and underwrite the job when they can to maximize the profit margin, although this increases the financial risk of the project.

The highway and road construction industry is labor sensitive and intensive. Most of the costs in other construction fields incur increased material expenses. Highway and road construction is more labor sensitive, however, so it tends not to be as affected by increased material costs. For instance, where material costs account for 42.9 percent of residential construction, they consume only 32.6 percent of highway and street construction. Overall, 37 cents of every construction dollar is spent on materials, 40 cents on labor, and 23 cents for miscellaneous expenses, such as equipment, services and supplies, rentals, and overhead. Whatever is left after these expenses constitutes profit.

Contractors have limited success in passing rising labor and material costs on to customers because demand for their product has not kept pace with inflationary trends of labor and material required to manufacture the product, especially with highway and street construction.

The primary federal agency for this industry is the Department of Transportation's Federal Highway Administration (FHWA). The FHWA administers an annual, multibillion-dollar program of financial assistance to the states. The estimated budget for the FHWA in 1999 was $28.7 billion.

The agency is also responsible for the development and distribution of the latest technology to meet the need of federally financed road programs. It serves as the highway design and construction agent for the U.S. government, and regulates and enforces federal requirements relating to the safety of operation and equipment of commercial motor carriers engaged in interstate or foreign commerce.

Through cooperation with major financial and developmental institutions, such as the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Export-Import Bank, the United Nations, the Organization of American States, and the Agency for International Development, FHWA provides technical help in highway technology nationally and internationally.

BACKGROUND AND DEVELOPMENT

The history of the road and highway construction industry can be traced to the invention of the automobile in 1892. The number of cars, buses, and trucks escalated quickly, and today there are more than 200 million vehicles on the roads. Nevertheless, it became apparent, even in 1900, that the nation's road system would see a period of major expansion.

Road and highway builders organized an association in 1902 that represented them as an industry. It evolved from a bicycle group founded 22 years earlier called the League of American Wheelmen. The history and growth of the American Road and Transportation Builders Association (ARTBA) parallels that of the construction of roads and highways that exploded in the early twentieth century and has continued to grow ever since.

ARTBA, based in Washington, D.C., is a federation of private firms, public agencies, and associations. It is...

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