It was a heck of a run. For most of the past 15 years, with a moderate dip starting in 2001 after the dot-com bust and 9/11, the U.S. construction market has been bullish. But starting with the subprime crisis, continuing with the evaporation of credit and ending with the recent Wall Street bust and bailout, the market and the economy have taken their lumps. Most construction people see the market heading for a recession, if it isn’t already here. The big question now is how deep and how long.

For specialty contractors, 2007 was a big year. ENR’s Top 600 Specialty Contractors generated $77.01 billion in revenue in 2007, up 17.6% for the group from 2006’s figure of $65.47 billion.

Related Links: The Top 600 Specialty Contractors Complete Report

For many Top 600 firms 2008 has been going well, but recent developments in the financial world have many specialty contractors worried as the credit markets, which had been slowly drying up with the subprime mortgage crisis, have evaporated in the wake of Wall Street’s recent crash. “You could almost hear the gears of the commercial and industrial machine grind to a halt,” says E. Colette Nelson, executive vice president of the American Subcontractors Association, Alexandria, Va. “Most projects run on credit, and when the credit isn’t there, neither are the projects.”

Many contractors already see financing for projects as very tight. “Single-user commercial projects may still go forward, but if you don’t have a commercial project 80% leased up, don’t count on financing,” says William W. Brown, CEO of Ben Hur Construction. He says the firm’s last two commercial projects were build-to-suit. “There’s still a lot of rock and roll in the economy, but commercial work lives on financing. We will probably do half as much commercial and twice as much industrial work next year,” he says.

“We’ve seen a few projects that have been delayed,” says David Price, president of Wachter. “They generally have been mixed-use, city-center-type projects that have been a big deal in our area, but now they are being put on hold.”

The subprime mortgage crisis has wider implications than just on commercial work. “Higher ed seems to be going strong as it is state or donor-funded,” says Fred Brunk, vice president of Siemens Building Technologies. But he says the housing meltdown not only stopped the expansion of the property tax base, but the reduction in home prices has led to an increase in pressure to reassess property values, eroding the tax base.

Not everyone is pessimistic. “We’ve had a record couple years with all markets going strong,” says Rob Harris, vice president of business development for JH Kelly. He says the market has fallen off in the Pacific Northwest, particularly on the building side, but the industrial market is continuing to boom. “We are working on upstream equipment for the oil industry,” building equipment and platforms to be barged up to Alaska, says Kelly.

Staying Alive

The current economic uncertainty is not new for many in the industry. “Credit dried up after 9/11 and especially after the Enron debacle in 2001,” says Jeff Latture, senior vice president of Barnhart Crane & Rigging. “We may run into the same situation now, with companies deciding to sit on their money instead of going ahead with projects.”

Guy Lawrence /ENR

“The worst market I saw was in 1981-82, when interest rates shot up as high as 20% and nobody wanted to borrow,” says Ron Schuster, CEO of CECO Concrete. “Now, it’s not the rates that are the problem. Banks won’t lend.” He believes that the market won’t fully recover until the housing market recovers.

“Back in 1992, we all used to say ‘Stay Alive ’til ’95,’” says David Suter, West Coast president of KHS&S. “You listen to what was said back then and what they are saying now, and you won’t be able to figure which year the comment comes from.”

For many contractors, the key word is backlog. “I’m not worried about tomorrow. I’m worried about a year from tomorrow,” says Latture. About 75% of Barnhart’s business is in the energy markets. “If there’s a recession-proof market, that’s it.” While some projects in petroleum or power may be put off for a while, “the market will be easier for us than for people building shopping malls,” he says.

“We have at least an eight-to nine-month backlog to work off,” says Schuster. But he says contractors working off 30 to 60 days of backlog may be in trouble.

Many in the public markets worry that Washington’s $700-billion rescue package may siphon off already-tight federal money. “We were geared up for big infrastructure jobs, but with the shortfall in the gas tax, we are concerned,” says George Grisham, president of Hayward Baker. The U.S. Army Corps of Engineers has some big projects on the books, but Grisham fears that funding may fall short if federal money is diverted for the federal bailout bill.

Some specialty contractors are in less vulnerable markets. “We work on a longer cycle than most,” says Jim Mulhern, vice president of Henkels & McCoy. Many of his firm’s utility clients have large, long-term transmission and distribution projects already financed and ready to go.

For some specialist contractors, rail work may be a major exception to a possible recession. “It’s a lot less expensive to ease traffic congestion by diverting freight out of trucks to rail, rather than expanding or building new highways,” says Jeffrey Levy, CEO of Railworks. He says major rail carriers are increasing the speed and length...