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Megaphone Messages May Be Just Pure Political Spin

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The current global economic recession is not being caused or perpetuated by mere talk about it, but rather certain underlying financial conditions and practices that have erased trillions of dollars of wealth, many businesses and millions of jobs. In the last few weeks, the Obama administration seems to have gone from proclaiming that America “is in the midst of a crisis” to promoting a message supporting “the soundness of investments in the U.S.,” indicating that the worst of the recession may be over by the end of 2009. The spin doctors clearly are at work, and others have adopted the same megaphone message.

Megaphone Messages May Be Just Pure Political Spin
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Make no mistake about it: This will be a long, deep recession for the construction industry. Banks have been devastated by their poor lending practices, and these losses have been multiplied many times over through the bundling of subprime mortgages and use of complex derivative financial instruments. The means and methods of funding construction projects fundamentally have changed. The easy money and house-of-cards financing that drove the boom of the last several years is gone and will not come back anytime soon. The industry must adapt.

Unwinding the financial mess will take years. Backlogs that were fat in 2007 and declining in 2008 will continue to decline in 2009, with lots of project cancellations as owners adapt to their own changed economics. Further, the project pipeline will be much smaller in 2010.

This is a global recession, unlike the much smaller U.S. savings-and-loan crisis of the late 1980s, which took almost a decade and hundreds of billions of dollars to resolve.

Some experts suggest industry firms should plan for a 15% decline in revenue in 2009 and manage their businesses accordingly. They say there may be another 10% decline in 2010.

But this is not the end of the world—it is just a smaller market, and it does not have to be unprofitable. Companies that were profitable as they grew in size should take a look back to how they were structured and on what clients and projects they focused. The big temptation will be to compete for any project that moves, familiar or not. The competition already is becoming much more intense, but prices offered for the work should reflect reality, not wishful thinking. Ethics, fair dealing and character should not go out of style in hard times.

Firms that are innovative and proactive will survive. If key staff has less project work to do, put them on strategic projects that will improve the company. Get closer to clients. Find ways to apply AEC skills to help clients who are going through their own economic crisis. Move from being an order taker to a consultative problem solver.

And if you have to lay off people, do it with respect. You’ll need those people back at some point.

 

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