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Big Backlogs Are Only Obscuring A Bigger Problem

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Strict college professors like to shake up their students on the first day of class by telling them, “Look to your left, look to your right. One of you will not be here at the end of the year.” That same scenario applies to the construction industry this year. When the market meltdown began last fall, you could have taken a group of construction executives and told them, “Look to your left, look to your right. One of your firms won’t be here in a year.”

Big Backlogs Are Only Obscuring A Bigger Problem
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The industry is coming up on the first anniversary of the 2008 stock-market crash that reflected a construction market already staggering from the collapse of the bloated homebuilding market, a disintegrating financial sector that froze or terminated projects and the complete loss of public confidence in national economies in the U.S. and abroad.

According to ENR research in conjunction with its rankings of top firms, many contractors and designers had a cushion of tremendous backlogs, thanks to a decade of booming markets. Larger firms said they had a year or more of work to plow through before there was a pinch. However, smaller design firms on the bleeding edge of the recession already have felt the pains of stagnant markets.

For contractors, things have been a little easier, at least until now. Having backlogs to fall back on in tough times is fine. But many U.S. contractors have been singing that tune for the past year, and time rapidly is running out. Without a major rebound in the overall market, Old Mother Hubbard Contracting Co. may soon find the backlog cupboard bare.

Time is running out for some firms, and short-term stimulus is of little help. The intelligent approach to public projects is long-term stable funding.

Construction always has been a cyclical, low-margin, high-risk business and construction firm managers should have a good idea about how to navigate the rapids of a recession. Now is not the time to gamble, bidding desperately for volume rather than margin.

Many U.S. projects funded by economic-stimulus legislation tend to contribute to this activity, with scores of bidders falling all over themselves to win contracts for which they might not even be qualified. Instead of tossing incoherent projects into the feeding frenzy, the nation and the industry would be much better off focusing on, and embracing, long-term stable funding like that in a reauthorized multiyear federal transportation program. This approach would help government and firms manage intelligently for the future and not gamble on an uncertain present.

Some in the industry like to say that you learn to manage in bad times—so now is the time to manage.

 

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