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June 18, 2013

Can You Say, “Failing Infrastructure?”
Filed under: Industry outlook — Tags: — nedpelger

TBW and I were at a wedding in Cleveland last weekend. What a cool city. The Rock and Roll Museum entertained us and the downtown area had great park spaces. The Tower City Mall building had changing LED lights as shown below. Hot in Cleveland was the theme.

I also got to go on a long bike ride with my cousin Mike, proprietor of Suzy’s Soups in that Tower City Mall. When Pinera’s moved out and left all their equipment, Mike seized the opportunity and expanded his business. He employs 14 people, some from jail or treatment programs, that would struggle to find other jobs. His business is his ministry.

As Mike and I biked the city parks at sunrise, he proudly showed the city’s beauty. Being an engineer, though, I was fascinated by this view under some old bridges.


The sign below describes our nation’s policy on infrastructure repair.

Not to be too pessimistic, though, I should also show the cool bridge construction project that was happening a couple miles away. I love to see the spans reaching out from the columns.

To give a sense of the girder size, check this photo and Mike and the Beam.

In another happy surprise, I noticed the red trucks with yellow wheels of High Steel Structures, Lancaster, PA that fabricated and delivered this steel. I worked for their sister company as a young project manager. It’s always nice to be away on vacation and see someone from home.


May 16, 2013

Construction Jobs Back, Workers Not
Filed under: Industry outlook — Tags: — nedpelger

With house building in the US surging, job growth should be tracking up proportionally. An ENR article describes why that’s not the case.

Simply stated, the construction recession lasted too long and many of the laid off workers found other jobs. Some paid better, but even those that didn’t have the advantage of not having the cyclic swing of construction. Many of the illegal immigrants that do construction work returned to their native lands. Many of the Mexicans returned to home to a strong economy with decent job prospects, they may not not need to come back to USA.

Of course, this trend doesn’t occur equally throughout America, but the areas that have the most housing growth are seeing construction wages increase for qualified folks. So you may need to travel, but the work (and the pay) is there.

The National Association of Home Builders says nearly half its members who responded to a survey in March said a scarcity of labor has led to delays in completing work. Fifteen percent have had to turn down some projects.

“I can’t find qualified people to fill the positions that I have open,” says Vishaal Gupta, president of Park Square Homes in Orlando, Fla. If not for the labor shortage, “I would be able to build more homes this year and meet more demand than I can handle today.”

As an industry, we need to see wages go up and recruit more young people into the trades. As an individual, you may see an opportunity here.


April 16, 2013

Beware Construction Inflation…And Look for the Opportunities
Filed under: Industry outlook — Tags: — nedpelger

An AP article yesterday warns of residential construction inflation projected for the next six months. Rising demand has driven residential contractors to start more units this month than since 2008.

In the six years since the the housing bubble burst, some things have changed.

  1. 1.4M residential construction jobs vanished
  2. Land development work almost ceased
  3. Suppliers and vendors cut back inventory

So a resurgent market finds trade contractors without skilled workers, a lack of approved lots to build on and material shortages. All these factors will lead to some quick inflation and wild times.

If you price projects in this construction market, beware that things will get bumpy soon. If you’re looking for work, or for a job upgrade, now is the time to evaluate opportunities carefully. Carpe diem, baby.


March 4, 2013

Poor Project Management on GA Nuke Plant
Filed under: Industry outlook — Tags: — nedpelger

Once again, the construction industry fails to estimate costs on large projects. Plant Vogtle a nuclear power plant in eastern Georgia must increase budget by $737M US to become a $6,850M project.  The legislators that must approve the cost increase want to penalize Georgia Power for missing the mark.

“The price tag keeps going up. The timeframe they are going to build it has been extended year after year after year,” said state Rep. Mike Fasano, a Republican and nuclear power supporter.

Construction schedule for the project is shown here, but the costs keep increasing. The photo below shows the complexity and scale of the work.

Coupled with the low cost of natural gas, the project looks like a poor investment for the stake-holders.

Why has the construction industry continued to fail at effectively managing large projects? We continue to punish conservative projections, on the one hand. Managers and executive often won’t deal with bad news and demand better costs without making technical changes.

On the other hand, the design management seems likely to be failing. I don’t know enough about nuclear project design to be sure, but I’d bet that either the rules are changing or the someone isn’t properly managing the design process. Either way, a great opportunity exists for folks in construction to improve on the current state.

Think about how you manage the challenges and changes in your business. Do you keep focused on controlling the most important elements? That’s a secret to success in these volatile times. In a nutshell:

  1. Fiercely control the design (pay attention and conflict now, not later)
  2. Budget conservatively (things rarely go much better than expected)
  3. Develop a monthly cost review system that actually works


March 1, 2013

Friday Musings
Filed under: Industry outlook — Tags: — nedpelger

I continue to be optimistic about the trend in construction work in America. I believe in the sustainability of growth because I hear good stories all around me. Hopefully, the politicians will get some minimal agreements done that succeeds in not destroying the recovery.

Yesterday I got a call from someone who wants two 90,000 sf buildings built quickly. That’s a nice call to receive, but the logic behind the call tells the rest of the story. The project was previously approved, permitted and several similar buildings constructed. The 2008 financial collapse drove the project into default. As it’s ready to resurrect, another large contractor had the project but called the owner and stated they are just too busy to take on another project.

When was the last time you heard about contractors being too busy to take on new work? Generally, it’s been a while. Many of us have stayed fairly busy, but not swamped.

I have a couple of projects moving forward that were approved and permitted a few years ago. These projects don’t have to wait the normal six to nine months till construction starts…they go right to the front of the line. That’s another way this construction recovery can ramp up quicker than the experts predict.

On the other side, I spoke with a trade contractor friend yesterday who hasn’t made any money in a few years. He’s just barely hanging on. My last projects with his firm, though, weren’t too satisfying. His guys bitch and don’t work hard. He has a tendency to annoy my customers. So, while I like this guy, his business prospect don’t look so good even in the recovery.

It’s important to remember that we have no work by right. Every project, every opportunity that comes before us, should be treated with respect. I love to have fun with everyone I work with (including poking at my customers), but I don’t forget that they can easily choose someone else. I strive to keep over-delivering in every meaningful measure.


February 18, 2013

More American Construction Jobs
Filed under: Industry outlook — Tags: — nedpelger

ENR annouced today that international energy pipeline giant Tenaris SA plans to build a $1.3B US manufacturing facility south of Houston. The 1 million-square-foot facility will complete in 2016.

Texas Gov. Rick Perry said Friday that Tenaris, the world’s No. 1 producer of steel tubing for the oil and natural gas industry, is receiving $6 million from the Texas Enterprise Fund to close the deal.

Perry said he persuaded the Luxembourg-based company to choose Texas while expanding its U.S. workforce during his economic development trip to Italy last year.

The plant will feature a seamless pipe mill, heat treatment and premium threading facilities. It is expected to eventually produce 600,000 tons of pipe annually.

The highly automated plant will produce many construction jobs but only 600 permanent jobs. As I’ve written before, that trend of bringing manufacturing back to the USA (for products to be used in the USA) will continue, but the automated plants won’t spew jobs like in the past.

In some other good news, ENR reported that New York state and local agencies will receive $287 million in emergency federal highway aid to reimburse them for repairing roads and bridges damaged by Hurricane Sandy and other storms. That’s a good chunk of cash for NY infrastructure projects.

So the construction recovery news continues on a positive trend. Many of my customers seem bullish on business prospects and want to improve their offerings with new facilities. If you have business decisions to make, consider this trend and be aggressive.


February 11, 2013

DOT Ray LaHood Notes His Legacy
Filed under: Industry outlook — Tags: — nedpelger

The US Department of Transportation Secretary Ray LaHood will be stepping down after four years of service. He had a ten minute interview with ENR that outlined his major accomplishments. Here’s what he said:

I really think that one of the real legacies for President Obama when it comes to transportation will be high-speed rail. When you look…over four years, we’ve invested over $12 billion, which is 12 billion times more than has ever been invested in passenger rail. I think that’s a huge investment in just a very short period of time.
LaHood checked out the high speed rail systems in China, France, Germany, Japan, and Spain. He noted that in each case the federal government had to take the lead to get the projects done.

Personally, I think the high speed rail is a crazy government boondoggle.  The airline system solves the problem well, in conjunction with buses and passenger cars. The huge investment would be so much more valuable fixing existing bridges or making the electrical grid smarter.

If they want a bold new program, free high speed WiFi could make a huge difference in many cities and towns. Google just set-up a free WiFi trial in the Chelsea section of NYC, that includes high and low income housing. It will be fascinating to see the positive outcomes that grow from this experiment.


February 5, 2013

Construction Unemployment at 16.1% in January
Filed under: Industry outlook — Tags: — nedpelger

While I still believe the US construction market is coming back strong this year, the 16.1% unemployment rate for January reported in ENR is sobering. January 2012 had a rate of 17.7%, so we are seeing some improvement. In fact, this year’s rate is the best in the past five years.

Nevertheless, nobody is giving high fives about 16% unemployment. The national average is down to 7.9%. So construction continues to lag in this recovery.

Ken Simonson, Associated General Contractors of America chief economist, said, “We are likely to see continued strong growth in single- and multifamily homebuilding, moderate increases in private nonresidential construction and shrinking investment levels for the next several months.” He added, “Those trends, in turn, will lead to a steady increase in the number of construction jobs.”

I’m thinking this is one of those “Darkest before the dawn” moments. Here’s hoping.


January 30, 2013

$1.1B Steel Plant for Arkansas
Filed under: Industry outlook — Tags: — nedpelger

ENR reported today that Big River Steel, LLC plans to build a $1.1B US plant that will convert scrap steel to new steel. Located on the Mississippi River, the plant will employ 525 workers. This is the type of exciting project I wrote about in my previous post.

As I stated there, the construction costs are high, but the number of workers isn’t, due to extensive automation. The developers pitch that their average salary for worker will be $75,000 per year. So I’m thinking there aren’t too many laborers on site. reports the following on the state funding offerings:

For the Big River project, the state plans to provide $125 million for start-up costs: a $50 million loan to the company, $50 million for site prep, $20 million for piling and $5 million for bond insurance.

Other state incentives include:

  • sales tax refunds on building materials, taxable machinery and equipment used in the project;
  • a 4 percent income tax credit based on new payroll jobs for five years;
  • $10 million from the Governor’s Quick Action Closing Fund;
  • $5 million from the Department of Workforce Services Trust Fund to be used for training;
  • an income tax credit for recycling equipment equal to 30 percent of eligible recycling costs that will include legislation that could extend the credit from three to 14 years;
  • and a sales tax exemption on utilities that will include legislation to fully exempt sales tax associated with the sale of natural gas and electricity.

Mississippi County is providing $12 million from a half-cent, industrial development sales tax to be used on infrastructure needs including gas and sewer lines and purchasing the land. The city of Osceola is pitching in $2 million.

It’s fascinating to see how these mega-projects come together. The public private partnerships really do seem to make sense in both directions.


January 28, 2013

US Construction Boom: Starting Now
Filed under: Industry outlook — Tags: — nedpelger

For many in the US construction market, the last five years have been a depression. Most folks agree the market has improved the last year or two, but still has been super competitive. I see trends that indicate a reasonably long construction boom headed our way, particularly in industrial/commercial construction.

Let’s look at some history and define some terms to begin. The Economist special report on Outsourcing and Offshoring provides most of the background information for my opinions. Since the 1980s, American companies embraced Offshoring, defined as getting work done in a distant location, away from the headquarters and the customers. In Offshoring, the company still controlled the means of production, but they built plants in foreign lands and hired foreign workers.

Outsourcing, on the other hand, also was done on foreign lands with foreign workers, but the work was subcontracted. So a company that outsourced their manufacturing hired a foreign company to provide the products at a given price. Apple provides the most famous example, contracting with Foxconn to produce iPhones and iPads in China and throughout Asia.

Reshoring is the newest term, which involves production returning to the company’s home country and customers. Google, General Electric, Caterpillar and Ford all all bring some of their production back to America. Here are several reasons for reshoring:

  1. Foreign labor costs continue to substantially increase while US labor costs don’t
  2. Shipping cost and time lost seem to cost more than previously thought
  3. American future energy costs look promising with shale gas
  4. A real advantage has been found for keeping product design and manufacturing located near each other, as smart contractors understand, designers benefit interacting with production supervisors
  5. The increased automation of manufacturing (use of robots) further erodes the advantage of low cost foreign labor
  6. Quick product design changes can be made much easier with local manufacturing, which the future economy seems likely to demand at an increasing rate
  7. When products are outsourced, the intellectual property often slips away and foreign competitors copycat innovations
  8. When service sectors are outsourced (like information technology, human resources or customer service), the company tends to lose essential competitive advantages

So for all these reasons, many American firms are both reducing their outsourcing (having tasks again done by employees) and reshoring (bringing the work back home).

This reshoring phenomena may not greatly increase employment, as the new factories will be more automated and efficient. But these new factories have to be designed and built. That’s where the US construction boom happens.

Interestingly, Europe doesn’t seem likely to have this same type boom. They didn’t do nearly as much offshoring, partly because of the difficulty of terminating labor and partly due to family owned firms staying loyal to their locale. Their inflexible labor market and poor business conditions still doom Europe to times of poor construction opportunities.

America, on the other hand,  seems to be benefiting greatly from reshoring. The graphic below shows some examples with varied reasons.

Understand it’s not just manufacturing, though, the entire service sector also will be bringing jobs back home. The huge offshoring and outsourcing of service sector jobs to India seems over. The results, as anyone trouble shooting a computer can attest, haven’t been great and the costs have been high. Companies increasingly see the strategic advantage of employing their own local employees for IT, financial, customer services and other service sector work.

In fact, HFS Research in Boston published a survey that named America as the most desirable location for expanding IT and business service centers, beating India despite it’s lower costs. A McKinsey study found American IT workers cost less than in Brazil or Eastern Europe and only 24% more than in India.

A fascinating area in services innovation is described by Chetan Dube, a former math prof at NYU, ” The last decade was about replacing labour with cheaper labour. The coming decade will be about replacing cheaper labour with autonomics.” Mr Dube, owner of IPSoft,  has produced:

Eliza, a “virtual service-desk employee” that learns on the job and can reply to e-mail, answer phone calls and hold conversations, is being tested by several multinationals. At one American media giant she is answering 62,000 calls a month from the firm’s information-technology staff. She is able to solve two out of three of the problems without human help.

Again, this type of innovation requires construction be done near the company headquarters, not in some foreign land.

My conclusion to these trends? US commercial/industrial construction will have some strong growth for the next few years. Combine that with a rebounding housing market and the natural pent up construction demand that follows a recession and we have a bright construction forecast.

If you agree, now’s the time to expand. Get good people and develop new market niches. Or jump out there and start something. You only live once, but once should be enough if you make decent decisions.

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