|June 2008 • Vol. 14 • Number 11
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Bidding Wars: Downturn prompts commercial builders to cut costs, compete
By Lynn Geiger
REGION - Business in the region’s commercial construction market has slowed markedly over the last few years—but to what extent and what has been the impact? And what are construction firms doing to make a profit? The Business News spoke to the leaders of five area commercial construction companies.
L & L Contracting of Cheboygan, which is building The Bear Co. store on U.S. 31 & Three Mile, calls the bidding wars "brutal." Photo by John Russell
It’s tough out there. The state’s economy the last three years has put considerable stresses on the regional commercial construction industry. There are fewer projects in the pipeline and, as a result, more bidders on each project. But it certainly isn’t all gloom and doom. In fact, from a client’s perspective, competitive pricing might make now an ideal time to build.
Mike VanGessel, president of Rockford Construction, pointed to less confidence from the financial community which translates to less opportunity.
“Financing is harder to get, resulting in projects being downsized, delayed or cancelled entirely,” he said.
Overall, it’s a market identified by “fewer opportunities with more competition,” added Grand Traverse Construction President Steve Fournier. “Any opportunity in today’s market is considered a good one. And as the size and scope of the job increases, we get more bidders from outside the region.”
But, in his opinion, things are starting to improve.
“It’s better today than the same time a year ago,” he said. “To a great extent, it’s still a difficult market, but ever so slightly being a little more positive.”
There are more general contractors bidding work in this market than Dennis Fedorinchik, president of Hallmark Construction, has ever seen in his decades in the industry.
“There is not much room for margin, or error, I might add, on bids,” Fedorinchik said. “If on a competitive bid today the low bidder is off the mark by more than one percent, it is going to be a long, difficult construction project for all involved.”
For Spence Brothers, more bidders means choosing to pass some projects by.
“Where there used to be four or five bidders on a project, now there are 10 to 12,” said Bob Spence, vice president and director of northern Michigan operations for Spence Brothers. “With lots of bidding, the margins are incredibly low. You have to decide if it’s worth your time. Right now, our sales and marketing have taken more of a front seat than our estimating.”
He added that Spence Brothers’ success in the northern Michigan market has been largely due to its carpentry and concrete tradework on large jobs as there are only a small handful of companies that can compete. But now the jobs are smaller in scope and fewer in number.
At Burdco, President Mike Brown sees a market that’s “a little soft” as well as a lack of project urgency. Nonetheless, he said his volume is up slightly in both general contracting and remodel work, areas of diversification for the company that specializes in medical offices.
“But we’re not immune to the economy,” he added. “Everybody experiences a certain degree of wondering what their next project will be.”
So how are these companies adjusting to a tighter, more competitive market?
Spence Brothers hired two more marketing people in the last six months.
“When work is slow, sometimes that’s the time to hire office personnel to find the work,” he said. “It’s tough out there right now, so going out and finding work is more important than ever,” adding that the company is fortunate to have multiple offices.
It’s also about continuing to do what’s worked well in the past and focusing on strengths.
“We are working more closely within many of our long-term, close subcontractor relationships to ensure we are doing everything we can to provide the best price and secure the job,” said VanGessel. He added that the company also balances its new project workload by continuing to earn repeat business from long-term clients.
As the only general contractor in the area that has carpentry, concrete and masonry trade professionals on its payroll, Grand Traverse Construction focuses on projects where it can perform those trades, Fournier said. “It gives us the ability to get part of a project,” he said.
Hallmark’s Fedorinchik said the company has been fortunate to have constructed some high-profile projects over the last decade and that is the best advertising it could ever ask for.
“Our product result is our niche,” he said.
As far as Burdco’s strategy in the market, Brown pointed to value.
“A few years ago we worked really hard to develop ways to deliver value to clients and we continue to work really hard at providing that same value,” he said. “We’re working just as hard as we were three years ago to get projects.”
For Spence Brothers, more often than not the decision to bid on a project is based on who else is bidding.
“More than ever we’re reviewing what jobs there are and whether or not to bid,” Spence said. “It’s based more on what our competition is doing. There are lots of hungry guys. One recent project had 12 bidders, all hungry, so we didn’t bid on it.
The market has also forced these companies to look at their internal operations and make some changes to run as efficiently as possible. In some cases, that has meant keeping wage increases under control.
“We’ve had good years because of the diversity of our work and our geographic areas and we’re also keeping the increases on our labor under control,” said Spence.
Fournier said Grand Traverse Construction has made a lot of efforts to increase its competitiveness and watch costs, and that has included changes with its healthcare and 401(k) plans.
“We’ve made some tough decisions, but the staff is on board,” Fournier said. “They understand.”
And several of the companies continue to focus and further develop their expertise in the area of green building by developing LEED-credentialed personnel.
Perhaps one upside of a downturned economy is that some say it’s a client’s market.
“With the general slowdown, our subcontractors have really sharpened their pencils,” said Brown. “It’s a pretty good time to build. Material costs have increased, but from a labor standpoint, people are pretty competitive and prices reflect that.”
“The blue light is on,” added Spence. “If there’s an owner out there looking to build a job, now’s the time.” BN
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