Proceeding with Caution

Specialty Contractors Try To Keep Busy As Market Slows New York Region looks ahead to life after the mega-project while New Jersey, Upstate New York, and Connecticut subs find competition for work increasing. Proceeding With Caution Slowing Activity, Rising Costs Chief Concerns for Subs

By Jim Parsons

The attitude of the region’s specialty contractors toward the current construction market can be summed up in two words: it depends.

Subcontractors are finding large projects like 77 Hudson in Jersey City are becoming more competitive to bid as jobs have begun to dry up. (Photo by Michael Falco.)

As in, it depends on what you do, where you do it and who you do it for.

Explanations for these market variances abound, from the national economic slowdown to the funding resources of school districts and other public agencies. Even the business savvy of general contractor and construction manager clients is included.

Again, it depends.

Firms doing business in New York City, for example, are likely quite busy, with two baseball stadiums and Lower Manhattan’s building and transit projects leading the way.

Charlie Weir, owner of Weir Welding, Carlstadt, N.J., says that while the market does appears to be tightening, “there’s also a lot of bidding activity, though it remains to be seen if the projects go through.”

Doug Parrish, vice president and director of operations for Donaldson Interiors, Hauppauge, N.Y., reports that his firm’s has experienced a sharp increase in core and shell work while interiors are lagging—far different from what had been predicted.

“Corporations are hesitant to expand, which means their alteration and remodeling plans are also on hold,” he says. “Ordinarily, we’d expect that a demand for interiors will follow the core and shell work, but it’s hard to make predictions in this market.”

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Across the Hudson in New Jersey, however, bid opportunities are fewer and more competitive, according to Robert Marziotto, CEO of NEAD Electric of Carlstadt.

“Everyone is going after the same work,” he says. “I’d estimate the margin difference between the two states is about 5%.”

Specialty contractors in upstate New York appear to be holding their own, according to Mike Misenhimer, executive director of the Albany-based Northeastern Subcontractors Association. “They’re not setting the world on fire, but most are fairly busy,” he says.

But at the other end of the N.Y. State Thruway, Gavin Brownlie Jr., vice president of Rochester mechanical contractor Crosby-Brownlie Inc., says that, “things are fairly robust, which is a welcome change from the relatively quiet period that proceeded it.”

Rising costs of structural steel and other materials made 2007and the first part of 2008 especially hard on most specialty contractors, and experts see little relief in sight. (Photo by Michael Falco.)

While their specific market conditions may differ, specialty contractors share the challenge of dealing with the continued upward spiral of material, fuel and other costs—a trend that shows no sign of reversing.

“Costs are rising exponentially on a daily basis,” says Ron Berger, director of the Subcontractors Trade Association, New York City. “It’s unbelievable.”

There’s pressure from the other side of the project equation as well, with few clients and owners willing to show much flexibility on bid prices.

“If there’s no escalation clause, the contractor has to eat the increase, which is an unfair situation,” Berger says.

Parrish cites four price hikes for steel in the past year as an example. “For us, the price affects everything from studs to grid ceilings,” he says. “It’s a dramatic shift, but nobody wants to negotiate on price.”

Browlie says that 80% of the projects “we’re bidding exceed the owner’s budget projections, so there’s pressure to substitute materials, change the design or lower our price and absorb the increase.”

Pricing pressures also affect project staffing. “You have to evaluate whether you can put nine people on a job or 10, and what the effect will be on schedule.” Marziotto says.

That’s provided, of course, that the labor is available. Even with an overall market slowdown, skilled labor remains at a premium.

Mega-projects like the construction of the new 2nd Avenue subway line are keeping specialty contractors busy in New York City. Meanwhile New Jersey and many areas upstate are finding jobs more scarce.

“Iron workers and welders are hard to find, especially in New York City,” Weir says.

Misenhimer is also concerned about the ramifications of recent updates to New York’s Wicks Law, which require greater use of project labor agreements and apprenticeship programs for public works projects in the state.

“That may be fine for the New York City area, but not upstate where there are more open-shop contractors,” he says. “That’s only going to increase construction costs and limit opportunities.”

Specialty contractors must also make sure they are ready to accommodate the growing slate of projects aiming for LEED certification, especially in the public sector. Weir estimates that “50 to 75% of public agency bid requests imply that it will be a green project.”

LEED and energy system upgrade/rehabilitation projects are a big reason for western New York’s current strength, according to Brownlie.

“We’re getting as many project managers LEED accredited as possible so that we can contribute to the process,” he says.

Specialty contractors in New York City have been the busiest with two major baseball stadium projects – such as the Mets’ Citi Field project (pictured) and several major infrastructure projects, as well as the rebuilding of the World Trade Center.

Adjusting to the rapidly increasing demand for expertise in green building has not been easy for everyone. Marziotto calls his experience a “baptism in fire,” with more clients making green building expertise a must for their subcontractors and consultants.

“While we do have LEED-accredited people on staff, going through the process is time consuming,” Marziotto adds. “Not everybody is able to do it.”

Not surprisingly, opinions on how the remainder of the year and 2009 will unfold are mixed. Berger predicts, “more of the same—slowing down and tightening up.”

Weir says that bid opportunities in his sector will continue, cautioning that while he’s optimistic about 2009. “I was more confident at this time last year,” he adds.

Marziotto says any turnaround hinges on solidification of the real estate market. “Why sign a 10-year lease at $95 per sq ft when, if you wait, you can get $85 per sq ft?” he says.

Parrish even sees a silver lining to a slower-paced construction market—the opportunity for project teams to collaborate on more organized, economically efficient construction cycles.

“We’ve been doing ‘build as you go,’ which has to stop,” he says. “If we slow down half a second and plan, everyone from the owner on down will benefit.”