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Getting Hammered

Region’s Construction Sector Remains Sluggish

David Fontaine

David Fontaine says new schools are being funded, but other construction sectors continue to lag.

The continued weakness of the region’s construction industry has become frustrating and stressful for area builders, who have seen not just a drastic reduction in the pace of available jobs, but a significant influx of bidders on each project, some from far outside the Pioneer Valley. Faint indications point to a recovery starting next year, but right now, contractors are just looking for some good news to build on.

Joseph Marois shakes his head when he sees some of the winning bids in the current, hyper-competitive construction marketplace.
“The bids are normally pretty clustered together, with everything within a few dollars,” said Marois, president of Marois Construction in South Hadley. “You look at it now, and the low bidder is substantially lower than everyone else, sometimes by 20%. It’s incredible. It’s hard to understand how they make a profit on the jobs they’re doing.”
David Fontaine, president of Fontaine Brothers in Springfield, has noticed the same phenomenon.
“The price structure right now is incredible,” he told BusinessWest. “With some of the bids you’re getting beat by, you just shake your head and send the plans back. There seem to be eight to 10 bids on everything, at minimum, and it seems like there’s always one guy with a bid you just can’t understand.”
William Crocker, president of Crocker Building in Springfield, said these days were forecast by the collapse of the housing market a few years ago and the ensuing economic downturn. “The slowdown tends to affect us as general contractors late,” he said.
But while some other industries are reporting cautious optimism, construction work is as scarce right now — and competition as fierce — as Crocker has seen it since the recession began. “You see it in the bidding activity,” he said. “When there’s an open bid, every contractor in Western Mass. shows up.
“The margins are tight, and the numbers are tough,” he continued. “There’s some activity out there, but we’re still holding our breath.”
For this issue, BusinessWest examines why the major trends in building — few of them good — are continuing deep into 2010, and what contractors are saying about the road ahead.

Looking for a Silver Lining
Mark Erlich, executive secretary-treasurer of the New England Regional Council of Carpenters, recently noted in New England Carpenter magazine that hours worked by union carpenters in New England dropped 38% in the last 24 months, and unemployment in that group has hovered around 30% for much of the same period.
However, he writes, “I believe the worst is over. There are no prospects for a quick or extensive recovery, but I think the bleeding has stopped, and we can begin to think more optimistically about what is next. New England is positioned to rebound sooner than other regions because of the heavy presence of health care, higher education, and life sciences, industries that are more likely to witness future growth.”
That seems to be the case in Massachusetts especially, where the eds-and-meds sectors have been traditional drivers of the economy, and are spurring a significant portion of what activity is occurring right now.
“Look who’s building in Springfield. Look at the North End, and even the work we’ve done in the past few years,” said Crocker, citing projects like a new building for Hampshire Orthopedics in Hatfield. Public works and utilities are relatively active, too; “we’ve got several projects for National Grid substations.”
Others have seen similar trends.
“It seems that a lot of the schools are being funded,” said Fontaine, whose business tends to be about 70% public and 30% private — not a bad ratio in these times. “We recently started the new high school in Wilbraham, and we’re halfway into a new dormitory at the College of the Holy Cross. We’re also just getting ready to start a Transit Authority office in a building up in Greenfield.”
On the other hand, Crocker said, some traditional markets for builders — manufacturing foremost among them — seem to be stagnant. But it pays to be diverse. In addition to the health care and utility projects on his recent slate, Crocker also just completed the framework for Springfield’s Macedonian Church of God in Christ, which burned down a couple of years ago.
It’s good to diversify when things get this slow, he admitted, but even so, there are only so many projects. “We’re not seeing much of the small renovations. Everyone seems to be holding their purse strings rather tightly.”
There’s a little more public work available than private work, Marois said, although neither sector is exactly robust, and some industry watchers fret about the slow pace of infrastructure-investment legislation coming from Washington to help stimulate the pace of progress.
“Some people are busier than others. I think we’ve gotten our fair share of work, although the profit margins are minimal,” Marois said. “We’re just trying to keep our core base of employees. They have families, and they’ve been with us for a long time, so we want to make sure we maintain our relationship with them. I think that’s a common goal you’ll find among my peers.”

Better Days
Marois sees the clouds clearing somewhat, but there’s still a long way to go.
“It seems like there are more projects to bid now than in the past, but that hasn’t eliminated the number of people bidding on each one,” he said. “I’m bidding on a project now with 16 contractors on it. That’s getting to be pretty typical.”
Nationwide, construction employment expanded in 56 out of 337 metropolitan areas between August 2009 and August 2010, according to a recent analysis of federal employment data by the Associated General Contractors of America. More cities added construction jobs during the past year than at any point since September 2008, although Western Mass. has yet to see that sort of rebound.
“With construction employment on the mend in an increasing number of areas, it appears that the worst is finally over,” said Ken Simonson, the association’s chief economist, on the national picture. “The fact remains, however, that this industry has a long way to go before we see construction employment back to pre–recession levels.”
That’s especially true in the Pioneer Valley and into Northern Conn. The Springfield market ranked 208th on the list of 337 metro areas with a net construction job loss of 6%. The Pittsfield market held steady, ranking it 57th in the study, while the Hartford market lost 9% of its construction jobs in that time, ranking Connecticut’s capital at 269th. Overall, 11 of 12 Massachusetts metro areas lost jobs.
Fontaine has seen no improvement in the overall picture, but expects things to pick up soon. “We had scaled down a few years ago, and we stayed scaled down,” he said. “But we’ve been talking to some architectural firms, and they’re saying maybe one more year to go. There’s some large work out there — $100 million, $200 million work — but in the marketplace we survive in, not much.”
That’s why he, like so many other contractors, has been forced to look outside the Pioneer Valley for opportunities. “We actually picked up three projects in the last year, but we bid on probably 50 — most in the eastern part of the state,” he said. “Most of the things we’ve chased have been probably 75 to 90 miles from here.”
Marois has been surprised, however, not that builders are roaming outside of their usual geographic territory, but how far afield some are willing to travel to find work.
“I bid a job with contractors from Rhode Island, New York State, New Hampshire, Vermont, and the Boston area,” he said. “That job had 18 bidders on it, and the Rhode Island contractor got the job.
“I don’t understand it — they have to mobilize and set up, and that costs, and they have to know the local economy, the local vendors — it’s not necessarily something I would do to land a job.”
Until the industry picks up significantly, each construction company has to make those decisions to keep their business running.
“This is the time to get ready for the recovery that will come,” Erlich notes. “It may not be coming as fast as we would like, and there will be continued hardships.”
And way too many bidders for too few projects.

Joseph Bednar can be reached
at [email protected]

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