1997 DJC Construction Industry Survey

SDL/McCarthy

A pair of projects -- Harbor Steps Phase II in Seattle and Town Center in Redmond -- have helped drive SDL/McCarthy to a near-record fiscal year in 1997, which ended March 31.

President Del Bishop said volume was $145 million; only topped by $150 million in fiscal 1995. For next year, Bishop is projecting to again reach $145 million.

"I'm optimistic about the economy in general," he said, citing upswings at Boeing and in the high-tech industry.

Bishop said the Seattle-area construction market is picking up across all segments. Projects in SDL's pipeline run the gamut: a hotel renovation in Seattle to continuing work at University Village Shopping Center, including spaces for Restoration Hardware, Pottery Barn and Banana Republic.

One thing that is changing at SDL is it isn't doing as much bid work as in the past. Bishop said that market has slowed down and there is more competition for jobs below $15 million. (One job in that range SDL bid on recently drew over a dozen bidders.)

News about the public-bid sector is not all bad. Bishop said there is less competition on jobs over $20 million and the company has been going after that segment of the market.

Portland is an important market for SDL. The company opened an office there last year and has racked up $15 million in business. Bishop said SDL has worked in that area for the past five years, primarily building two giant wafer production plants. For fiscal 1998, he is expecting to see $25 million from the Portland office.

Internal changes include plans for converting to a state-of-the-art computer program that combines jobsite administration functions with accounting functions, allowing for real-time cost data. "It will give our field management people a good tool to go into the next century," Bishop said.

Immediate concerns at SDL center around labor agreements which expire at the end of May. Bishop said contracts with all the general building trades expire then and he expects upward pressure on wages -- not only on hourly workers but also on professional salaried positions. "Contractors are starting to steal people from one another," Bishop said.

Sellen Construction

Charles Hafenbrack, vice president/marketing at Sellen, said local architects have been fairly busy, which is a good sign for contractors.

Last year was a record year for the company, with over $200 million in volume. That's up from $178.2 million for 1995. Projections for 1997 at Sellen are to equal 1996 volumes.

"We were fortunate to be working with Microsoft on the Pebble Beach project," Hafenbrack said about the firm's success last year. Several jobs at Microsoft, combined with work at Swedish Hospital, made up a substantial part of 1996 revenues. Sellen will stay active in health care construction.

At the Microsoft job, Hafenbrack said, a big challenge was the complexity of the building's HVAC and electrical systems. He said that is becoming a trend within the industry as high-tech firms require higher electrical and HVAC loads.

"The projects in general seem to be getting more technical in nature," Hafenbrack said, referring not only to the Microsoft job, but to a new headquarters now under construction in Redmond for AT&T, an $8 million job for KCPQ-TV in Seattle and the remodel of ACT Theater last year.

According to Hafenbrack, preconstruction planning for those projects required getting involved much earlier in the planning stage and working more with end users of the space and other consultants. Also, more buildings are being designed to accommodate future expansion. "It's like a build-to-suit environment," he said.

Hafenbrack said more cities in Washington are being forced to cast a critical eye at development because of the state's Growth Management Act. He said cities like Bellevue and Redmond are growing so rapidly their infrastructures are being overwhelmed.

Last fall, Sellen hired Lynne King as its sustainable construction manager. Part of the responsibility for that new position is making sure the "green building" concept is carried out through life-cycle cost analysis, buildings, lower energy consumption and jobsite recycling. Hafenbrack said the position reflects the firm's interest in seeing that projects are designed and built efficiently, with the smallest impact to the environment.

Robert E. Bayley Construction Inc.

"There's going to be a lot of change in the Northwest," predicted Ron Bayley, president and CEO of Bayley Construction.

That will be good for the construction industry, said Bayley, with a pipeline full of future jobs expected from the RTA, sports stadiums and the high-tech sector.

"We've come out of hard times in the past fe

S.G. Taylor Construction

Steve Taylor, president of S.G. Taylor Construction, said his 10-year-old company will see its annual volume leap from an average of $8 million per year to $15 million, thanks to a booming market and a long term growth strategy which is paying off.

"It's gone nuclear," Taylor said. "It's the best marketplace I've seen in the last 20 years. That's why we decided it's a good time to grow."

Taylor said half the firm's volume is from tenant improvement work for clients such as U S West, AT&T and Fred Hutchinson Cancer Center. That work has remained steady but the other half, new construction, has taken off with an increasing number of mixed-use projects, apartments and senior housing.

As the firm has grown, Taylor's responsibilities have shifted to marketing and administration and he has increased the office staff by about 25 percent. Field staff levels have remained level at about 30 but Taylor expects to be hiring by summer.

Finding new employees is tough these days and the lack of supply has forced many contractors to subcontract with others work they would have done in the past.

Taylor has made some internal changes to improve productivity and client service. The superintendents are now known as field managers. Armed with laptops, the field managers have taken over some of the duties previously assigned to project managers such as communicating with clients and other professionals, handling change orders and problem solving in the field. Moving some of the traditional office functions out into the field allows decisions to be made more quickly and keeps everyone informed about the job progress. It also allows project managers to spread themselves over a larger volume of work.

Technology is crucial to the change, Taylor said. Field managers can send files over modems or the Internet and broadcast the minutes of a morning meeting in time to get solutions to problems by the end of the day.

Taylor added a safety director 18 months ago and has seen his insurance rates drop by 40 percent since then. "For our size contractor that's as low as we can get." This not only saves money but improves the company's image with clients and employees.

The outlook for the local construction market is great, Taylor said. The engineers and architects he talks with regularly are, "too busy to call me back. It's a good sign."

Foushee & Associates

Dick Barker of Foushee & Associates said business volumes in 1997 will be up 10 percent over 1996 to more than $50 million, a little higher than the normal $40 million year but lower than the $62 million the firm did in 1995.

The areas where Foushee is working these days have shifted, with less activity in the Kent Valley and more in Issaquah, Bothell and Redmond. Flex office space now makes up the bulk of Foushee's work rather than big bulk warehouses.

The firm will start one big project in the Southend this summer, the first phase of an 800,000-square-foot bulk warehouse in Auburn for Martin Smith. Another 100,000-square-foot warehouse and assembly facility is being built in Monroe for Canyon Creek Cabinets. Foushee is awaiting permits from the city of Redmond for a flex-office project at Redmond East for the real estate investment trust Carr America.

"It's a fun time," Barker said. "There's a lot of opportunity."

Foushee's years of team building have paid off with virtually all the firm's projects these days being assembled by a team. Tenant improvements are still bid but among a list of selected firms.

One of the hard parts of having a market like this one is controlling the urge to grow but the firm has no plans to expand into new markets or product types, Barker said.

Foushee has a "nice little niche" teaming up on $2-$5 million office/warehouse projects. Foushee is very comfortable staying in the $50-$60 million range, with about 80 percent of its work coming from repeat clients. "It's a lot more fun when you don't have to constantly be in contact with your attorney."

Staff levels will stay about the same this year, with 26 in the office and about 100 in the field.

Foushee hired a full time safety person last fall to handle the growing safety requirements. Barker said the emphasis has improved construction safety, particularly in the commercial field, dramatically in the last 10 years.

Sutor Group

Accountant Robert Sutor of the Sutor Group in Bellevue said his construction industry clients are looking at some good years ahead -- "finally! It's been a long, dry spell."

"We're seeing a fairly healthy increase in prices and a return to margins contractors haven't seen for five or six years. Contractors can be a little more selective and not take as much marginal, risk-prone work," Sutor said.

Last year, contractors didn't see a significant increase in prices but many had tightened their belts so profits were better. "1996 was a better year than we've had for years," he said. "There was more work and contractors were operating more efficiently. 1997 looks strong. There's a lot of work and fairly meaningful price increases."

"People are anticipating a strong building market for the next several years," Sutor said. "It looks like a very strong economy for contractors."

Mortenson

Gene Hussey, director of business development for M.A. Mortenson, said the Seattle office of the firm had sales of over $200 million in 1996 and he expects 1997 to equal that level.

The biggest change Hussey has seen lately is the shift toward general contractor/construction management contracts on major public works projects. The GC/CM process is based more on qualifications which has caused a change in the skills needed to win jobs. Estimators used to put together bids but winning jobs under GC/CM requires presentation, marketing and interview skills which few people in construction were trained in.

"It can be difficult to get superintendents to present well," Hussey said, so the firm had spent a lot of time lately on in-house training exercises to compete in a new environment.

"There's not a lot of difference expense wise," he said, "but its dramatically different in what you have to do."

Hussey thinks GC/CM is a better process overall, partly because contractors get involved earlier. He said owners get better value and scheduling deadlines are easier to meet. He hopes GC/CM revisions will allow owners to give extra weight to qualifications in the final selection stages and allow the GC/CM to do direct work on the job which he said makes it easier to control a project.

Mortenson is expanding its Seattle office to cover projects in San Francisco, Dallas and Los Angeles. The Seattle office will provide estimating and business development support for those areas. Hussey said the firm is also adding some senior people and shifting people around to gear up for what looks to be a strong construction market.

The areas he sees being active are: biotech, military, office projects, hotel/convention centers, industrial, projects for Native American tribes and major projects of $10 million and up.

"Between Boeing and Microsoft we're going to see a huge spinoff. Vacancy rates are dropping and once they hit a critical mass we're going to see big office and industrial projects developed," he said.

Some of the major projects Mortenson is working on today include the $17 million Snohomish County Juvenile Justice Center, the $9.4 million West Police precinct for the City of Seattle, the White River amphitheater for the Muckleshoot Tribe which will cost over $10 million and the $8.3 million Women's Correction Center in Gig Harbor.

While it was a disappointment not to win the GC/CM contract for the Mariner's stadium, Hussey said Mortenson will bid on some of the big stadium contracts. "It's not the end of the world. We get two shots at it."

Synergy Construction

Pam Stewart, president of Synergy Construction in Woodinville, said this looks like a strong year for the eight-year-old firm with about $6 million in sales, compared with $4.5 million in 1996 and $3.9 million in 1995.

"We're not able to bid all the projects that customers would like us to bid," she said. "You have to grow carefully." The challenge in this kind of market is to keep growth under control and maintain quality, she said.

Synergy's business is concentrated in western Washington and includes low income housing, schools, colleges, tenant improvements and health care facilities. Stewart employs 45 people in both office and field staffs.

Her business has been growing gradually, with sufficient work from repeat clients to allow Stewart to bid only on jobs with select bidder lists. "We're bidding against good contractors," Stewart said, "instead of someone who just bought their license and a pick-up truck."

Another shift is Stewart's increased focus on quality and owner satisfaction. Synergy now assigns a principal to every job and Stewart personally keeps in touch with owners by sending questionnaires and making phone calls.

Stewart has been in construction since 1977, striking out on her own in 1990. She named the firm Synergy because she believes that a team of people working together accomplishes more than the individuals could alone.

Recently completed projects for the firm include the Brewster Apartments renovation in the Cascade neighborhood, restoration of an old trolley car for the city of Lynnwood, rehab of the Bell Hotel in Ehprata as low income housing and a remodel at Skagit Valley Community College.

Simmons Construction

Joe Simmons, president of Simmons Construction in Seattle, said his 14-year-old company has seen a big jump in business this year. The first quarter of 1996 was the worst ever "but this year is booming." He expects volume to be up 25 percent over last year's level.

The only cloud on Simmons' horizon -- and it's a big one -- is the lack of skilled labor. "It's already a problem. You can't find any good guys: carpenters, laborers, drywallers. There are no electricians anymore. It's just crazy. Here it is April. I can't imagine what it'll be like in October!"

Labor shortages slow project schedules and drive up prices with overtime. But higher prices don't mean higher profits because the jobs are more expensive to do. "Some projects we tell 'em we can't get to."

Last year was an "okay year" for Simmons with $4 million in volume. He expects 1997 will hit about $5 million with new construction, additions and tenant improvements. Recent jobs include a retail project at 23rd and Main, tenant work for both AT&T and GTE Wireless Services, renovation of the former Pacific Fish building at Sixth and Dearborn for Dwinell's Visual Services and a new building for Supreme Corq, a synthetic wine cork maker in Kent.

"This year is going to be our best year ever," Simmons said. The business cycles make construction a tough business to do well in over the long term, but Simmons said markets like this make up for some lean years. "You got to fill the silos now."

E. Kent Halvorson

The 13-year-old Redmond-based construction company E. Kent Halvorson Inc. has doubled in size in the last three years, thanks to an increase in both the size and type of projects the company works on.

Vice President Mike Quinn said three or four years ago a big project for the firm would have cost $3.5 million but in 1994 the company built a $12 million condo in Hawaii and in 1995 it built a $15 million outlet mall in Florida.

Construction volume in 1996 was $49 million and this year is projected to be between $60 million and $70 million.

E. Kent Halvorson Inc. has increased its visibility locally by landing the massive Overlake Christian Church job, right next door to the company's offices in Redmond.

All this expansion wasn't the result of a strategic plan, but rather taking advantage of opportunities as they presented themselves. "I don't know that we did anything different," Quinn said. He attributes the growth to expansion in the company's market niche which has taken it outside the Seattle area to places like Hawaii, the Grand Canyon and Florida, building heliports and IMAX theaters for tourists. Contacts made on those jobs have lead to other work in new markets.

"When Seattle was slow four or five years ago we were quite busy. It was the start of (our) growth spurt," Quinn said. "We've gone out of town, made contacts so our market has stretched."

Quinn said the firm has half a dozen new IMAX theater projects slated for this year in destination locations. Another big market for the firm is assisted living. It has gotten projects with Northwest companies seeking to expand into new markets and through contacts the firm itself has made in other markets. Currently E. Kent Halvorson has a contract to build five assisted living centers in Indiana and may do three more in Arizona for the same Portland-based company.

Quinn said in addition to new construction the company also does earthwork and utility projects and tenant improvements for firms such as Eddie Bauer and Quadrant.

"The future looks pretty bright because of all the different markets we are in," Quinn said. "We're building our image in the Seattle market. We think it's a good time to be doing that."

Merit Construction

Business volume will remain in the $12 to $15 million range for Merit Construction, according to Len Zarelli, company president.

The Lakewood-based contractor acts as a developer and general contractor, building office and retail space as well as doing some public work. Funding for potential private projects seems like it will be available, Zarelli said.

Currently, the company does not plan to retain ownership of any of the projects it develops because of high vacancy rates in South King County and Pierce County. Merit just completed an upgrade of outdated office equipment and plans to add one or two field superintendents during this construction season.

The outcome of future work may also be affected by contract negotiations between the Associated General Contractors of Washington and the carpenters and laborers trade unions now under way. Merit is signatory to both unions.

Associated Sand & Gravel

Proposed legislation which would raise the state gas tax will be the biggest factor affecting future work at Associated Sand and Gravel, based in Everett.

Paving projects, for the 1997 construction season, are already funded and are expected to occur at a slightly higher level than last year, according to Dave Spivey, company vice president. But without funds from the proposed seven-cents-a-gallon gas tax increase, the volume of projects will drop dramatically, Spivey said.

The bill currently before the legislature would add five cents per gallon to go to fund state projects and two cents per gallon to go to cities and counties.

Critics of the proposal forget that most cars are more gas efficient and that revenues from the tax are not keeping up with current needs, Spivey said. The latest increase was in 1990.

Spivey is also concerned about the lack of funding for improving capacity on local roads. All the money for heavy highway projects is earmarked only for preservation and maintenance, he said. In spite of increased traffic congestion, Spivey remains optimistic about the local economy because of Boeing and increase housing starts.

Associated Sand and Gravel still plans to develop a gravel pit near Granite Falls. Four years after starting the permitting process, Associated is addressing concerns about the project raised by the hearing examiner. The delay in pit development means Associated is shipping gravel from Canada to its Everett and Kenmore plants.

All construction companies will suffer from a labor shortage during the coming construction season, Spivey predicts.

The Rafn Company

The Rafn Company is going through a planned growth cycle, mostly due to expansion by its clients in the multi-family and commercial sectors.

"We have spent several years getting ready for the change," said Jack Rafn, company president. In October the firm moved into larger offices. It has already been working with its specialty contractors to help ensure that labor will be available during the peak construction season.

For several years, the company has been active in apprenticeship training programs which also help guard against labor shortages, Rafn said. Rafn was reluctant to discuss future plans or details about his company's expansion.

DPR Construction

When DPR Construction opened an office here in 1994, the regional office pulled in a modest $6.5 million in construction projects. But the tide quickly turned, with $42 million in revenues last year and $50 million expected for 1997.

The firm works in the pharmaceutical, healthcare (acute and assisted living) and microelectronics fields. The area is experiencing a big increase in biotech work, according to Arne Hall, director of the Northwest Region.

Much of the growth will be generated by start up companies "moving out of the garage" and into a 5,000 to 10,0000-square-foot space, Hall said. Work in related industries, such as companies that make tools for biotech firms, is also expected to increase.

PCL

PCL is looking for some big jobs to take the place of its $200 million Hawaii Convention Center project which is now about 75 percent completed, according to John Putnam, vice president and Northwest District manager.

Other large projects currently under way include the Boise Hotel and Event Center, a $35 million sports complex and condominium project and the FAA control tower in Portland. PCL is currently negotiating for another large contract in Hawaii, but Putnam could not disclose the details.

Though the firm was not successful in obtaining the GC\CM contract for the proposed Mariners stadium, it plans to bid some of the larger bid packages. "We will secure twice as much work as last year," Putnam said. The company is already hiring some new graduate engineers.

There is every indication that labor shortages will be serious this summer and fall, due to construction of the Mariners stadium and a general downturn in the number of craftspeople, Putnam said.

Putnam expects proposed changes to GC/CM legislation will allow make GC\CM contracting easier, although his company prefers design\build contracts because profit margins are higher and it has more control over the final project.

Rhine Equipment

Business during the first quarter of this year has been "fantastic," according to Don Brewer, vice president-sales for Rhine Equipment Company of Tacoma.

Construction in general has been strong, particularly housing which has led to strong sales in excavators and loaders for subdivisions and underground work.

Brewer says part of the reason for this year's brisk activity may be due to pent-up demand resulting from last year's sluggish performance. Construction last year really didn't get going until late in the season due to bad weather. Since about 70 percent of Rhine's business is lease-to-purchase, contractors didn't have enough time to make enough rental payments to trigger a sale.

Logging-related sales, which used to account for about 50 percent of Rhine's business, continue to decline, says Brewer. Commodity prices for pulp have been way down, he says.

Rhine's workforce has continued to increase and now numbers about 58. Besides Tacoma, Rhine Equipment has locations in Portland and Eugene, Ore.

Western Power & Equipment

"We've had our hands full with rapid expansion," said Mark Wright, vice president-finance for Vancouver, Wash.-based Western Power & Equipment Co.

With all the recent acquisitions, including several in California and Nevada, Western Power now has 23 branches. There may be further expansion in the Northwest soon, Wright said.

The most noteworthy acquisition locally last year was that of Sahlberg Equipment Inc., longtime Seattle area machinery dealer. Since some Sahlberg and Western Power stores share similar territories, there will probably be some consolidating at various locations soon, most likely Spokane and Portland.

Western Power acquired the right to use the Sahlberg name for two years.

Buying Sahlberg and GCS in California has allowed Western Power to diversify its product line. The company is selling more to municipalities with its street sweepers, sewer trucks, mobile road signs and radar equipment. Case products such as wheel loaders used to account for 90 percent of Western Power sales. That figure is now down to about 80 percent.

The trend toward consolidation continues industry-wide, says Wright. The one- or two-store operations are being replaced by the big chains. The main reason, Wright says, is economies of scale.

Equipment leasing continues to increase at the expense of sales. "There is less certainty in the marketplace."

Last year was a very good one for Western Power. Sales of the publicly-traded company totaled $106.6 million for the year ended July 31, 1996, and net income was $2.1 million, both up from the previous year. So far this year, sales are up more than 30 percent from a year ago, due mainly to an upswing in construction -- despite the bad weather -- and also the addition of stores in California and Nevada.

Activity in the wood products market has been slow, however. Sales of log loaders and feller bunchers are down, due mostly to a soft pulp market.

Western Power & Equipment is a subsidiary of American United Global Inc. of Downey, Calif.

N C Machinery

The Washington economy will be strong in 1997 with western Washington experiencing increases in housing starts and general construction, says John Karlsen, vice president/general manager of N C Machinery Co. N C expects to be a part of that growth, predicting a 10 percent increase in sales volume.

Steady economic growth in the U.S. and an accelerating world economy bode well for business in this state, Karlsen said.

Heavy equipment/earthmoving sales and rental volume increased 17 percent last year, about what was predicted. The rental market is becoming more and more of a factor, he said.

N C spent much of last year "getting the right people in the right job," said Karlsen. "Our head count per se has not changed but the team dynamics have changed considerably."

"The critical issue this past year has been: would the customer pay for it?"

N C Machinery Co. is split into four units: power systems, lift trucks, Alaska earthmoving and Washington earthmoving. The Washington business unit's territory covers western and central Washington with eight branches and 308 employees.

Absher Construction

Puyallup-based Absher Construction Co. had a down year in 1996 because of several project delays, a couple of projects that got canceled and a flat public bid market.

However, things are looking up for Absher Construction and its President Dan Absher. While volume for 1996 was $55 million, Absher said this year should come in around $80 million. He attributed that to more contracts and bidding.

Absher got more good news recently. The firm was low bidder on a $44 million barracks renewal project for the Army at Fort Lewis. If the company is awarded the contract for that job, it will be the largest in its history.

"Last year at this time, we couldn't find any projects to bid on," Absher said, "this time we can pick and choose jobs.

"My impression is there are a lot of busy contractors out there," Absher said, predicting the market will be good for another few years.

Other projects in the company's pipeline include a $5 million addition/remodel at Annie Wright School in Tacoma and a $12.5 million GC/CM job for a minimum-security camp in Monroe.

Absher said there is a trend in the construction industry of contractors becoming either really big or really small. That is creating a dilemma for mid-sized companies such as his. Absher said they have to be big enough to compete with the national guys or scale back.

Absher's plan is to get bigger. He may have taken the first step toward that goal with the Fort Lewis project, on which the company under-bid several large national contractors.

Another concern Absher has about the industry is finding a stable source of funds for both transportation and public buildings, especially schools. If more and better schools are built now, he said, we wouldn't need as many prisons later.

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