Prizio Construction Inc

AGC SmartBrief links us to an article in the Daily Journal of Commerce (Portland, OR) which laments the disparate impact of ObamaCare on larger construction companies compared to their smaller competitors. The law, as enacted, will require companies with 50 or more employees to provide health insurance to all employees. While this clearly will give a cost advantage to firms under 50 workers, such firms have always benefitted from their lower costs and greater efficiency on small private projects. And they have always been unable to compete on larger projects due to limited bonding capacity and insufficient crew sizes. ObamaCare changes none of that.  It does, however, mean that large firms competing for small private projects will potentially have an even harder time of it than before.  On public works jobs there will be no advantage to small firms, because the pay and benefits packages paid these workers are mandated by existing laws. The actual impact on large firms is probably not that great, but in times like this when work is scarce, no one wants to give up any chance for work.

Of much greater potential concern to contractors, both small and large, is the enormous financial burden the new health care law will place on the potential customers of all contractors. With the ink barely dry on the new law, Caterpillar and John Deere both announced $100 million+ write downs due to new health care costs. Verizon and AT&T followed suit with huge write-downs of their own. We must expect that other large corporations will be joining them in the near future.  There should be an especially large impact on firms that employ large numbers of low wage workers, who have traditionally enjoyed no or only meager health care coverage.

The damage is apparently not limited to private firms. California governor candidate Meg Whitman announced on the Hugh Hewitt radio show that her analysts expect the state of California to suffer a $3 billion dollar extra cost due to mandated but unfunded health care costs caused by the new law.

Let’s see, if private companies are taking major hits to their financials, removing money from their balance sheets that could have been used to build new facilities, and the states are soon going to be going broke even faster than they already are, exactly who is going to be able to hire any contractor, large or small, to build anything?  Oh yeah, we can all live off of the American Recovery and Reinvestment Act, or not.

Writing for ENR.com, Don Short II notes that he is seeing contractors bid below cost, and he laments the bad things that can come from this.  His current editorial correctly notes that this is nothing new but is currently more prevalent than before.  To this I would ask rhetorically, Is this actually news in Omaha where Short has his business?

We have not seen a low bid on a public works job go for above cost in over a year, at least from a concrete contractor’s perspective.  In fact, we routinely see low bids in the range of 25% below direct costs.  We have also seen general contractors and/or construction managers take work for what could only be described as free, just to keep a client relationship. 

The mad scramble to get work in southern California by any means necessary has put the industry on the fast track to destruction. Companies that refuse to lose money on jobs are losing money due to lack of work. Every company I know has laid good people off and put most, or in many cases all, of their workers on reduced pay and reduced hours just to keep them available.  Hourly workers fill the ranks of unemployed and have little prospect of finding work in the industry.

Interestingly, no bonding companies will admit to being the ones who are covering these below-cost bidders.  Every one of them claims that it is someone else who has their neck stuck out on these non-profit public works jobs. Of course, at least some of them are deluded or worse. It is only a matter of time before the chickens come home to roost for them — a risk that Short rightly, if a bit belatedly, points out in his article.

Calera, that amazing concrete product of the future, got a brief mention by AGC today in their online newsletter, but, unfortunately without telling us much, especially if there is anything new happening with this interesting product.  They provide a link to the web site of Reliable Plant, where they feature an article on Calera that does go into some depth on the purported benefits of the product, and is worth reading if you have never heard of Calera.

Those of you who have worked on LEED certified projects know that concrete gets marked down heavily for the amount of carbon dioxide emissions associated with its manufacturing process. Calera promises to reverse that penalty completely with a revolutionary family of products that actually capture carbon dioxide from fossil fuel power plant exhaust.  These products come in the form of aggregates that can replace natural rock and a cement-like product called Calera SCM that can fill the role more typically played by fly ash in the concrete mix, creating a product that is carbon neutral to possibly even carbon positive. Please visit their web site for a more complete description of their technology.

The bad news is that Calera, despite its presence at the World of Concrete for the last two years and despite a lot of good publicity, does not yet appear to be quite ready for prime time, as the saying goes.  I am not sure why this is, but I suspect that it has proven more difficult to bring this product through the various certification processes than they initially realized.  There is a lot of potential liability associated with a cement replacement product, so there are a lot of hoops to jump through before everyone is willing to sign on to using it in an actual building.

The New York Times has declared this the Age of Concrete in an article  about the recently completed Burj Khalifa in Dubai. This half-mile tall edifice does indeed stand as a testament to the possibilities of our favorite building material. Author Blaine Brownell waxes eloquently about how stone was once the premier building material of memorable monoliths, only to be replaced by steel. The Chrysler Building and the Empire State Building ushered in this new age that, by his account, saw its culmination in the completion of Taipei 101. However, with that noteworthy achievement now exceeded in height by 1,000 feet, the mammoth of the Arabian Desert has now become the harbinger of the new  Age of Concrete.

Of course, we think it has been the Age of Concrete for some time, as we have watched and participated in the explosion of concrete tilt-up buildings in southern California and across the nation. But I guess it is fair to say that these structures, while extremely functional, are not exactly memorable in the kind of way that the Burj Khalifa is. On the other hand, though, these pedestrian places of commerce, in their combined effect, far surpass that of all the trend setting super-tall buildings combined.

Long live the Age of Concrete, and congratulations to all who helped make the Burj Khalifa possible

Our recent meeting between the Carpenters Union and southern California tilt-up contractors clearly anticipated today’s grim news.  We didn’t need a press release to tell that there simply isn’t any work or that thousands of good workers are not able to find construction jobs. We live it every day. But just in case there was a shred of doubt, it was quickly dispelled by the morning’s news.

 In press release from AGC today the doom and gloom just seems to get darker and deeper.  The February construction statistics show an unemployment rate of 27.1%.  If the whole economy mirrored that frightful number it would be 1932 again. Almost 2 million construction jobs have been lost since 2007, a staggering number indeed, but one that doesn’t even begin to tally the toll of human suffering that lies behind it. How many good, hard working people are out of work due to this downturn? How many people who have never missed a paycheck in 20 years are suddenly out in the cold trying to make house payments and car payments? We can’t even begin to know.

The anger with politicians in Sacramento and Washington DC is now palpable.  It is impossible to have any kind of conversation with another contractor without their barely-contained rage boiling up.  My desire is to keep my blogging non-political as much as possible, but the need to address this issue is impossible to deny. There is a great sense that no one in the state or national capitol is paying attention. How can they be fighting about health care reform or playing sneaky budget tricks when 2 million people have lost their jobs?  Why isn’t there any clear sign that these politicians understand what people are going through?  People may legitimately differ about the best solutions to the health care and budget challenges we face, but who outside of these clueless pols thinks that health care is our number one problem? No one I know! That’s for sure. We need some real leadership. We surely are not getting it.

Last week (March 3^rd), saw the first meeting of the year between the Southern California District Council of Carpenters and the signatory tilt-up concrete contractors.  The tone of the meeting was decidedly different than last year’s.  To be sure the contractors were unhappy, as they were last year (as they are almost every year when they meet with the Union). However, the tone was much more subdued and marked by a sense of we’re all in this together, rather than the more typical adversarial tack that such meetings usually take.  None of the contractors was doing well and most had little or no work, especially new tilt-up work.  Some were pursuing small jobs such as commercial remodeling, while others, such as ourselves, were pursuing mostly public works jobs. The union was acutely aware of our plight, because they had a hall full of men looking for jobs and nowhere to send them.

This was not a meeting to decide what to do, but it was a meeting to voice our concerns and bounce some ideas around.  The need to compete with non-union contractors reared its ugly head early and often in the discussions.  The cost gap between union and non-union workers of some $15 per hour seems insurmountable, but all agreed, at least in principle, that the union needs to find a way to narrow the gap, at least for the coming year. Everyone left the meeting quietly knowing that the coming year was going to be a tough one, no matter what sort of agreement they eventually hammer out.

Recent articles by AGC and Reuters note a drop in construction spending in January to the lowest point in nearly seven years. Our problems continue to be caused by banks refusing to make commercial loans and by money drying up for state and locally funded public works projects, not to mention at least a temporary hiccup in federal spending.

Banks, even though many of them are awash in cash and treasury notes, simply will not take risks on commercial loans in this economy. They are refusing to relent until things improve, which ironically they can’t until banks start lending money. The lack of funds is not only affecting construction directly, but it also impedes the start-up and expansion of private businesses, which would, in turn, be likely customers for underemployed contractors. As an example, my brother in law has a company that depends on setting up franchised retail stores.  He says he has many new potential businesspeople ready to go, but they can’t get financing to start up their new businesses. A friend, who was until recently a successful commercial mortgage broker, says she simply can’t place a commercial real estate loan with a willing lender, no matter how solid the deal is.  These bankers are all waiting with bated breath for the soon-to-come commercial real estate crash, which they seem to be doing everything in their power to precipitate.

Non-federal public works projects are also running out of available funds.  Most of them, even local ones, depend on at least partial funding from their respective states.  State governments, almost without exception, have less money to work with than they expected due to the poor economy. Thus, even cities and school districts with their portion of the funding can’t get matching money from their cash-strapped states.

Federal spending is still going at a brisk pace, or at least it was until this week, when a Senate filibuster by Kentucky’s Jim Bunning brought the extension of transportation spending to a halt. The Senate’s newly updated pay-as-you-go legislation mandates spending cuts somewhere else to fund new transportation spending and extension of unemployment benefits, so Bunning is calling the chamber on this by demanding to see the matching spending cut legislation. (see LA Times article for more) . In the meantime, contractors performing federal transportation work are near apoplectic about the delay.

On the question of whether we’ve arrived at a “new normal,” Forbes responded with, http://www.ocmetro.com/t-forbes_balboa_bay_03012010.aspx

I’ll close with one last happy thought. Steve Forbes yesterday, while addressing a group of local business people, was asked if this current economic state was the “new normal.” His reply was, “It’s not the new normal. It’s going back to normal. What’s happened was abnormal.” In other words, there will not be a return to the economic conditions of the mid 2000s. They were the aberration.

In an attempt to address a longstanding problem with concrete floors that are to receive floor covering, especially resilient or wood coverings, the American Society of Concrete Contractors (ASCC) has released a position statement that begins to address this concern. The position statement, officially entitled Division 3 versus Division 9 Floor Flatness Tolerances, Position Statement #6, addresses the incongruity between the F-number flatness standards typically used by concrete contractors, whose specifications are shown in Division 3 of most jobs and the straightedge standards preferred by flooring contractors that are typically described in specification Division 9.

Some history is in order for those who may not be familiar with the problem. The older straightedge standard says that if a ten foot straightedge is placed anywhere on a floor and one end is pressed down, the other end shall not have more than 1/8 inch or perhaps ¼ inch between the raised end and the surface of the floor, depending on the specified tolerance.  This standard is most likely to give the flooring contractor a surface that will make his product present itself as expected. The problem with this standard is that there is no ASTM-approved test method for determining whether or not a contractor has complied with it. The measurements are also taken immediately before the flooring is applied, which may be months after the concrete contractor has finished his work. Concrete contractors hate this standard because of these problems.

Contractors prefer the F-number standard because it is easily measured according to an ASTM test procedure, and it is measured within 72 hours of the placement of the floor slab. The immediate feedback that this test gives allows concrete contractors to make any necessary adjustments in their placing methods before the whole job is completed. The results are clear, quantifiable, and immediate. Concrete contractors love this test.  Unfortunately a floor with a wonderful F-number at the time of placement may not be so flat when it comes time to place flooring over it. This is primarily because of curling —  the tendency of concrete to dry out more quickly on the surface that on the bottom and thus curl up like the mud left in a puddle after it dries up. Concrete contractors maintain that poor design is the primary cause of curling and is therefore not their fault. They are at least mostly right, but they get blamed for curling anyway.

The ASCC position statement, reflecting the concern of concrete contractors, says that engineers should specify a minimum slab reinforcing of 0.5% of the cross-section area of the slab in each direction to combat likely curling. This is fairly heavy reinforcing equivalent to #5 bars at 12 inches on center both ways in a 5 inch thick slab. Whether or not this recommendation will be accepted by engineers remains to be seen.  There is, needless to say, a substantial cost associated with this recommendation. In any case, it is a start in the process of reconciling the concerns of concrete contractors and flooring contractors, and that is a good thing. If you refer back to one of my previous blogs you will see the results of some field tests that are being done to examine this problem and some possible solutions. Although I applaud the efforts of the ASCC, I am hopeful that some more cost-effective solutions may soon present themselves.