(Or an oncoming train?)

 

It appears that the first signs of clearing are in the air for the beleaguered construction industry, especially in the northeast. 

 

The ABI (http://www.aia.org/practicing/AIAB086270)  published October 22, 2010 indicates a significant jump into positive territory for  both “Work on the Boards” and “Inquiries” for the northeast in the commercial and institutional sectors.  For the northeast you need to look back to the summer of 2007 for a “Work on the Boards” index this high.  The index has remained below 50, which indicates negative growth, for the past 33 months.  For the northeast the most  recent index reached 56.7.

 

No, I’m not drinking the Kool-Aid, and there is a long way to go, but this is the first empirical data that is substantively positive in years.   The ABI is a predictive and leading indicator.   If and when this translates to pre-construction activity, and ultimately boots on the job site, it has much to do with the kind of work being planned and the ability to fund it.

 

I am cautiously optimistic that two other factors will help fan the little flame that has been started. 

 

The first is the Fed’s announcement last week that they will embark on the QE2 program, essentially printing $600-800 billion dollars as stimulus.  This will hopefully put further downward pressure on interest rates, inspiring business to borrow.  We can only hope the loans will be made available by the banking industry, who so far have been more interested in banking then lending.

 

We also have a republican congress coming into play in January.  While there is no will among republicans and tea partiers for further stimulus and infrastructure projects, they seem to really embrace deficit spending when it reflects a tax cut.  There’s pressure all around, and plenty of blame to go around, if some economic improvement does not reveal itself quickly. I’m betting on deals for “stimulus disguised as tax cuts”  such as payroll tax holidays, tax cuts for new job creation and  accelerated depreciation schedules.   I believe that kind of stimulus could quickly find agreement. 

 

If the sun is coming up, it’s time to survey the damage and get our game back on.  This industry has been gutted by the recession.  I personally know many architectural firms that have consolidated for survival.  Numerous builders and construction management firm have reduced to core groups.  Many contractors and design firms have simply gone out of business. I also know trades people who have been out of work for 2 years.

 

The continual commoditization of work performed by design professionals puts more and more on the shoulders of Construction Managers.  The CM firms were already challenged for talent before the industry was gutted, therefore we will need to focus on training and educating our next wave of construction managers. 

 

Many talented builders have left the business, and are not likely to return.   Firms who have hired and/or retained their core have often done so by hiring at reduced wages and through wage reductions.  When the work returns, I expect to see a lot of churn in the industry as the firms that are well capitalized make a play for the best talent that is left. 

 

Owner’s will also need to be wary of builders who stocked up on work at losing numbers.  As we come out the other side, they will have to shoulder the burden of finishing these projects at a loss.  These projects will be painful to move across the finish line.

 

Newly consolidated A/E firms will need to find their footing with new partners and employees as they work to establish renovated corporate cultures.  The pressure on A/E firms to reduce cost and shoehorn into unrealistic fee structures will continue.  Outsourcing to overseas drafting rooms is still a reality and one that has not been shaken out yet, this phenomenon is still rising into the mainstream.

 

For all of us in the allied industries: builders, design professionals, real estate professionals and developers, this would be an opportune time to examine our mutual interests and devise ways we can work smarter and more efficiently, together.

 

For owners, understanding and choosing the right contract delivery method has never been more important. Every individual component in the design and supply chain has been stretched to the breaking point, being aware of this and having a proactive plan will be essential to getting projects completed.