By Greg Sitek
Public works projects are beginning to stimulate various segments of the construction industry with funding for projects.
We all have a way of tracking the state of the economy as it affects us. So how are we, as an industry and a country, doing? In my opinion we are starting to do better; we are gaining traction; we are gathering momentum and moving ahead.
On what do I base these assumptions? My economic barometer usually falls into a category that is closely akin to things like furrier caterpillars mean a colder winter; thicker onion layers mean a long, cold winter; and my aching left hip means it’s going to rain. To gauge the economy I check the stock market daily. For awhile, I was checking it several times a day.
When the Dow falls below 9,000, I become seriously concerned; when NASDAQ falls below 2,000 my economic radar starts flashing; and as S&P dips below 1,000, warning buzzers go off in my brain. When all three happen and stay there for any length of time – a week or more – I know we are headed for serious problems. I realize that dabblers, stockbrokers or economists will read this, scratch their heads and wonder where I bought my Ouija board. Like I stated, this is my personal state-of-the-economy barometer.
The fact that these three – DOW went over 9,000 on July 20; NASDAQ went over 2,000 on August 17; S&P went over 1,000 on August 3 – have been over my concern line for a couple of months is not the only reason for my positive comments. The recent ICUEE show drew near-record attendance (visit Site-K Construction Zone for detailed reports on the show, its attendance and show activities) and almost everyone – manufacturers, exhibitors, dealers and contractors – that I talked to was optimistic about the future.
A couple of the manufacturers said that they were having record or near-record years while others stated that they were selling more equipment at the show than they had expected. We were with one manufacturer getting a rundown on the company’s new products when the company president, with whom we were speaking, excused himself to take a call. His comment was, “Please excuse me but I’ve been waiting to hear from a prospective customer who is interested in buying a half-million-dollar piece of equipment.”
It sounded like a legitimate excuse so we waited while he took the call. After hanging up, he turned to us and said, “You’ll have to excuse me, but he’s ready to discuss terms and delivery dates.” We parted company at that point. Later when I saw the gentleman while walking through the show, he stopped me and said, “We got the deal. Things are starting to look up …”
Probably the reason ICUEE was so successful is because it is heavily focused on the non-transportation infrastructure and is a strong public works and utility show. Many attendees said that they were seeing more government jobs being posted.
The American Recovery and Reinvestment Act of 2009 (ARRA) allocated $787 billion to stimulate the economy (visit Site-K Construction Zone for extensive coverage on ARRA and the Stimulus Package). Of that total amount, $288 billion has been allocated as tax benefits with only $83.8 billion having been paid out; $275 billion has been designated for contracts, grants and loans with only $52.1 billion spent; and $224 billion has been tagged for entitlements with only $71.4 billion finding its way into use (source: www.recovery.gov). There is a lot of money in play and a lot more to come.
The Department of Transportation has available $30.1 billion; of that only $.85 billion has been paid out. In the last month the payouts have increased and the trend looks like it will continue.
According to a recent article by Matt Jennerett, ARTBA’s vice president of communications, an Illinois asphalt contractor – whose company was awarded contracts for eight new transportation improvement projects that helped save 260 jobs and create 30 new ones – told Congress that the economic stimulus law is working as intended.
Charles Gallagher, president of the family-owned Gallagher Asphalt Corporation in Thorton, Ill., testified on behalf of ARTBA at an Oct. 1 House Transportation & Infrastructure (T&I) Committee hearing on implementation of the American Recovery and Reinvestment Act (ARRA).
“Without a doubt, the stimulus has helped keep my company afloat during one of the most difficult economic periods our industry has ever experienced,” Gallagher said. “For that, I would like to thank the members of the committee for your efforts to secure as much transportation investment as possible in the recovery act.”
Citing Federal Highway Administration data, Gallagher told the committee the states are meeting the law’s timelines for obligating their transportation funds, and that nearly 4,000 ARRA-financed projects valued at $11 billion are now under construction all across America.
The impact of the ARRA is even more evident when looking at new highway contract awards, Gallagher said. During the first four months of 2009, state and local transportation departments awarded $2.1 billion fewer contracts for highway and bridge construction projects than during the same months of 2008, reflecting recession-driven cuts to state and local highway funding. Since that time, however, in the period between May and August, the value of new contracts for highways and bridges has exceeded 2008’s total by almost $4 billion, with the ARRA more than offsetting state and local budgetary difficulties. The additional work has allowed transportation contractors to sustain – and add to – their workforce, he testified.
Gallagher cautioned the stimulus would only provide a short-term economic “shot in the arm.” The benefits of the law will phase down quickly after 2010, and the jobs it supported this year and next will begin to disappear.
To sustain and build upon the momentum of the ARRA and reenergize the long-term growth potential of the United States, Gallagher called on Congress to take action soon on a six-year, $500 billion surface transportation investment bill as proposed by the T&I Committee.
HIS Global Insight
A recent IHS Global Insight report revealed that the current recession has placed a severe drag on the nationwide construction equipment industry, which is consequently holding back the broader economy from recovery. Other key findings include:
- The construction equipment industry – including manufacturing, distribution and equipment service facilities – has shed 37 percent of its workforce. By comparison, auto manufacturing and dealership jobs are down by 16 percent, while job losses in the finance and insurance industry amount to 6 percent of that workforce.
- Spending on construction equipment has fallen by more than 50 percent compared to its peak in 2006.
The economic output of this industry has contracted by nearly 40 percent and resulted in the loss of approximately 550,000 jobs. That’s 8 percent of all jobs lost since the start of the recession.
IHS Global Insight also analyzed the impact of the construction equipment depression on individual states. From “peak-to-trough” – roughly 2006 to 2009 – the states suffering the greatest losses are California, North Dakota, Texas and Wyoming, as seen below.
Working in spite of …
While at ICUEE we had an opportunity to sit and talk to a Derek Hutchins, president and owner of Hutchins Telecom, based in Louisville, Ky., with a branch in Missouri. Hutchins currently has several jobs going, the biggest of them at Fort Knox, Ky. He does telecom infrastructure work that includes directional boring, trenching, plowing, cable pulling, water and sewer, and offers turnkey solutions to infrastructure construction-related problems.
Before starting his own company three years ago, Hutchins had worked for Vermeer in directional drilling and then worked for several construction companies before deciding to go on his own. Of course he picked the “best time ever” to get into his own business but hasn’t suffered due to the economy. Hutchins says, “I bid a lot of work. I bid everything and usually it’s the kind of work that nobody else wants … hard rock, rough terrain, that kind of stuff.”
The Fort Knox job is 18 miles of fiber cable tying all the training ranges together to command central. According to Hutchins, “This is really rough country. I can see why no one else wanted the job. We’re laying cable through mostly hard rock. The first saw didn’t work at all. We brought in a Tesmec rock saw and it is doing the job.
Other equipment he has on this project includes a Cat420 E, HoRams, a Cat 279 compact track loader, a Cat D 6K dozer, Komatsu D65, and other support equipment. The Fort Knox job is just laying the cable and does not include anything else. Hutchins said that his total operation includes around 30 people. They do their own maintenance on site. He did say the rock saw requires about two hours of pre-work maintenance, “thanks to the terrain we’re operating in.”
Other jobs include a 40,000-foot water project and several other water and sewer projects in Missouri. Hutchins stated that, “30 percent of our projects are water and sewer related.” He noted that stimulus money was slow coming into Kentucky, but that Missouri had been doing quite a bit of stimulus funded work.
Hutchins said that he does a lot of government and military work. “Getting the first job was tough but once we did, it’s gotten easier. We know what to expect and what is expected of us, and they know what we can do and what they are going to get from us.”
“There’s a lot more paperwork you have to do,” Hutchins pointed out. “Awarding contracts has become more qualification-based selection where contractors are rated and ranked. Design-build is becoming more popular as well.” The company has one engineer who is design-build experienced.
“There’s been no shortage of work if you’re willing to tackle it,” Hutchins commented. “There is a lot of money allocated for utilities and government work. You have to be willing to work in some really rough terrain and do things you wouldn’t normally want to do, but it is work – good, good work. There are a lot of targets for cable-type work with all the new school construction going on.”
Some of the challenges Hutchins said he faces include price cutting in some markets where competitive contractors will bid a job at half of what he does. He said that his most serious problem is finding experienced and committed employees. He noted that 50- to 55-year-olds are or will be getting out and there aren’t any replacements following them.
Top 100 Infrastructure Projects:
CG/LA Infrastructure LLC, a leader in infrastructure project identification and development, recently announced the release of the Top 100 U.S. Strategic Infrastructure Projects. The total estimated value of the projects is nearly $465 billion, the investments for which will be spread over an average of five years. Total direct and indirect job creation over the period will be nearly 10 million full-time employment positions. The Top 100 list is released prior to CG/LA’s North American Strategic Infrastructure Leadership Forum, which will be held September 22-24, 2009, in Washington, D.C.
“These projects will form the backbone for a new, competitive U.S. economy and breathe life into the Obama government’s vision going forward,” stated Norman F. Anderson, president and CEO of CG/LA. Led by both the Obama Administration’s commitment to improving the nation’s faltering infrastructure stock and by a regional drive towards carbon-neutral energy and productive infrastructure, the North American Leadership Forum will host not only the top projects in the U.S., but also the leading projects in Canada and Mexico. “The U.S. economy is in trouble, and these projects define a powerfully competitive, critical path forward,” said Anderson.
The Top 100 projects were identified as possessing three specific criteria: (1) strong probability of going forward in the next 12 months; (2) critical as building blocks for U.S. competitiveness; and (3) strong relevance to the Obama administration’s ‘connect the dots’ infrastructure priorities. Highlights are the following:
Smart Grid: The Smart Grid is a separate category, best understood as the operating system for the new economy; it is what Warren Buffet calls “the single most important investment in the U.S. economy.” Fourteen of the 100 projects are tied to the Smart Grid, either directly or through the projects that the Grid enables, including six transmission projects ($25.1 billion), lead by the Midwest’s Green Power Express project; and eight renewable energy projects ($15.3 billion), including wind, solar and energy efficiency, the largest of which is T. Boone Pickens’ Pampa project.
New Infrastructure: This is the infrastructure meant to serve as ‘building blocks’ – a model both in terms of finance and physical capacity creation – for a globally competitive U.S. economy. These projects are largely carbon-neutral – powered by electricity rather than liquids – including six high-speed passenger rail projects ($109.4 billion, the largest spend by far on our list), lead by the San Francisco/Los Angeles and Midwest Rail Initiative; and 18 urban mass transit projects ($44.4 billion) including Michigan’s Regional Rail Link and Northern Virginia’s Dulles Access Corridor project. The visionary $10 billion electric freight rail initiative would also fall into this category.
Traditional Infrastructure: This is what we normally think of as infrastructure; essentially, the physical structures created 50 years ago that have allowed our economy to be competitive and have created opportunities for Americans over the last half-century. These projects were selected based on their ability to renew that competitiveness, including 17 projects in surface transportation ($58.3 billion); seven projects in ports & logistics ($5 billion); four projects in traditional electricity generation ($21.4 billion); nine projects in natural gas, including pipelines, LNG terminals and exploration ($55.1 billion); and 14 projects in the ‘forgotten’ infrastructure of water/wastewater ($19 billion).
Roughly 2 million new jobs would be created each year from 2010 through 2014, directly and indirectly, via the development of these 100 strategic infrastructure projects, including jobs in:
• Smart Grid: 839,000 jobs in four years;
• New Infrastructure: 3.2 million jobs in four years;
• Traditional Infrastructure: 3.03 million jobs in four years.
Altogether, the 100 projects would create the equivalent of 10 million full-time jobs over the next five years.
The Journal of Commerce posted the following analysis of the top 100 jobs:
High-speed rail and a major Interstate highway project in Texas head up a list of the top 100 infrastructure projects in the United States released this week by CG/LA Infrastructure.
High-speed rail networks in California and the Northeast topped the list, in terms of value, with price tags of $45 billion and $32 billion. Those rail projects would create more than 1 million jobs.
At $30 billion, the expansion of I-69 in Texas, a plan formerly called the “Trans-Texas Corridor,” tops the list of surface transportation projects. It would create 600,000 jobs, says CG/LA.
Altogether, the 100 projects would create the equivalent of 10 million full-time jobs over the next five years.
Leading highway projects include the expansion or repair of the New Jersey Turnpike, I-94 in Wisconsin, I-81 in Virginia, SR 99 in Washington, SH-130 in Texas and I-595 in Florida.
The firm also identified seven port and logistics projects worth a total of $5 billion, including a $1.35 billion congestion I-5 relief plan in Seattle and dredging at the Port of New Orleans.
“New infrastructure” focused on “carbon-neutral” projects largely powered by electricity, including six high-speed passenger rail projects worth $109.4 billion and 18 urban mass transit projects.
It also mentioned a $10 billion electric freight rail initiative.
Fourteen of the 100 projects are related to energy, including six transmission projects valued at $25.1 billion, lead by the Midwest’s Green Power Express project. The top 100 also include eight renewable energy projects worth a total of $15.3 billion.
There is a lot going on and a lot more to come. While the future may not be bright, it is a lot more welcoming that it was a couple of months ago. When we do come all the way out of this we will be somewhat different. Hopefully we will be on our way to developing an integrated transportation infrastructure along with a greener environment and a better place.
This article appeared in the December 2009 issues of the ACP Magazines.