Top 2005 Specialty Contractors
Billings Hold Steady;Commodity Costs Stabilize

by Craig Barner

It's mostly a steady ride for the Midwest's 2005 Top Specialty Contractors.

"Compared with a year ago, it (the market) is essentially the same," said Tripp Ahern, president and CEO of Fond du Lac, Wis.-based J.F. Ahern Co., a mechanical and fire protection contractor. "There are ample work opportunities for people, but it remains highly competitive."

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The feast and famine effect of the normally volatile construction market is also being felt.

Northbrook-based The Levy Co., a multitrade contractor specializing in drywall, painting and plastering, had a slow first quarter, and some employees were laid off, said Allan Burke, secretary-treasurer. But he added that hiring is expected because the firm has a large backlog due partly to a the build-out at the Schaumburg
Convention Center & Hotel project that will keep the company busy for eight to 12 months.

"We're looking for the balance of the year to come out pretty close to last year in billings," Burke said.

Even with the middling conditions, local chiefs are aware that the existing market represents a change for the better compared with 2002 and 2003, when there was a recessionary environment.

"In past years, union halls were filled because people were looking for work," said Sharon Topel, executive director of the Des Plaines-based Association of Subcontractors & Affiliates/ASA Chicago. "I don't know if that's true this year."

The annual Midwest Construction survey of specialty contractors in Illinois, Indiana and Wisconsin found billings for the top-X firms in the tri-state region last year were $X billion.

The survey also found top specialty contractors' revenues for all work worldwide were $X billon in 2004.

Holding Steady

The flat conditions are partly attributable to offsetting economic factors in the overall economy.

Stimulating the economy are lending spurred by the Federal Reserve's low interest rates, President George Bush's business-friendly preference for low taxes and government spending on the Iraq War and homeland defense.

On the downside, hiring is mediocre due to do unmanageable health care costs; prices for oil and other commodities are high; and the federal deficit is through the ceiling.

The local construction markets seemingly reflect the up-and-down nature of the economy.

Starts in Chicago in the first quarter of 2005 were $4.4 billion, up a remarkable 40 percent from the $3.1 billion in first-quarter 2004, data show.

The Windy City's good fortune, however, was not shared among its Midwest sister cities.

Data show Indianapolis had $973 million in starts in the first quarter of 2005, down 17.8 percent from 2004's $1.2 billion. St. Louis dropped about the same percentage (17.5 percent), going to $1.1 billion from $1.35 billion.

Milwaukee suffered the greatest setback, sliding 28.7 percent, to $421 million from $591 million.

Milwaukee's falloff is partly attributable to an inflated 2004 figure due to the start of the $810 million rebuild of the downtown Marquette Interchange, said Mike Fabishak, CEO of the Associated General Contractors of Greater Milwaukee.

Nevertheless, "some people who had expected major activity last year were disappointed," he added.

Still, the brewer city is showing a few reasons for optimism, with bridge construction up 28 percent to $16.8 million due to the Marquette project; government buildings were up 8,000 percent in part because of the $60 million renovation of the 1890s-era Milwaukee City Hall; and industrial facilities were up 382 percent in part due to the 1-million-sq.-ft. storage facility Roundy's is constructing at the former Pabst Farms in Oconomowoc.

In Chicago, multiunit residential construction - long a stronghold in the Midwest metropolis - is helping drive the market, rising 364 percent to $1.3 billion. Flamboyant New York developer Donald Trump's $750 million Trump International Hotel & Tower on the former site of the Chicago Sun-Times building helped this market fly.

"I don't know what's going to happen to us after the residential market goes away," added Warren Hill, chairman of Chicago-based Hill Mechanical Group.

The Trump project also boosted the hotel market, up 593 percent to $116 million, according to data.

Street and highway construction are also strong, up 52 percent to $209 million, in part because of major reconstruction on the Dan Ryan Expressway, South Tri-State Tollway and Robert Kingery Expressway.

Modest increases were also seen in laboratories, libraries and museums, power plants and river and harbor development.

In Indianapolis, bridges increased 112 percent due to the $1 billion expansion of the Indianapolis International Airport, office buildings were up 87 percent to $77.7 million partly because of Simon Property Group's $55 million headquarters, and water supply systems rose 55 percent as the city's combined sewer overflow project continues.

Modest upswings were also seen in amusement, warehouses and multifamily housing.

Settling Commodity Prices

Prices for construction commodities - steel, concrete, gasoline, drywall - that started to rise nearly two years ago appear to have stabilized.

"Steel leveled off, but it had a large impact on our bottom line last year," said Bob Krier, president of Hill Mechanical. "We ran 4.1 million lbs. of sheet metal through the last year." The increase was partly attributable to demand from a bullish China.

Drywall prices spiked last year, too, due to demand in Florida during the rebuilding after hurricanes. But drywall prices have settled, The Levy Co.'s Burke said.

A cost issue that is becoming a concern is that general contractors are buying equipment for owners, Krier said. The motivation is to reduce owners' costs.

"We don't bid their work," he added.

Tetchy issues aside, specialty contractors are embarking on initiatives of their own to stay competitive.

Hill Mechanical, for example, is looking for contracts that allow it to be the prime contractor.

It recently completed the replacement of air-handling units on terminals 2 and 3 at Chicago's O'Hare International Airport. In addition, the firm is doing chiller and boiler plant replacements at Northwestern and Loyola universities.

Due diligence for owners is guiding J.F. Ahern in Wisconsin.

"There's value in the time it takes to complete a project, doing a thorough assessment of the cost of the mechanical systems," Tripp Ahern said. "That gives owners a good understanding and comfort level with the fact that they have the most efficient equipment that will save them money over the long term."

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