The construction industry in upstate New York continues to experience hard times, according to a new survey from Rochester–based The Bonadio Group. Nearly a quarter of upstate construction companies, 24 percent, are losing money, according to Bonadio’s 2012 Upstate New York Contractors State of the Industry Study. The accounting, business-advisory, and financial-services group, which has […]
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The construction industry in upstate New York continues to experience hard times, according to a new survey from Rochester–based The Bonadio Group.
Nearly a quarter of upstate construction companies, 24 percent, are losing money, according to Bonadio’s 2012 Upstate New York Contractors State of the Industry Study. The accounting, business-advisory, and financial-services group, which has a Syracuse office at 115 Solar St., released the study June 4.
The 24 percent of firms losing money is an increase of 10 percentage points over the survey’s last edition in 2010. Construction companies are still feeling a slowdown from the recent recession, according to Heidi Caton, a partner in Bonadio’s construction division.
“It’s a lagging industry,” she says of construction. “In 2008, when everyone else was saying we were in a recession, contractors had a backlog of projects that was big enough to carry them through the next year. They’ve burned through that backlog, they’ve burned through their excess capital, and now they’re starting to feel the pain.”
Fewer jobs are available for contractors to bid on, Caton says. As a result, the number of construction firms vying for each project has increased, she adds.
The Bonadio survey supports that view, as it shows bid success rates have declined over the last two years. In 2012, 75 percent of contractors reported bid success rates lower than 25 percent — a jump from 2010, when 60 percent reported success rates that low.
And 52 percent of this year’s survey respondents said they face six to 10 competitors per bid, on average. In 2008, only 22 percent said they faced six to 10 contractors per bid.
Having more contractors competing for each job has pushed down profit margins in Upstate’s construction industry, according to Caton. Now, the entities commissioning projects have more leverage, she says.
“The owners are in control now, where in the past they never were,” she says. “They’re making stricter contract terms. They’re beating contractors up over prices, because they have 20 people in line behind the contractor waiting to take the work.”
Contract sizes decreased in the last four years, the survey found. In 2012, more than 93 percent of contractors said their average contract amount was under $5 million. That’s up from 2008, when 81 percent said their average contracts were below that amount.
The tough times could be leading construction-firm owners to consider leaving the business, according to survey results. About 27 percent of respondents expressed plans to sell or transition their business in the next five years.
And, family ownership receded in this year’s survey. In 2012, 47 percent of survey respondents reported being in family-owned construction businesses, down from 59 percent in 2010.
“There are some big companies out there that are buying up some of the smaller companies,” Caton says. “There are also companies that the owners are a little older, and they were thinking about transitioning out in the next 10, 15 years. Now they’re closing up shop.”
The situation is worse for smaller contractors, according to Caton. No large contractors with annual revenue exceeding $50 million reported losing money in the 2012 survey, while 37 percent of firms with under $10 million in revenue said they were losing money, she said.
Some segments of the construction industry are stronger than others, she adds. There seem to be more projects for firms specializing in health care and education, while those that focus on commercial-office space have a dearth of opportunities, she says.
No consensus exists on when Upstate’s construction market will improve, but it isn’t likely to be this year, Caton says.
“It’s definitely going to get a little harder,” she says. “No one is predicting improvement until 2013.”
In addition to its Rochester and Syracuse offices, Bonadio has locations in Buffalo, Albany, New York City, Geneva, and Perry
and employs almost 350 people. Its survey includes responses from about 100 construction companies from across upstate New York
Of responding companies, 52 percent said they were small businesses with less than $10 million in revenue, 40 percent said they were medium-sized companies with $10 million to $49.9 million in revenue, and 8 percent reported they were large companies with revenue exceeding $50 million.