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CEO Roundtable: Construction

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Springfield Business Journal Editor Eric Olson discusses commercial construction with Dusty Emmert, president of Larry Snyder & Co.; Cody Ritter, president of Base Construction & Management LLC; Jason Rode, branch manager for Emery Sapp & Sons Inc. in Springfield; and G.R. Stovall, president of DeWitt & Associates Inc.

Eric Olson: In one word, what’s the temperature of commercial construction?
Jason Rode: Cautiously optimistic, right?
G.R. Stovall: Complex.
Cody Ritter: Busy.
Dusty Emmert: Competitive.
Olson: How about project volumes?
Ritter: As far as the year, we’ve got more backlog than we had last year. As far as our volume for the year, it’s not going to change from last year. It was a busy spring and a wet spring, so it makes for a busier summer. Just trying to get that caught up.
Rode: The weather was a big contributing factor. In these next four and a half months, we’re going to squeeze seven months of work in because we didn’t get to do it in the first half of the year. Everybody has got a heavy backlog. In fact, we’re going to bid openings in the last month, [where] we’ve been the only bid or two bids submitted. That speaks volumes. They’re still competitive, but there’s not very many people submitting.
Emmert: Our revenues have gone up probably the last four to five years consistently. We’re having the same problems. Subcontractors are too busy with the workload that’s out there. We’ve been trying to do a better job of trying to fit the right sub with the right project because of the workload that they have, which is difficult because most subcontractors work for all of us in here.

Risk and reward
Olson: The competitive aspect of it, too, is getting to that subcontract labor?
Emmert: From our standpoint as a general contractor, you look at our revenues, they’ve gone up, margins haven’t. If anything, they went down, which you would think in a good economy it would be the other way. Subcontractors are kind of playing that same game.
Stovall: I agree. To pay attention to subcontractors and the amount of risk that we’re undertaking. If anything, we’ve probably got a little less volume right now than we may have had at this time in years’ past. That has something to do with the kind of work that we do and that’s available. And also just not taking some risks, where maybe we could based on some subcontractor workforce availability.
Olson: What about size and scope of these projects?
Stovall: Our work is about the same. It’s hard not to mention Springfield Public Schools.
Olson: The bond issue jobs are starting to come out.
Stovall: Oh, yeah. We have one of the secure entrances, and we have the early childhood facility that broke ground (this month).
Emmert: There’s one more that bids (Aug. 13).
Rode: The civil side, it’s not the same. We’re about 50/50 private, public. Hopefully Springfield, with the new issues that have passed and the one that’s coming up, hopefully it creates more.
Ritter: We’re probably 75% on the private side right now. We’re not as large of a contractor as some of the other ones here. Those would be pretty large projects for us and not something we would probably tackle.
Olson: At a national level, from the Associated Builders and Contractors’ review of Census Bureau data: Public, nonresidential spending fell 3.7% in June, but is up 6.4% year over year. On the private side, nonresidential spending fell 0.3% on a monthly basis and it’s down 0.4% from June 2018. So private spending is basically flat. The public side is up. How does that compare to what you all are seeing?
Emmert: We do probably 85% private work. If I look at the private developers on an annual basis, they’re doing about the same amount dollarwise versus what they’ve done the last couple of years.
Stovall: I don’t want to say that I don’t care what’s going on nationally, but I’m just more concerned about what’s going on in our circle and how that’s how that’s affecting us. I’m not sure that’s necessarily reflected in what’s going on here.
Emmert: We do some work on a national level. Some of those clients would be representative of what you’ve got there.

Leading industries
Olson: What are the leading sectors, and what types of projects are you building?
Emmert: We do a lot of multifamily. We do a lot of hospitality work, as well. We also do quite a bit in the health care sector.
Olson: Have you seen any trends within those?
Emmert: Multifamily is growing. You can see the amount of apartments that are going up in Springfield alone. We do have clients in Texas, and it’s the same way there. They’re building apartments as fast as they can get permitted. Hospitalitywise, which would be the hotels, same thing if you kind of see what’s going on with the hotel industry right now; they’re popping up on every corner. Health care, other than our skilled nursing facilities and maybe the assisted living, has maybe slowed down a bit.
Rode: We see a lot of airports. A lot of airport funding available.
Olson: Private airports?
Rode: Municipal. Even Springfield has had several come out in the last little bit. And here lately it seems to be a run on distribution type warehouses. Our area is the corners of the four states: Kansas, Oklahoma, northwest Arkansas and Springfield.
Olson: Where are the hot pockets?
Rode: Northwest Arkansas. It’s hard to believe. It’s crazy. It’s busy here and it’s crazy busy down there.
Olson: Anybody else doing work in northwest Arkansas?
Emmert: We’ve got a small amount. Not enough really to speak to what you’re seeing. I’m down there often enough to realize the amount of work that’s going on.
Rode: Right now, about half of our work is down there.
Olson: What do you think is behind that airport work?
Rode: It seems motivated by the (Federal Aviation Administration) funding. A lot of airports are 90/10, where they pay 10% and the FAA or (Missouri Department of Transportation) pays the remaining 90%. When you’ve got that kind of ratio, you can take a job and not spend a whole lot of money. Imagine if you built your house and only had to spend 10%.
Olson: What about retail? That’s been a big one here in Springfield of years past. With closure trends in brick and mortar, how is that affecting your projects?
Emmert: We had a couple of retail developers that we had continually built for. If you take the two that we historically had done, the majority of their work, I would say that it’s decreased by 90% other than maybe some rehabs. On an annual scale, that would probably be $10 [million] to $20 million of revenue for us with those clients from that slowdown.
Olson: So you’ve had to diversify with hospitality, maybe?
Emmert: We’ve always been fairly heavy in hospitality, but we’ve had to offset the decrease at work in the retail sector.
Olson: Where do you see that headed?
Emmert: The only work we’re doing right now for retail is just if there’s an existing facility that needs a face-lift. Unless there’s a guaranteed tenant, most of the commercial retail developers that we work for are on hold.

Workforce struggles
Olson: I remember the construction industry being one of the first that I heard officials talking about the skills and workforce gap. That was a couple of years ago. How do you assess that today?
Rode: No improvement. It’s holding us back. The work is there, but you have to have the labor force – a lot of what G.R. was talking about earlier, risk. We self-perform 85% of our work. That’s a real concern of ours. When we go look at a job, the first thing we do is assess risk. And you have to have the man-hours.
Stovall: That’s workforce that works for you. On the flip side of that, we probably only self-perform 15% on a lot of jobs. So the workforce discussion is in the subcontractor community. We’re used to taking proposals from subcontractors that are willing and wanting to service, but in reality they may not have enough and it may become a problem. Then you have a schedule problem, and then you’ve got a cost problem. You’ve got to be very careful.
Rode: I’d say it’s the No. 1 risk in the construction business, right now.
Olson: How do you combat this risk?
Rode: We’ve put a lot of resources in attract, retain and train. You have to have them to do the work and execute the contracts. The compensation packages have gone up. When I was looking for a job, I went where the work was. These days, it seems like people, they want to live in a certain place, have the amenities of that community and then find a job there. It’s not really a contractor solely issue. It’s kind of a community-driven issue. You’ve got to have the community behind you to attract the folks.
Olson: Does that change the way you recruit?
Rode: We’ve made a lot of changes to our total package – relocationwise, offices – to try to even get in the door. Right now, workforce is tough. Anything you can think of, we are trying.
Stovall: I’m very active in the construction management advisory board at Missouri State [University], which is getting that higher-ed level. But then GO CAPS and Build my Future is huge about getting kids at the high school level. If I can find a fellow Rotarian with a kid that’s in the 10th grade that has some interest in the construction business, I feel like you’ve got to pay attention, to the kid next door, because I don’t think there’s any one fell swoop on how we’re going to get these people. The idea that we’re one day going to be able to print out a building, none of us here believe that’s going to happen. We’re going to have to have people in this industry and they’re going to have to come from somewhere and it’s going to have to start at an earlier age. We’re going to have to have good people that want to invest themselves in this industry for a lifetime. That’s never going to go away.
Emmert: I think with the workforce that we all need, we don’t always need college graduates to be in our business. I think there’s a lot of kids that are coming out of high school that would be more inclined if they understood our business and what the potential is even within four or five years. The amount of money that they can make, if they really would dig in, they’re probably going to do better working for one of us than having a business degree.
Ritter: The big key is getting the word out and get in what that compensation package is.
Olson: Here are some national numbers to compare on the employment side: Nonresidential construction employment lost 2,800 jobs on the net in July but still expanded by 122,000 jobs over the past 12 months. The bulk of that job loss came from the heavy and civil engineering segment, which lost 4,300 jobs on a monthly basis in July. It says the nonresidential specialty trade contractors added 1,400 net new jobs, while nonresidential building employment remained virtually unchanged. Are you guys adding staff?
Rode: We’ve had three hiring fairs this year. I think we’ve hired a total of 60-plus people to try to fulfill the labor force that we need. Our line of work is very physical and we’ll lose about half of those, which we have. I think we’ve got 24 remaining. Kids don’t want to do that type of work anymore. So our turnover rate is high and I don’t think it’s high because of the firm. I think it’s high because of the type of work and the hours. It’s not a nine-to-five job, it’s a six in the morning till seven, eight, nine when you get done. If you find a good one, you take care of them.
Olson: What is behind that mindset change?
Emmert: I don’t think the work ethic is there if you’re talking high school kids compared to what it was historically. Anybody in here would tell you, you kind of do what it takes in our business. It’s not a 40-hour a week job. A lot of times it can be 60, 70, 80 hours a week.
Rode: I think there’s a lot of competing industries that are inside, climate-controlled, that pay similar.

Problem solving
Olson: What about the federal infrastructure spending bill that President Donald Trump has been talking about for a while now, the $1 billion spending package. Does it matter to you?
Rode: That drives everything. That infrastructure will not just drive roads and bridges and water lines and sewer lines and stuff that you don’t see, it brings the commercial side and everything with it. Development follows sewer. That’s just the way it goes.
Olson: A lot of people are asking if it will happen in 2019. Do you think so?
Rode: Gosh, I hope so. I’m cautiously optimistic.
Stovall: He says that even with the workforce issue looming over his head.
Olson: What are some solutions?
Rode: G.R. touched on it earlier with the high schools. We’ve started doing the high schools and the middle schools. College isn’t a fit for absolutely everybody. I think it needs to get out there what a starting wage can be in the construction business.
Olson: What’s the state of materials pricing locally?
Ritter: We saw it level off over the last year and it’s pretty well leveled off. Lumber kind of went up, and then it dropped back down.
Stovall: Long-term, nothing’s getting any cheaper.
Rode: I haven’t seen concrete go down.
Olson: That’s your biggest cost?
Rode: One of them. We had a recent spike with all the flooding a couple months ago. That was a temporary spike.
Olson: In Springfield, there’s been some issues with delays in working city permits through and that costing you on the project side. Part of the issue was transitioning to a new software, eCity. Has that been smoothed over?
Emmert: Politically, you should probably say it’s a work in process. [Laughs] The city has had an influx of new projects, so I’m sure there’s some staffing issues as well. The software, I think it took everyone time to learn. It’s definitely taking longer. Months, not days. It takes much longer here than we do in a lot of other markets that we work in.
Stovall: Springfield Contractors Association is working heavily with the city to try and resolve that. I don’t think our owners really want to build buildings. I think they want a classroom to serve their students. They want a new hotel to serve hospitality, and they want a new road to move somebody down there. We kind of stand in between there to get them from that point A to point B.
Rode: A lot of times, the hammer falls back on the contractor to still make that end date that never moved from the beginning. We take the brunt of that, which is tough.

Excerpts from Features Editor Christine Temple,


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