For this CEO Roundtable podcast, executives from local commercial general contractor firms sit down with Springfield Business Journal Executive Editor Christine Temple. This month’s guests are Matt Bailey, chief operations officer and co-owner of BP Builders; Gregg Scholtens, vice president of operations in Springfield for KCI Construction; and Andy Ross, chief operations officer and co-owner of Ross Construction Group.
An excerpt from the start of the podcast follows.
Christine Temple: If you could describe your industry in a sentence, what would it be?
Andy Ross: I’ll use a sailing reference; it’s steady sailing through turbulent waters. There’s a lot of unknowns, but we’re very fortunate in our market to have very good work, very good backlog.
Matt Bailey: Steady with a constant pressure, from either labor or material costs.
Gregg Scholtens: We’re experiencing significant growth with significant challenges.
Temple: 2023 and 2024 saw some larger growth. If you look at the national construction forecast, nonresidential construction spending was up 20% in 2023, 6% in 2024, and it’s expected to slow down this year and next. What’s your outlook within your own businesses?
Scholtens: We’re a fairly diverse organization. We do both vertical construction but we also do horizontal stuff for the Department of Transportation, etc. We’re seeing some really significant opportunities in the DOT world. But commercial, we anticipate a little bit of a slowdown to be quite honest, especially with private work where somebody’s going to get funding through a traditional bank. I think your public sector stuff will continue to grow. We’ve seen a number of bonds recently passed by school districts.
Bailey: We do quite a bit of multifamily work and you see a little more of a pause, and maybe it takes a little more time to get some of these started right now. The cost of getting a loan right now is pushing 7%, and then you’ve got material costs and labor shortages on top of that. So, I think getting some of those projects started seemed to be being pushed out a little further than what we were used to last year.
Ross: We had pretty rapid growth in 2023 and had our best year ever. And then that pulled back a little bit last year, and we’re anticipating this year is going to be somewhere in between. I see it a little bit differently for us, working primarily in the private sector and heavy on manufacturing and industrial, and we’re still seeing good growth there and good opportunity. We’re just fortunate to have some really good clients and good customers and good companies here that are still actively growing and maybe they can self-finance some things.
Temple: With all this conversation around tariffs, what is this actually impacting within your industry right now? Is it costs, is it supply chain, is it nothing? Is it just that feeling of unease? Is it everything?
Bailey: There’s so much uncertainty if you read a bid right now. This is your price today; this is your price in two weeks. We’ve all seen price increases; we don’t know necessarily if they’re tariff related, but the threat of is what we seem to be encountering. Today I read lumber duties could go up to 34.5% sometime, but you don’t know when.
Ross: It’s mainly price impacts that we’ve seen, and it’s just volatility. But some of the silver lining coming out of the last three or four years is we’ve been through this already three or four years ago and we all had to adapt on the fly and we had to learn some lessons, but I think we’re more prepared for it this time around; the owners and clients are more savvy. It’s an open line of communication. We have our contract amendments that were created a couple years ago to mitigate these price impacts and the volatility.
Scholtens: Material input prices, March was the third consecutive month we’ve seen an increase in them, which has been a few years since we’ve seen that constant of an increase. And then it’s the letters from suppliers indicating that there’s increases coming, some even before the tariffs were even issued. So, some preparation of that market, I guess. The key is just communication with our clients, letting them know, making them aware of it, ensuring that we’re carrying line-item allowances or contingencies to help manage some of that and just prepare for it.
Ross: On the supply chain, it hasn’t been as much of an impact this time as we had three or four years ago where that with the price volatility was a major factor in just the unease in construction, and it really hasn’t been as much of an issue this time around.
Scholtens: Trying to offset it with some early procurement processes, too. If the contract is in place, we know the work’s happening. It’s buying it early, ensuring that we get it. We’ve got some pretty savvy owners that are saying, “Yeah, get it here and we will pay for it even though it’s stored materials in a warehouse somewhere.” They’re also recognizing the value of getting it early and trying to avoid impacts of any kind of price increases or tariffs by doing so.
Bailey: It’s all communication. Some of the things we’re possibly talking about with just delays in work or starting or the cost of getting a loan and it delaying your project, just communicating what the impact of that could be with the cost of materials or labor costs coming up.
Ross: It also goes down to communication with subcontractors and communications with architects and engineers. That’s more silver lining is everyone’s had to be more adaptable. So, when it comes to substitution of a product that maybe six months out and we can get a different alternative three months out, then the architects are again tuned in to that.
Bailey: Some of them seem to be much more tuned into cost, like material cost, because they understand since COVID, that’s usually something we’re working on immediately after a bid. They’re kind of attuned to that gwoing into these projects now, I think.
Temple: And bringing in the contractors earlier into that process?
Scholtens: For sure. Taking advantage of preconstruction services, engaging early on. It’s a collaborative process. I mean, it really is where you sit down at the table with your design partner and your owner and you work through the challenges up front, try to develop solutions early on in the process is key.
Temple: What percentage of your materials are imported from overseas?
Scholtens: I don’t know if I’d have a percentage on that; that’s a great question. It all depends on probably the type of project we’re doing. Listen, you get into a number of, we’ll call it bond-funded or tax-funded projects, there’s a lot of buy-American requirements, so you’re less likely to deal with it there, but I’m sure the wood frame industry, if I had to guess, you’re going to have seen some significant impact from the Canadian lumber suppliers for sure, because a huge percentage of our lumber in the U.S. come from Canada.
Ross: I don’t have a percentage either, but we do a lot of metal buildings, and that’s been impacted by just raw steel from China and from Mexico.
Temple: And to source fully from the United States would be impossible, cost prohibitive?
Scholtens: It’s not impossible by any stretch. I wouldn’t argue that there’s even a significant price impact. Sometimes it’s just more challenging for selection of product.
Bailey: If we can collaborate up front, and usually that’s what we do is go through those aspects of buying from China or buying locally if we can, and how does that affect the price of the project and the scheduling of it. It’s just something we do almost daily.
Temple: Will this change the way that you purchase moving forward?
Scholtens: It’ll probably drive some design changes. I’ll use flooring as an example. We see a lot of flooring come from overseas. My guess for the reason for that is selection. You can go buy similar product here in the U.S.; it just might limit your color selection or the product itself. So, I think we’ll just see that designers will get more in tuned with picking products that are more readily accessible in the U.S.; therefore then we’ll purchase those products.
