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2006 A Good Year for Most General Contractors

By Joe Florkowski

For most general contractors in California, 2006 was a good year - and they believe this year will be rosy, too.

Although some lingering issues dealing with workforce availibility will remain, contractors say there is plenty of work to be found.

The passage in November of a series of state infrastructure bonds will spur a number of public works projects to start this year and next, general contractors say.

And those public works projects are expected to keep general contractors busy as they deal with issues such as finding quality labor and subcontractors.

General contractors will also watch to see how the state will regulate emissions from heavy-duty equipment.

Santa Ana-based Sukut Construction, Inc. is watching these issues carefully, says Michael Crawford, the firm's president and CEO.

Like other general contractors, Sukut is having trouble finding quality labor, but that is nothing unusual in California, he says.

"When there is full employment, the quality of the labor pool is an issue," Crawford says.

The regulation of the off-road diesel engines and heavy equipment is a significant issue for the industry, Crawford says. The California Air Resources Board is working on a new rule that could render millions of dollars of in-use construction equipment worthless unless it is fitted with emission controls or the engine is repowered.

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CARB's key proposals would require contractors to comply with increasingly stringent particulate matter (PM) emission reduction targets; meet CARB's fleet average emission target by 2013 or scraping 10 percent of the company's fleet horsepower per year or replace it with Best Available Control Technology (BACT) until the fleet meets CARB's target; affix a label with an identification number on each piece of construction equipment; and report annually on every offroad diesel engine.

Crawford maintains that the changes planned for the engines are necessary and will benefit the environment, but it will increase costs for buying equipment and availability of equipment.

"It's going to make quite a bit of equipment in California obsolete quickly," he says.

Sukut refocused on its commercial, industrial and public works projects in 2006 and will again this year because the residential market has slumped, Crawford says.

One of the challenges facing the state and general contractors is meeting the needs of the seismic retrofit bill SB 1953, says Martin Sisemore, president/ CEO for Redwood City-based Rudolph and Sletten.

Both the state and general contractors are facing issues with the bill. State officials do not have the staff to monitor the implementation of the bill, while general contractors can't find enough quality subcontractors to work on the multitude of seismic projects, Sisemore says.

"It is a supply and demand issue," Sisemore says. He adds that Rudolph and Sletten will follow the issue closely because 40 percent of the firm's revenue comes from health care projects.
Last year was a good one for Rudolph and Sletten and 2007 is expected to be an even better one, Sisemore says. Revenue grew by 20 percent in 2006 and is expected to grow by another 30 percent this year, he says.

The company is expecting growth to continue in the fields of health care, biotechnology and life sciences construction, Sisemore says.

While prices of building materials have stabilized since late 2005 and early 2006, the construction industry is still having trouble finding quality labor, particularly quality subcontractors and skilled craftsmen, Sisemore says.

"The labor availability and qualified subcontractors is going to be influencing how we look at projects in the coming months and years," he adds.

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San Rafael-based Ghilotti Brothers had a banner year in 2006 despite losing the first four months of the year to unseasonably wet weather, says President Mike Ghilotti. But in the final eight months of 2006, Ghilotti completed 20 percent more work compared with all of 2005, Ghilotti says.

He adds that the biggest hurdle Ghilotti faced in 2006 was staffing projects with enough qualified/skilled workers, he says.

"The union halls will be even more challenged to supply the necessary workforce for the 2007 season," Ghilotti says.

Ghilotti is forecasting that 2007 will be as good if not better than 2006.

"We believe funding from the state bond measures will start transferring into real projects put out in the public transit markets," he adds. "Commercial construction should maintain a strong presence, but the housing market we believe will continue to under perform."

Ghilotti says his firm is also watching the regulation of heavy equipment and new stringent standards for reduced emissions, which he adds will impact most contractors severely when they either pay for engine modifications or new equipment purchases.

For Vacaville-based Hearn Construction, 2006 was a "fair year,"
CEO Fred Hearn says.

"Some of the work we had under contract early in the year just didn't get off the ground due to various reasons -- financing, an early and wet winter, contract negotiations and primarily issuance of permits," he adds.

Like other contractors, Hearn is having trouble finding quality subcontractors with qualified crafts people, Hearn says.

"The quality of the workforce is declining across the board," he says.

But 2007 is shaping up to be a better year for Hearn.

"Hearn Construction and our sister company Nolan Construction have more backlog in total projected revenue and as a percentage of our business plan that ever before," he says.

"The phone continues to ring and the lack of rain in January is going to help us get off to a good start as well. We may have had the best January ever."
Hearn Construction recently embarked on two projects - Leisure Town Plaza in Vacaville and the Le Rivage Hotel in Sacramento. Leisure Town is a new 14,600-sq.-ft. upscale food and retail center, and the Le Rivage is a 100-room boutique hotel located off the Sacramento River.



San Francisco-based Nibbi Brothers is expected to have the largest backlog of projects in the company's history, says Bob Nibbi, president.

Nibbi will do about the same amount of business as 2006 because of that backlog, he says.

Nibbi is currently working on the St. Anthony's Foundation Medical Office Building in San Francisco.

General contractors across the state should be getting a large amount of work because of the passage of the state infrastructure bonds in November 2006, Nibbi says.

"Over the next two years, you are going to see the impact of the bond money," he adds.

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