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For contractors, 2011 was a year of endurance

It’s no secret that the past few years have been tough for the construction industry.

Since 2008, construction spending in the United States has decreased nearly $300 billion and has resulted in a 2 percent reduction in the nation’s economy, according to the American Institute of Architects.

From all accounts, this past year wasn’t much different.

“I think most of 2011 looked a lot like 2010, which was for Oregon, definitely the worst year for construction in memory, if not history,” said John Killin, president of the Pacific Northwest Chapter of the Associated Builders and Contractors.

During the first 10 months of 2011, construction spending dropped 2.9 percent below the same period in 2010 to $655.5 billion, according to the United States Department of Commerce.

But in addition to its gloomy statistics, 2011 was also year of endurance, efficiency, competition and creativity as companies fought to eke out a profit.

“One of the things you do during a recession is you polish your ammo, you sharpen your swords, you mend your fishing net,” said Bart Eberwein, executive vice president for Hoffman Construction in Portland. “You don’t just sit around. You stay focused and make your organization stronger.”

Eberwein said the regionally based, Pacific Northwest company was on track to do approximately $800 million in sales for 2011. While that’s not quite as profitable as the company would have liked – last year Hoffman did approximately $1 billion – Eberwein said it was still a successful year and that the company had found a couple bright spots in the medical and higher education sectors.

Hoffman is currently punching out a new $250 million tower for Children’s Hospital in North East Portland.

The company also is finishing construction of a new 620-bed state psychiatric hospital in Salem, and has started work on a second 340-bed psychiatric facility in Junction City. Together, those two projects are expected to cost the state $458 million.

Eberwein said Hoffman also found some hefty work in the form of dormitory and living-area construction from local universities and community colleges as they rush to meet the needs and desires of the now-college-age offspring of the Baby Boom generation.

“That’s kind of a bright spot in the galaxy, if you will,” he said.

To take advantage of those opportunities, Eberwein said Hoffman was putting a large focus on identifying “lean practices,” or those building processes that allow them to do more with less. He said successful subcontractors were following suit.

“I would say that the good subs have also responded to the recession by becoming a little more automated, a little more prefabrication, a little more reliance on computer-generated shop drawings like 3D CAD, or BIM (Building Information Modeling),” he said.

That is, companies are getting lean and mean, and those that don’t are facing the consequences.

Matt Paine, senior project manager with J.R. Abbott Construction in Portland, sees it every time he emails a request for proposal to subcontractors.

“Every time I do, for the past three years, I get back bounces and not just a few but a lot,” Paine said. “Every time I send out a notice, I get responses that so-and-so is no longer with the company.”

From October 2008 to October 2011, contractor licenses in Oregon dropped 17 percent to 38,165, according to the Construction Contractors Board.

That’s a telling sign about the state of the industry, Paine said, and one that makes him feel fortunate about the amount of work they’re seeing at J.R. Abbot.

With established offices in Seattle and Arcadia, Calif., the company opened its Portland location in 2008 at the onset of the economic recession. While that may seem like bad timing, Paine said the decision was a calculated move to increase their client list as owners with tightening budgets shopped around for new, more cost-efficient general contractors.

“Doors have opened for us that perhaps would not have been open to us before,” he said.

But the price of admission has also been high as owners with shrinking budgets have increased their expectations for quality and delivery, Paine said. One example was the $20 million remodel this year of the Burlingame Fred Meyer – a 13-week project that the company delivered in 5 weeks.

“It was so aggressive that many in the industry were betting it couldn’t be done,” he said. “It’s that kind of opportunity – to show clients there is a different way, there is a better way, at a lower cost and at a more aggressive schedule.”

Paine said sales from their Portland office, which deals primarily in medical and grocery store construction, were up from last year at approximately $15 million. Company-wide, J.R. Abbot does around $100 million in sales a year.

Jim McKune, chief operating officer for Emerick Construction in Happy Valley, said competition for work has been fierce and that owner-developers stand to gain a lot.

“The owners are getting a very good deal at this point,” he said. “The contractors are taking all the risk, or the majority of the risk, and the owner is getting a good turn on their construction dollar.”

McKune said Emerick has been identifying ways to make its operations more cost efficient the past few years. This year, the 68-year-old company is budgeting approximately $45 million in sales – up from roughly $42 million last year – but it has done as much as $60 million in annual sales in years past.

He said a key ingredient to that has been staying diverse. While the majority of the company’s work has historically come from the public sector in the way of school construction, this year that dynamic flipped as the majority of the company’s back log came from private sector medical and high tech buildings.

He said one challenge that contractors face in today’s economy is that fees have shrunk from more than 4 percent during the boom years to less than 2 percent today. With that kind of a profit margin, the recipe for success has become finding large projects with short time frames.

“That’s the name of the game we’re in,” McKune said. “We work hard to find work and then we work even harder to get rid of it, as fast as we possibly can.”

And while the game has changed, this is not McKune’s first recession. He went through it before in the ’70s,’ 80s, ‘90s and the early 2000s and, like before, he expects there to be a light at the end of the tunnel – perhaps in 2013 or 2014.

“The trouble is the tunnel is a little bit longer this time than it has been in the past,” he said.

About Lee Fehrenbacher