Surviving subcontractors scramble to meet demand
Construction subcontractors — the specialized firms that handle everything from earthmoving to custom cabinetry — were among the hardest-hit sectors when the recession’s tsunami swept over northern Nevada.
Now that the construction industry is beginning to stir again, general contractors often are challenged to find the subcontractors they need at the times that they need them.
And with profit margins squeezed hard, both general contractors and subcontractors are paying more attention to detailed communication that prevents profit-killing surprises in the middle of a job.
Not all subcontractors suffered equally.
Craig Willcut, president and chief executive of United Construction, says subcontractors that had solid niche markets, a good financial base and the ability to change with market conditions weathered the storm.
Industry observers cite a variety of reasons that subcontractors remain in short supply even as demand for their services begins to pick up.
A big one: The memory of the pain of the recession remains too fresh.
“Contractors are reluctant to add staff and overhead due to a lack of confidence that even the limited growth we are seeing is sustainable,” says Lee Johnson, pre-construction manager at Reyman Bros. Construction in Sparks.
Even if a specialty contractor wants to begin adding strength to chase more work, there’s no promise that a qualified workforce is available.
“The lack of work sent a lot of workers to other lines of work such as mining or other states,” says Jesse Haw of Upland Contractors, a residential and commercial contractor headquartered in Reno.
That exodus of skilled workers was worsened, Johnson says, by the decisions of many graying craftsmen to retire when their work dried up in 2009 and 2010.
Bankers note, meanwhile, that balance sheets of many subcontractors — personal as well as professional — remain battered after the recession. Even if they want to get back into business or expand an existing company, they may not be able to get the financing they need, especially if a lender requires a personal guarantee of a loan.
Legal issues also dampen the interest of some subcontractors, says Haw.
“The current construction defect laws are keeping many companies from starting up again,” he says. “Most of the subs have been through hundreds of frivolous suites and are finding it hard to get back into a business in which they get sued even if they do a good job.”
The results of rising demand and limited numbers of subcontractors in the market include some pressure on prices.
In some instances, Haw says, skilled workers in construction specialties are looking to rebuild their compensation after years in which they held their pay unchanged or took cuts.
Then, too, the shortage of skilled workers after the exodus during the recession has pushed up wages for those who remain.
Doug Browne, vice president of construction acquisitions at Clark & Sullivan Construction in Sparks, says the financial weakness of some subcontractors creates difficult decisions for general contractors at bid time.
“Every low bid needs to have a financial stability study performed and decisions made to which subcontractor to bond,” Browne says. “With the bonding of subcontractors to avoid the financial risk of having a sub close their doors during a project, it is making general contractors tighten up their margins even more to be competitive since non-construction costs are being added to subcontractor numbers.”
Mark Beauchamp of Shaheen Beauchamp Builders LLC in Carson City says remaining subcontractors often are so busy that they are beginning to pick and choose their work.
“People are busy, but they are busy because they have cut back,” Beauchamp says. “When we call a subcontractor today, we talk with the owner. We used to talk with an employee or a project manager. There is less staff.”
Because many subcontractors are working with small staffs, they often are setting tight schedules around when they are able to get onto a job site for a general contractor, says Cary Richardson, vice president of business operations for Miles Construction in Carson City.
Tight schedules and compressed profit margins put a premium on close communication between subcontractors and general contractors, says Beauchamp.
Long gone, he says, are the days when a subcontractor would simply say, “We’ll take care of it.” Now, agreements about the work to be done are carefully documented.
At the same time, Beauchamp says, many poorly skilled subcontractors were among the casualties of the recession, and the skilled workers who remain are welcome on the job site.
“We’re finding that we’re getting better quality work,” the general contractor says. “Browne says general contractors are managing their relationships with subcontractors more diligently, ensuring that payments don’t get ahead of what would take to complete the work if a subcontractor was forced out of business mid-job.
Established general contractors say they’re able to find subcontractors for their projects — maybe at a higher price, often on a tighter schedule — but some newly established companies and some out-of-town builders entering northern Nevada markets sometimes struggle.
And, as business abhors a vacuum, the rising demand for subcontractors is beginning to attract specialty trades from outside the area.
Haw says some homebuilders are turning to Sacramento and other nearby markets to fill their needs for trades such as windows, roofing and plumbing as the market rebounds.
Says Richardson, “It’s creating opportunity for new companies to enter the market.”
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