What You Can Expect in the Construction Market in 2016

On the heels of last month's congressional final passage of a much-needed $305 billion measure to fund infrastructure, the construction industry continues to climb toward recovery and is more than prepared to literally hit the road.

The 5-year surface transportation act, dubbed the Fixing America's Surface Transportation (FAST) Act, is the nation's largest transportation package in more than a decade and will provide about $225 billion for highways, $61 billion for public transit, $10 billion for railways and $5 billion for highway safety programs.

Passage of the bill also provides state and local governments the opportunity to line up some major construction initiatives and financial security for programs that work to sustain our nation's roads, bridges and railways.

There is no doubt that this bill will continue to be a hot topic for contractors for years to come, and Construction Business Owner will share updates as the progress of the bill begins to takes action. All parties are eager to see how this will shape the industry and explore the potential for more projects and jobs than we've seen in recent years.

At the start of every year, the most pressing questions for contractors center on their businesses, what to expect in that new year and how to face the challenge. With this in mind, CBO interviewed industry professionals to collect some insight. In the following paragraphs, construction finance and equipment experts provide their views on what contractors should watch for in 2016.

Construction Finance

According to Construction Finance Management Association (CFMA) President and CEO Stuart Binstock, the general concern from a financial standpoint is that, while there is work available, the profit margins are thin and not getting any better as more contractors chase work. "This is exacerbated by the fact that shortages in skilled craft labor continue to challenge everyone in the industry. Finding people is a problem, but supply and demand would suggest that a lower supply will also negatively impact a contractor's costs," said Binstock.

Dixon Hughes Goodman is a certified public accounting and consulting firm serving clients in 12 states. According to assurance partner and leader of its construction group, Mike Trammell, "As we move into 2016, there appears to be an abundance of opportunities for most construction contractors. With few geographic exceptions, the pent-up demand and low finance rates have finally overtaken owner/investor/developer uncertainty in the marketplace. Contractor backlogs appear to be rising quickly and margins seem to be finally seeing an uptick."

Fred Ode, president of Payroll4Construction.com, a payroll service provider specifically for the construction market, said, "Companies are seeing that this isn't a one-time uptick, but the return of a more stable market." And with progress comes flexibility, said Ode. "The roles of financial advisors, industry-expert CPAs, solid job-costing practices and reliable financial reporting is going to be extremely important. Use of those resources are what will help determine growth, creating the ability to make smart moves in a challenging market."

Of course, this emerging market does not come without constraints. One of the industry's most talked-about constraints is the lack of an available and trained workforce. "This is certainly no secret and is being experienced in every level of contracting companies. From operations executives to PMs to estimators to field superintendents to craft workers, many have left the industry and it will take time to replace them. This results in higher salary and wage demands in the marketplace," said Trammell.

Trammell adds that construction business owners need to "take a good, introspective look at contractors operations, at all levels, and operating smartly." Lack of company infrastructure in this emerging marketplace is also a concern. "During the recession and the lean years immediately thereafter, construction firms learned to do more with less. They had to. And that is a good thing. And typically, "full steam ahead" executives had to learn to operate more conservatively," Trammell said. But how does that shift now? "Accounting, finance and operations support staff endured layoffs and cutbacks, and multi-tasking became a way of life. At what costs? Did good internal control practices, both from fraud and risk management standpoints get set aside, and perhaps aren't being replaced, even as volumes and backlogs increase? Are companies more at risk for fraud or poor reporting or contract failure due to accounting, estimating or PM staff being too lean?" Trammell added.

The role of technology will continue to impact the market and play a part in helping businesses grow. New technologies appear daily on the jobsite and in the back office. Ode, whose construction software offers payroll services to contractors in all 50 states, said, "Mobile technology has shifted the demand in the market by promising greater efficiency, but the task remains to seamlessly integrate these applications directly with software in the office. On the horizon is increasingly robust integration to smooth the flow of data while providing needed safeguards and advanced encryption technology."

Enterprise resource planning (ERP) systems continue to become more sophisticated and meet more of contractor's needs. "While the industry has lagged in investment in technology, many contractors have seen that increased efficiencies can be met by an increased investment in technology. And the millennial generation expects the most advanced technology at their work. If construction companies don't understand this, they will lose out in attracting the best and the brightest," said CFMA's Binstock.

Construction Equipment

The construction equipment landscape in 2016 looks to remain positive. "We've talked to a lot of contractors who have work on the books and increased confidence as a result of the new highway funding," said Todd Jurjevic, director of sales at Minnich Manufacturing, an Ohio-based manufacturer of concrete dowel pin drills, concrete paving vibrators and vibrator monitoring systems. "Temporary highway funding has been a constant challenge, so I'm encouraged by the long-term highway bill that was recently signed into law. With some added confidence that construction jobs will be there, contractors can begin investing in new equipment again," said Jurjevic.

Al Cervero is vice president of construction, mining and utility for the Association of Equipment Manufacturers (AEM), a North American-based international trade group representing the off-road equipment manufacturing industry. According to Cervero, "From a technology standpoint, each year we see more companies owning the Tier 4 products and the impact of transition and use of the technology. Looking ahead, an AEM priority is industry harmonization of Tier 4 engine emissions regulations with the far-reaching European proposals for so-called Stage 5, or Tier 5." AEM has a lot in the works regarding technology. There is no question that tech is transforming the industry—with telematics becoming an integral component of the connected worksite. AEM-AEMP's telematics standard is intended to help large and small contractors as achieve real efficiencies in data gathering and analytics across mixed fleets.

"We are nearing completion of the International Organization for Standardization acceptance process as a global standard, so companies are assured it can be used across markets. developing a manufacturer data verification system and test database so companies are assured they can access the correct data under the new standard format," said Cervero.