Voices of the Industry

Outlook Observations From Construction Professionals

Outlook for Public School Construction

Chris Huckabee, chief executive officer of Huckabee Inc.

Chris Huckabee, chief executive officer of Fort Worth-based architectural firm Huckabee Inc.:

"Public school construction will remain strong in 2005 primarily driven by the population growth in metropolitan areas such as Dallas-Fort Worth and Houston. While growth demands will continue to force districts to add classrooms, we anticipate that two obstacles will face administrators and trustees in 2005. First, voter concern over increased taxation will cause some districts to consider more conservative bond referendums and options that can stretch their bond dollars as far as possible. We see wise districts looking at more conservative designs that standardize many components to save money during the construction phase. Along with increased pressure to reduce the overall impact to the taxpayer is the rising cost of construction-particularly in steel and cement. Last year saw increased school construction prices for the first time in two years. While the increase was not significant until the last quarter in 2004, we anticipate construction cost will rise significantly in 2005, causing some districts to prioritize needs and possibly trim extras from their building programs."

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Outlook for General Contractors

David L. Bloxom, president of Speed Fab-Crete Corp. International

David L. Bloxom, president of Speed Fab-Crete Corp. International, a Fort Worth-based design-build general contracting firm and precast concrete manufacturer:

"The 'terrorism, war and recession" mindset of the construction marketplace began to recede in the spring of 2004. Now that the elections are behind us, the Texas construction market should continue to improve through 2005. Interest rates are still relatively low, and that will work to put projects on the ground in 2005.

"Building projects for our firm reached a record level in 2004, and we project that trend to continue into 2005. The continued population growth in Texas, along with an active home-construction market, will necessitate growth in the support-type commercial building market. Active sectors in the marketplace should include automobile dealerships, specialty office buildings, retail centers and religious facilities. The school construction market should continue to be strong as many districts add students.

Some key material shortages and/or cost spikes such as cement, steel and insulation will continue to pose challenges to Texas' general contractors. Barring any major domestic catastrophes, general contractors will experience active markets in most commercial sectors along with some continued improvement in project profitability."

Outlook for Subcontractors

Ken Polk, president of Polk Mechanical Co. LLC

Ken Polk, president of Grand Prairie-based Polk Mechanical Co. LLC:

"The availability of skilled craft labor continues to be the most significant issue that affects any subcontractor. Since subs perform the vast majority of labor on construction projects, they bare most of the labor risk. Our ability to find, train and retain labor that can efficiently install quality work is essential to our success. For close to two decades now we have fought the trends of fewer young people choosing a trade as a career and skilled workers leaving the trades at an earlier age. If these trends can be reversed it would have a tremendously positive impact on all subcontractors."

Outlook for the Insurance Market

Mike Hendrickson, vice president of Cadenhead Shreffler Insurance

Mike Hendrickson, vice president of Fort Worth-based Cadenhead Shreffler Insurance:

"Carriers have and will continue to segment the construction industry. The major segments are commercial, industrial and habitational construction. Middle-market construction business will continue to see rate decreases through 2005 of 10 to 15 percent.

"There are still coverage issues with additional insureds, completed operations as well as problems in the residential market. Texas is a tough jurisdiction for construction defects. I predict carriers will limit the construction defect exposures. Areas of the state with high litigation costs will suffer most from market availability and rate reduction. Workers Compensation in Texas will undergo some reform to control medical costs, but the effects of this legislation will not be felt in the immediate future."

Outlook for the Commercial Lending Market

Doug Wilson, president, Summit Bank, downtown branch

Doug Wilson, president, Fort Worth-based Summit Bank, downtown branch:

"Money will most likely continue to remain tight for contractors over the next year. However, those companies that have a history of profitability, combined with a demonstrated ability to operate on sound business principles, will be looked upon most favorably. It should be remembered that banks must consider both a primary and secondary source of repayment on loans. A challenging aspect for bankers is the nature of contractors' progress billings and accounts receivable. Unfortunately, when a problem surfaces on a specific contract or job, anticipated profit margins, as well as the collection viability of both current and past billings (or accounts receivable) can be affected. This can impair the value and viability of the borrower's assets and expected profitability/cash flow, as well as the bank's secondary source of repayment, or underlying collateral. This can be especially challenging when a bank is providing financing to contractors who are performing services on bonded jobs or contracts. However, those contractors who maintain well-capitalized balance sheets and a solid history of profitability will continue to be good candidates for favorable terms of bank financing."

Outlook For Lumber In Commercial Projects

Bob Prange, executive vice president Bowie-Sims-Prange Group

Bob Prange, executive vice president of Dallas-based Bowie-Sims-Prange Group:

"Historically, lumber has been the versatile, economical and readily available material for all types of construction. Expanded use of fire-retardant and preservative-treated wood products as well as engineered wood such as laminated veneer lumber and engineered wood roof and floor trusses will continue to provide good markets for lumber in commercial and industrial projects. Production of new types of engineered wood products will give lumber a permanent and expanding role in construction. Lumber will continue to be economical because it is a renewable resource and requires less energy to produce than other construction materials."