Contractors fight lenders, developers and selves to stay alive

By Brian Sodoma

Friday, July 24, 2009 | 6 a.m.

Craig Willcut could have built a $500 million contracting firm a few years ago. But to him, a fifth of that volume was just fine. Some of his sales and marketing staff at United Construction, which has been doing work in the valley for 20 years, skeptically eyed him for not chasing every hip condominium project being announced almost weekly during the “boom” years.

But those same associates are thanking him today.

“We don’t go after everything that’s out there,” Willcut said, indicating that’s still the case, even in the current dismal economy.

Willcut isn’t proud of the fact that his company may not hit that $100 million figure this year, and that he, like many other contractors in town, has had to lay off employees. But he knows that survival is the name of the game in this market.

“I came here from a $350 million company that’s no longer in business,” he said. “Looking at our five-year plan, we knew something (in the way of a downturn) was going to happen. We decided: Let’s work to keep the structure the same.”

United divides its work relatively evenly among public works, negotiated design-build, and bid or design-assist projects. The mix hasn’t changed much, but Willcut admits that looking for work out of state has also been more of a focus than ever.

Following some existing clients out of state is also a move local general contractor Danoski-Clutts Building Group is entertaining.

“By the end of this year, we should be licensed in three surrounding states,” said Shawn Danoski, chief executive officer of Danoski-Clutts Building Group.

It’s a move the construction executive planned all along, hastened by the current economic climate.

The “sub” factor

For Willcut and Danoski, prequalifying subcontractors for jobs has become more of a focus than ever before, as some low-bidding subcontractors are closing doors, even mid-project. Both company leaders have experienced this firsthand.

“We’ve always prequalified our subs and watched the financial side, but now we’re being extra careful,” Willcut said. “We also have a lot of residential subs (contractors) coming into the commercial market, and it’s a challenge to qualify them. … Some are very qualified to do both. Some are biting off more than they can chew, and it’s going to catch up with them.”

Cindy Creighton, executive director of the Nevada Subcontractors Association, said her members are primarily residential contractors, and taking on “light commercial” is a means for survival in this environment. Some of her subcontractor members, she added, had as many as 500 employees only two years ago and are now staffing a 10th of that number.

“The real key to making it through this is finding the opportunities,” she said. “I think it’s the entrepreneurial spirit that will weather this storm.”

Contractors still

coming to town?

Perhaps one of the most shocking aspects of this construction downturn is that actual contractor licenses are still on the rise in the Silver State, according to Art Nadler, public information officer with the Nevada State Contractors Board. There were 488 new licenses issued in the fourth quarter, 2008, Nadler noted. Meanwhile, in the first quarter of 2009, amid one of the most dismal economic performances in the nation’s history, 507 new licenses were issued. The statewide license total has climbed to more than 17,700 today, up from 16,363 in the second half of 2006, when the valley started to experience the first effects of the slowdown.

But a recent surge in “money owing” complaints also may be a sign of the times, Nadler said, with 690 in the fourth quarter of 2008 compared to 379 in the prior three-month period.

“Workmanship doesn’t seem to be the issue. It’s money,” he added.

As far as the rise in the number of actual licensees, Willcut speculates that contractors are coming into town from out of state in hopes of gleaning the work of subcontractors losing their businesses.

Protests

With the immense slowdown in private sector development, more and more contractors are opting for public works projects. Danoski said his company’s past workload was only about 5 percent in the public sector. This year, it has climbed to 25 percent, and he expects that to reach 35 to 40 percent by 2010.

“For a firm our size ($20 million to $25 million per year), that’s a significant jump,” he said, adding that the profit margin for a 2009 public works job is about 75 percent of his 2008 private sector jobs. Danoski also is candid about losing a couple of public jobs to bid errors, a learning curve many primarily private-sector contractors have to overcome when getting more involved with public-sector bidding.

George Ogilvie, a managing partner and construction law attorney with McDonald Carano Wilson, has seen a spike in bid protest work for his firm. Before the start of this year, he said, it had been two years since he was involved in a protest; he has done five since January.

“There are a lot of hungry bidders bidding these jobs, and when the bids are opened, the contractors are scouring each others’ bids to see if there is a chance to get a lower bid than theirs thrown out,” Ogilvie said. “It’s all a function of contractors, who normally do private work, not necessarily being familiar with public works bidding statutes or specs and maybe making a mistake because of unfamiliarity.”

The future

But Danoski is a bit of a rare breed — a Gen Xer with one eye on his pocketbook, the other on opportunities about to surface. He said he’s always been conservative with his financial decisions and has ample cash on hand to weather a crisis marked by a 20-plus-percent jobless rate locally.

“It’s important to note,” he said. “We’re still profitable this year, and we believe we’ll maintain that through 2010.”

What Danoski shares with perhaps a select few right now is the view that this crisis may be good for his sector’s long-term health.

“When we emerge, I believe our industry will be improved,” Danoski offered. “I think efficiency makes you creative and innovative with how you do a project. … I believe an organization can be a few steps in front of the competition in an economic environment like this …. It’s in the efficiencies of how an organization is run, the strategies of how you bid a project and how a project is built. … You have to look at it all very differently now.”

And we all do.