Survey Findings Show Stimulus is Working, Though Not at its Full Potential

"I see the stimulus as a strong swimmer swimming against a very strong current." That's what Ken Simonson, chief economist of the Associated General Contractors of America (AGC) said during a recent discussion of the AGC's stimulus survey analysis. "Construction employment is dropping at double-digit rates on a year-over-year basis and while there is an unprecedented amount of federal money going into construction projects … there is still not enough to offset the steep downturn in private, local-funded construction in those categories."

Over the past few weeks the AGC conducted a member company survey to evaluate the impact of the stimulus on their hiring practices, equipment purchases and their bottom line. (CLICK HERE to view the survey results.)

"The analysis shows that while the construction portion of the stimulus is having an impact, it is far from delivering its full promise and potential," said Stephen E. Sandherr, AGC chief executive officer.

Included in the survey findings, 22 percent of responding construction companies have won stimulus-funded projects, two-thirds of which have already begun work on those jobs.

"On the other hand, 36 percent of responding firms said they are not doing stimulus-funded work. Half said they don't do the kind of work available. Almost as many… 46 percent… answered that there are no/too few local stimulus-funded projects," said Sandherr. He also noted that survey results showed one-third of companies responding plan to hire new employees or rehire previous employees this year or next.

"Strikingly, that nearly matches the 36 percent positive response among companies that have already won stimulus-funded work," said Sandherr.

"Based on these results, it is clear that while the stimulus is having an impact on the industry's ability to save or retain jobs, it does not yet appear to have much impact on companies' ability to hire additional workers," said Sandherr, who explained that one reasons the benefits of the stimulus have been limited to date is that, outside of the transportation arena, much of the construction funding authorized has yet to result in actual contracts that will allow contractors to begin work.

"This is significant because some of the hardest hit segments of the construction industry have been in non-transportation related fields," Sandherr said.

One concern over the stimulus that has been raised is the fact that some state/federal agencies have said bids are coming in lower than expected because of the economy and competition in the construction industry. Art Daniel, president and CEO of AR Daniel Construction Services in Cedar Hill, Texas, said one thing that may be contributed to this is that some firms are bidding jobs in markets where they have no previous experience. For example, subdivision builders may start to move into the public arena because subdivisions are not being built currently.

"That's bringing the prices done … so as the prices go down contractors will also try and stretch every dollar that they can … until you get a lot more [work] out there you will see that," said Daniel.

Doug Pruitt, president and chairman of the AGC and CEO of Sundt Construction in Tempe, Ariz., added, "I think you are seeing a higher count of people bidding work, but you are also getting a lot of people … getting into markets in which they have not historically worked. Even though owners may benefit on bid day from the lower price, that may be a false sense of security as it could be problematic for a lot of these projects since you've got people doing the work who do not have the skill set or experience with some of the agencies they will be working for. I think we could see increases in cost or delays on those projects because of that."

According to Simonson, officials have said that the bids they are awarding are anywhere from 10-40 percent below the estimates that were prepared.

"Material costs account for part of that … that's down 6.8 percent from June 2008 to June 2009," Simonson said. "But the rest of the difference is the general contractors and the subcontractors are cutting their margins perhaps to zero. I call this a limited-time sale because the material prices could shoot up at any time … and because the firms that don't win the contract, if they don't win something else they will be out of business-even the ones that win, if they have under-priced their services they may not be around [for much longer]."

So, is the stimulus indeed working?

"[In the construction industry] the stimulus is working, but it's not reaching its full potential," said Sandherr. "What we have found … is [because] there are projects identified and [because] they [contractors] know there is additional money that's supposed to come out, they are holding on to their workers and retaining them because they want to make sure when the projects do come out they have the ability to do the work with the people they have relied on in the past."

Sandherr said that while we are only five months into a multi-year stimulus program, construction unemployment is still at 17.4 percent--almost double the national rate.

"It is disappointing to see so many of these programs getting off to such a slow start. Especially when so many construction firms have been able to turn dirt once contracts have been awarded," Sandherr said.

He added, "We have sent letters to all of the federal agencies that have gotten construction stimulus money and asked what their plan is to get their projects out and reminding them that the industry is ready, willing and able to get the job done."