Construction industry report: Project delays, cancellations at three times pre-recession rates

FMI asked executives for construction firms in nonresidential building markets about delays and cancellations in the fourth quarter of 2011. Lack of funding still is the top cause of project delays, but uncertainty in the economy and markets runs a close second, followed by owner budget cutbacks.
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Photo: Source: FMI, www.fminet.com, License: N/A

Delays and Cancellations: FMI asked executives for construction firms in nonresidential building markets about delays and cancellations in the fourth quarter of 2011. Lack of funding still is the top cause of project delays, but uncertainty in the economy and markets runs a close second, followed by owner budget cutbacks.

FMI, a Raleigh, N.C. company specializing in management consulting, investment banking and research to the engineering and construction industry, asked its “panelists” (executives for construction firms in nonresidential building markets) about the state of the nonresidential building industry.
The findings, released Nov. 19 in FMI’s fourth quarter “Nonresidential Construction Index Report,” found that “jobs, projects and project funding . . . have been the focus of the construction industry since the recession — and, according to FMI’s latest reading . . . the needle hasn’t moved much off center since the beginning of the recession.”
According to the executive summary in the FMI report:
“Concerned that we might be losing some of the momentum we gained earlier in the year, FMI returned to the questions about delays and cancellations without limiting the question to just owner financial reasons.
The good news is that project delays and cancellations are unchanged since FMI first asked about them in the fourth quarter 2011, but they continue to run at rates about three times what panelists would consider normal in times before the recession. Lack of project funding still leads the list of reasons for project delays, but market uncertainty is a close second. Regulatory delays and changes in project scope were lesser reasons, but still significant.
In a related question about regulations, FMI asked about panelists’ experience with the Office of Federal Contract Compliance Programs (OFCCP) and the agency’s latest push to assure that contractors working on government projects were in compliance with affirmative action and equal opportunity regulations.
While only 20 percent of panelists have had recent experience with the OFCCP, 59 percent of those panelists said the interaction was ‘rigorous.’
Opportunities are out there, but sometimes they are harder to find. Thirty percent of panelists this quarter said owners have downscaled projects, and 22 percent are seeing more projects being proposed in phases with no guarantee that the next phases will be done.
The growth in energy-related construction has helped some companies find business, but 45 percent of panelists are working in regions where there is no energy boom.
Where are the next opportunities coming from? Panelists cited power, manufacturing and industrial as their best bets in the near term. Health care construction was also cited frequently for projects ranging from clinics and health care manufacturing to hospitals. With the amount of competition out there, not everyone wanted to answer that question, and some are just not sure where they will find their next opportunities.
And then there is the aftermath of Superstorm Sandy to deal with in the Northeast. Citizens of the hardest-hit areas of New Jersey and New York are still reeling and trying to recover some sense of normalcy before a thorough assessment of the damage can be made.
It will take many billions of dollars to recover, and much of that will need solutions from the construction industry for new and repaired housing, communications, transportation work, and inspection and rehabilitation for flooded buildings.
After the recovery, there will a great deal of talk about how to reduce the damage and impact to lives the next time. It is too soon to tell how much this will affect the markets for next year.”