Economic fortunes appear mixed for specialty contracting firms as the summer nears completion.

Signs of an improving economy include a steady stock market, consumer confidence and lending rates at all-time lows.

The ripples are benefiting contracting firms because some are reporting dollar volume increases. On the downside, costs are also rising, mostly for raw materials and insurance.

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Billings Up

Karen Johnson, president of Morton Grove, Ill.-based Roughneck Concrete Drilling & Sawing Co., said billings at the company are up an average of 8.6 percent compared with the same period a year ago.

"The market seems to be getting better, but I wouldn't say we're setting any records," she added.

Other interviewed firms reported increases, including one with a 33 percent upswing.

Increases in capital spending in industry are a heartening sign for the Midwest, said Tripp Ahern, president and CEO of Fond du Lac, Wis.-based J.F. Ahern Co., a mechanical, fire protection and plumbing contractor with a 25 percent increase in billings this year. Chemical producers, printers and automotive manufacturers are spending money on construction.

"We are also seeing a shortening of bidders' lists," he added.

No interviewed specialty contractors experienced a drop in billings, though some say activity is only steady.

"The national numbers for construction hit an all-time high for April, but I don't think we're seeing it here in southeast Wisconsin," said Don Croysdale, executive director of the American Subcontractors Association of Greater Milwaukee. "The response I have heard from members is their backlogs are not very big."

The type of work a subcontracting company does is likely affecting its earnings.

Companies that perform work at or near project start, such as demolition firms and excavators, are doing well as the work trickle increases, said Sharon Topel, executive director of the Des Plaines, Ill.-based Association of Subcontractors & Affiliates/ASA Chicago.

Meantime, firms on a project's backside, like electrical and mechanical contracting companies, are still waiting out the economic slowdown that started in the early 2000s.

Predictions on the construction market are mixed.

Robert Murray, vice president of economic affairs for McGraw-Hill Construction, has forecasted a 1 percent decline, to $40.5 billion, in the value of construction contracts in Illinois, Indiana and Wisconsin. But on the national level, he has projected a 1 percent increase, to $508.9 billion.

Surging Steel Prices

A major headache is that contractors are experiencing rapid and occasionally steep price surges in steel and other raw materials.

Some structural steel fabricators are paying 33 percent more this year for raw materials compared to the comparable period in 2003, said Bill Hanson, division manager of Danny's Construction Co. Inc., a steel erector in Gary, Ind.

"I hear the steel people say that the overall projects costs are up only 1 percent because of the increase in steel prices," he added.

Demand is increasing because of steel exports, especially to feed a voracious Chinese economy experiencing a construction boom as it prepares for the 2008 summer Olympics.

A fire in an East Coast coal mine might also have contributed to rising steel prices, Hanson said. The coal shortages that followed the blaze reduced the availability of coke, a residue derived from coal that is used as an agent in smelting iron ore.

Steven Witz, vice president of Skokie, Ill.-based Continental Electrical Construction Co., said steel price increases are so precipitous that they are affecting costs for materials with a seemingly modest amount of steel: conduit, fittings, wire, cable and couplings.

"Half-inch conduit has gone from $11.50 to $30 for a stick," he said. "That's more than a 100 percent increase in the last six months."

Building-supply firms are being asked to buy steel and steel products in bulk and warehouse them so that they can be purchased at a reasonable price, Witz said.

Though cost increases have been swift, attempts are being made to grapple with them.

ASA Chicago has asked its advisory council of general contractors whether contracts can be written or amended to include escalation clauses to offset the rising costs of steel.

"One comment was subcontractors need to know the [general contractor's] relationship with the owners," Topel said. "If the owner says OK, the general contractor will say OK to an escalation clause."

The next worry is that costs might keep rising for other important supplies such as gasoline, concrete and lumber.

'Outrageous' Insurance Costs

More than three years after they started rising, insurance costs are still a major concern.

"Business insurance is outrageous," Roughneck's Johnson said.

Umbrella, liability and health insurance are continuing to climb, and the costs are being passed on.

But contractors are not sitting still and just taking it. Continental is shopping for a new insurer, Ahern has raised its deductible and Roughneck is monitoring the performance of an offshore group in the British Virgin Islands specifically designed for the firm's subcontracting specialty.

On mega projects, an owner's controlled insurance policy works like aspirin on insurance ailments.

"The owner buys the workers' compensation, pays it for everyone and doesn't mark it up," Danny's Hanson said.

Politics

Subcontractors are also facing a couple of political issues.

Contractor Set-Asides: The Chicago City Council recently adopted a new ordinance for Minority Business Enterprise and Women Business Enterprise companies.

A key measure is an "aspirational goal" of 24 percent MBE and 4 percent WBE participation in city construction contracts valued at $10,000 or more.

Previously, Chicago required 25 percent MBE and 5 percent WBE participation.

"It's a heck of a lot better than getting rid of the program in its entirety," Roughneck's Johnson said.

The ordinance comes after U.S. Federal Judge James Moran ruled in December that the program was illegal, but ordered the city to repair it.

Design-Build of Public Projects: In Wisconsin, government entities that include the Milwaukee Metropolitan Sewerage District and the university in Madison are seeking to bid projects through the design-build process.

"It's an issue we have not taken a position on other than we want to see the bonding protections in there, particularly the payment bond," the ASA-GM's Croysdale said.

Structural Work Act: In Illinois, a vote on the Structural Work Act was not called in the most recent legislative session.

The act, which was rescinded in 1995, would allow a construction worker to file suit for an injury-causing accident while also receiving workers' compensation.

Some unions argue the measure provides additional worker protection. Business owners counter that it is antibusiness.

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