Report States 2019 Growth Expected to Hold Steady

By Karen L. Edwards, RCS Editor.

While growth is expected during the next year, it’s time to start thinking about and preparing for the next economic downturn, which could happen in 12-24 months according to the report.

FMI Corporation, a leading provider of management consulting and investment banking services to engineering and construction, infrastructure and the built environment, has released its 2019 construction outlook for the U.S. and Canada. Throughout 2019, the report states that FMI expects Engineering & Construction (E&C) spending to continue growing at the annual rate of 3%. However, they do anticipate a moderate deceleration in growth rates for residential, nonresidential building and nonresidential structures market sectors.

The Architectural Billings Index, which usually leads construction activity by nine to 12 months, indicates that growth should remain steady as well. The company also expects mergers and acquisitions to remain strong throughout the year, despite 2018 seeing over 400 closed or announced transactions and a 33 percent increase in deals over 2017. The strong interest in M&A is a result of several factors including interest from private equity groups, companies looking for growth and the fact that baby boomers are retiring and selling their businesses.

An area to watch is the evolution of construction technology startups. In the last 10 years more than $10 billion has been allocated to funding construction technology according to FMI. RCS partner Trimble acquired Viewpoint for $1.2 billion in order to “round out Trimble's comprehensive construction technology portfolio and position Trimble to further its strategy to lead the industry's transformation.”

Construction tech companies are in growth mode right now while times are good, but they will be tested to maintain that when the next downturn hits. FMI’s report states that the next downturn could hit in the next 12- 24 months and the industry needs to prepare for it now.

Preparing for the next downturn.

The Great Recession of 2008 taught the industry a lot of hard lessons. Many contractors are too busy just trying to keep up with their current workloads and struggling to find labor that they don’t have the time to think about preparing for the next downturn. FMI shared the following 7 key lessons that E&C firms should learn from:

1. Don’t wait to long to make hard decisions. It could be as simple as doing something about a poor performing employee or a second office that is not hitting revenue goals. Being slow to react can be the death of a company
2. Find your niche. Figure out what you are really good at and stop following the crowd that is chasing projects and owners.
3. Envision your future. Be sure you have a clear vision for your company. If you are always in firefighting mode, you won’t be able to focus on the broader picture.
4. Understand the economics behind your business. When you understand the total true costs for a project you are taking the first step in identifying how to improve your profitability. When times are bad, being able to work more efficiently and inexpensively will be critical for your business.
5. Keep your balance sheet healthy. Review all of your longer-term projects and evaluate how they need to be staffed to be completed. Can you do more with your in-house team? What will need to be subcontracted and how will that affect margins?
6. Position your company in the top of your clients’ minds. Take a look at your clients and what projects you are working on for them. Are there other areas that you could help them with? Do you understand what matters to them? Good relationships often lead to recurring work.
7. Empower your team. Ensure that you are providing your team with the training, education and resources they need to be confident calling on customers and interacting with clients. Your team needs to understand how to perform at their best during a recession from project scope management to cash management.

The report stresses the importance for businesses to also get back to the basics. Be sure your company has structured process around communications and planning. Make sure your team understands your goals for the business and be sure you have the right infrastructure in place to allow your team to do their jobs successfully.

Key Takeaways from the 2019 Outlook

• Total E&C spending is expected to end up five percent higher in 2018 compared to 2017.
• 2019 forecast is a three percent increase over 2018.
• Primary growth segments in 2019 are expected to be office, educational, public safety, transportation, conservation and development, and manufacturing.
• The east and west coast markets are expected to outperform other regions. Top three areas are forecasted to be Mid-Atlantic, Pacific and South Atlantic.

If you want to take a deeper dive into the report and the specific numbers you can check it out here.