The owners and developers I have spoken with on this road trip have many concerns with the state of the economy. They are concerned that their projects will not be able to generate the revenue required to make them successful. They see a decided lack of money being available to fund their construction needs. They have problems with trying to determine the right budgets and pick the right contractors at bid time.
Income for the owners and developers is down. This income is needed to provide their portion of the project financing – the equity portion. With revenue down across virtually every sector of our economy, this is making it difficult to line up the construction and long term financing. When the equity for a project is there, the lending may not be available. There is going to be a pent up demand for projects in the next year or so. Private work is virtually at a halt at this time. Public agency type of work is not much better.
Private owners have it a bit easier than public owners when it comes time to select the right bidder on their project. They do not have to select the low bidder that may be too low. Private and public owners are facing the same problems in trying to determine the budgets for their projects. Prices are down for bids but material prices are increasing. The material demand is down so this leads to questions as to why the material prices are increasing. Inflation is expected to rear its ugly head in 2010. Some see it as a replay of the 1970’s with high prices, long lead times on major equipment and inflation running rampant.
The owners and developers taking on long lead projects are faced with unknowns for regulatory actions. The cap and trade, health care and other issues are of concern. This is not just as “social” concerns but for the economic ramifications. Each of these, and more, can lead to reduced revenues. This makes the decision to build or not build more complex. The unsettled state of the political field is a hindrance to the decision process.
It is not all bleak! There are some private firms that have the cash on hand to implement their capital construction projects. There are some out there with revenue expectations that warrant increasing their capital construction programs. These firms are taking advantage of the inexpensive prices and firms pursuing their projects. Firms like this will bring success to our economy!
