The gulf coast, from Pensacola to New Orleans, is experiencing something of a boom compared to the rest of the country. As mentioned for Biloxi, Mississippi, FEMA and stimulus funded projects are making this part of the country a good time construction experience. However, nobody seems to think this will be a lasting stimulus. The local and regional contractors are seeing firms, ranging small to medium up to ENR Top 400 in volume, come in from around the country to try their hand on the public works projects.
The projects are attracting more bidders and this is driving down profits. Where an “ideal” bidding situation would have five or six prime bidders, two to three times this amount are showing up at bid time. Profit margins have been reduced by thirty to fifty percent according to those I have spoken with in the area. The reduction doesn’t take into consideration the cases where contractors and subcontractors take “dives” on their prices at bid time. According to some subcontractors bid shopping is on the rise. It looks like the stimulus and FEMA “prosperity” has some bad consequences.
Suppliers have it as tough as the contractors. The bidding climate, couple with the influx of out of area contractors, is bringing in a different set of vendors as “hungry for sales” as can be imagined. This is reducing the suppliers’ margins. Gross margins, before profit can be considered are down fifty to seventy-five percent. In addition to this the payments in arrears from contractors are a growing problem. Some suppliers will likely go down with the amount of receivables growing.
As in other parts of the country, the gulf coast construction community is looking to very tough bid times next year. The contractors are working down their backlogs. While some are set for a year or two a large number of them will be on empty in the next six to ten months. This will lend an air of desperation to the bidding climate.
Expectations are for a number of firms to leave the business – both local and out of area firms.
