IPA | Contracting Services Industry

IPA North America

IPA
IBA

CONTRACTORS

The contracting services industry is currently experiencing a period of sustained growth. The overall contracting services industry includes companies engaged in performing work for both the residential and nonresidential sectors. Contractors engaged in performing homebuilding, or related work, dominate the industry as homebuilding accounts for approximately 57 percent of the overall industry’s total value. However, the performance of the residential segment does influence contractors engaged in nonresidential construction as residential construction increases the demand for new schools and hospitals, for example. Recently, a cooling of the U.S. housing market and decreased homebuilding activity has become evident. While home buying was strong through 2005, there was a decline in 2006 due, in part, to increased interest rates.

Nonresidential building construction expenditures in the United States are expected to increase 7.9 percent per year throughout the 2006-2011 period and reach $535.5 billion. Prospects over the coming years are expected to brighten as nonresidential building construction rebounds from its weak performance in the first half of the decade. In fact, contractors engaged in nonresidential construction will see faster gains than contractors engaged in the residential and nonbuilding construction sectors going forward. As the U.S. economy expands through 2011, vacancy rates in existing nonresidential buildings will fall and rents will rise. As such, developers will seize the opportunity to construct new nonresidential building space to meet the demand. Overall, expenditures in nonresidential building are projected to advance 5.4 percent per annum from 2006, to $358 billion in 2011.

In general, construction expenditures are expected to grow five percent per year from 2006 through 2011. Continued economic expansion following the recession in 2001 is expected to fuel growth in the overall construction industry, yielding annual revenues of $1.5 trillion. Looking ahead, reconstruction efforts in the Gulf Coast following the 2005 hurricanes will further boost expenditures. Specifically, the residential contracting sector of the overall construction industry is expected to decline.

The following are simply a few topics both you and your IPA consultant can discuss in order to enhance sales and improve your contracting business.

Process Improvements. Process improvements and efficiency programs continually assist companies in improving cycle times and capital efficiency for bottom line gains. Therefore, companies need to continue to invest in these processes.
Recruitment. The contracting industry’s strong performance in recent years has led to a labor shortage. In response to this problem, contracting firms need to alter their recruitment policies and focus on non-traditional sources. For instance, companies have recently begun looking to women and the Hispanic community for new employees. Contractors should aim to ensure that their workforces are of the most productive size.
Government Focus. More contractors engaged in nonresidential construction-related work are concentrating on obtaining lucrative government contracts for various projects. The demand for work in the public sector tends to be less cyclical than work within the private sector which provides for a more stable source of revenue.

View other IPA and IBA opinions.