How 2013 Trends in Construction Industry Will Prepare You To Succeed in 2014


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To be successful in 2014, those in the construction industry must understand what happened in 2013. Specifically, it's important to understand the trends from 2013 that are carrying over into the new year.

This presentation analyzes these trends, and is aimed at specifically aiding CFOs, credit managers, and other financial professionals in the construction industry understand the state of the industry at the turn of the year to empower them to better prepare for and take advantage of 2014 opportunities.

Discussed in this presentation:

1. Is The Recovering Economy Real?
We hear lots of talk about an economic recovery...but didn't we hear that last year, too? We look at the actual construction market figures and predictions to answer the question of whether the recovery is actually real...or just more talk.

2. Trend 1: Cautious Optimism
If the economic recovery is gaining steam, what does that mean? One trend from 2013 is that the market is cautiously optimistic. Many predict that along with the recovery will come increased cash flow problems, project delays, and contractor failure. Understand these heightened risks, and proceed into the new economy with caution and planning.

3. Trend 2: Financial Risk Shifts
Perhaps a cause or effect of the first trend, it is clear that players in the construction industry are increasingly trying to shift the financial risk of a project onto other parties. Specifically, those up the chain (owners / lenders / gcs) are trying to shift the burden to the subs and suppliers down the chain. Why is this happening? Is it really a trend? And what can subcontractors and suppliers do to protect themselves and turn the tables around?

4. Trend 3: Protecting Low Tiers
Fortunately for subcontractors, suppliers, and other lower tier participants, while financial risk shifting is giving them more risks on paper, public policy and judicial opinions are largely coming to the rescue. In many cases, the law will actually offset some of the risk shifting attempts up the chain. We review a trend from 2013 whereby the risk shifting measures are counter-balanced by law, policy, and judicial opinions.

5. Trend 4: Leverage Technology
The CFO and finance professional is predicted to become more involved with the company's overall strategy, and specifically, with the task of innovating to solve financial risk problems for companies. How will this be accomplished? By leveraging technology. Specifically, we predict that CFOs and finance professionals will need to leverage tools and remedies to come out ahead in 2014 and beyond.

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How 2013 Trends in Construction Industry Will Prepare You To Succeed in 2014

  1. 1. How 2013 Trends Can Help You Succeed in 2014
  2. 2. Construction Credit Knowledge Every Wednesday • 1pm CST
  3. 3. Is The Economic Recovery Real?
  4. 4. Recession Story In The Construction Industry $1,200,000 $900,000 $600,000 $300,000 $0 2005 2006 2007 2008 2009 2010 2011 Total Construction Spending Source: U.S. Census Bureau, Construction Spending Amounts in Millions 2012 2013
  5. 5. Good News Bad News 2012 and 2013 Overall Growth Growth was tiny increments Jobs Report Solid for most of 2013 Job losses in December 2013 Recovery Numbers Predicted for 2014 Predicted for 2013 & largely unrealized. Housing numbers are strong. They aren’t that strong. Industry expected to grow in 2014 Growth numbers are still conservative Sources: 1. Construction Executive: 2014 Construction Economic Outlook: Is a Real Recovery Ahead? 2. New York Times: Sudden Rise in Home Demand Takes Builders By Surprise 3. AGC of America: December 2013 Press Release On Construction Employment Statistics 4. AIA: Consensus Construction Economic Forecast Report
  6. 6. Why It Matters Confidence in economic recovery will justify investing into your company’s growth.
  7. 7. Why It Matters Understanding the growth trends of the industry will help you predict cash flow, revenue, and business expectations
  8. 8. 2013 Trend 1: Cautious Optimism
  9. 9. 2013 Trend 1: Cautious Optimism “No one liked the recession, but some contractors are going to hate the recovery, too.” Thomas Schleifer, Ph.D Del E. Webb School of Construction ENR Viewpoints: Beware The Recovery
  10. 10. 2013 Trend 1: Cautious Optimism Recovery Makes Things Worse 3x WORSE DURING RECOVERY THAN DOWNTURN ENR Viewpoints: Beware The Recovery failure rates 100% 75% 50% 25% 0% YEARS: 1 2 3 4 5
  11. 11. 2013 Trend 1: Cautious Optimism Strong Economy Will Require Companies To Grow Into New Demand Long Recession Made Companies Cash Poor Growth Eats Cash Financial Struggle To Meet Cash Demands With Small Cash Reserves
  12. 12. 2013 Trend 1: Cautious Optimism Handle The Trend: ! A. Respect the Caution, and Don’t Outrun Your Runway
 B. Pay Close Attention to Cash Flow, Aging Receivables, DSOs
 C. Protect Projects Against NonPayment (i.e. Lien Rights)
 D. Waiting for Retainage, Little Concessions Can Add Up
 E. Commit to Credit, Lien, & Collection Policies
  13. 13. eve Hill, ENR 2013 Trend 2: Financial Risk Shifts "We must lead the industry kicking and screaming ... to payment reform.” - Bigane Wilson Photo by Steve Hill, ENR
  14. 14. 2013 Trend 2: Financial Risk Shifts Epic Battle Over Who Loses If Money Runs Out On A Project
  15. 15. 2013 Trend 2: Financial Risk Shifts Mechanics lien laws provide contractors remedy in event of non-payment 1791 Contracts start to include “pay when paid” clauses. Courts say this is only a “timing” clause 40’s Contracts start to include “no lien clauses.” Courts void these provisions as anti-public policy 60’s Notice Claim Provisions now appearing in contracts with strict claim periods. 80’s “Pay when paid” turns into “pay if paid.” Many courts declaring this void as against public policy. 2000
  16. 16. 2013 Trend 2: Financial Risk Shifts
  18. 18. 2013 Trend 2: Financial Risk Shifts Your Contract Is FILLED With Provisions Shifting THE RISK Of A Project ONTO YOU
  19. 19. 2013 Trend 2: Financial Risk Shifts Handle The Trend: ! A. Try to negotiate out of onerous financial risk shifting terms
 B. Analyze every contract at start of work to document claim and notice deadlines
 C. Leverage Lien & Bond Claim Rights To Offset Risk
  20. 20. 2013 Trend 3: Protecting Low Tiers “There is a lot of promise for 2014 and beyond that the mechanics lien document will continue to get favorable treatment from the courts, arming parties with something to combat the onerous contract terms imposed by owners, developers, contractors, and lenders.”
  21. 21. 2013 Trend 3: Protecting Low Tiers America believes that trade contractors and suppliers should get paid.
  22. 22. 2013 Trend 3: Protecting Low Tiers America believes that GCs and Owners should shoulder the burden of a project’s financial risk.
  23. 23. 2013 Trend 3: Protecting Low Tiers Statutory Increase of Rights: • • • • • • ! New Hampshire Georgia Louisiana Missouri Wyoming Oklahoma Judicial Increase of Rights: • • • • • Maryland Minnesota Arizona Nevada New York “The purpose of the mechanics’ lien statutes is to protect the rights of those who furnish labor and materials to improve another person’s property…we construe them liberally to achieve their primary purpose.” Arizona Court of Appeals, Weitz Company LLC v. Heth, 2013
  24. 24. 2013 Trend 3: Protecting Low Tiers Handle The Trend: ! A. Embrace the protections afforded to you
 B. Be careful…possession is 9/10ths of the law, and the law is unpredictable
 C. Leverage Lien & Bond Claim Rights To Offset Risk
  25. 25. 2013 Trend 4: Leverage Technology Innovate Data Strategy
  26. 26. 2013 Trend 4: Leverage Technology Construction industry Financial Professionals will be called upon to manage their organization’s financial risk, and this will require innovation and both the leveraging of tools (i.e. automations and data analysis) and remedies (i.e. security and lien devices).
  27. 27. 2013 Trend 4: Leverage Technology Handle The Trend: ! A. Tools: Use the cloud to integrate your ERP with new technologies
 B. Tools: Leverage technology to help with lien compliance management, credit data analysis, and collection processes. Automate!
 C. Remedies: Know your legal remedies, and use them.
 D. Leverage Lien & Bond Claim Rights To Offset Risk
  28. 28. More Info? The trends of this presentation are discussed in more detail in this White Paper. Download it free.
  29. 29. Credit Policy Tips 6 Weeks, 2 Emails /wk Free Forms & How-Tos
  30. 30. Ask Us! Interested in learning more or have a question? Ask Us Anything