A Slow Ship Turning

Government contract stability should counteract a shortfall in private sector work for Hawaii contractors.

January, 2002

“I wear two hats, and they’re really a tale of two cities,” says Denny Watts, of his dual role as president of both Dick Pacific Construction Co. Ltd. and the Hawaii General Contractor’s Association. Watts says that although he’s predicting a major blow to the $3 billion per year industry overall, his company is actually looking at year-end sales of $300 million this year, an 18 percent increase over 2000 revenues of $254 million. And Dick Pacific’s current workload even has the company on target to hit $400 million in 2002.

That is, if demand in the private sector can prevent other construction companies from flooding the public-sector market.

“Hawaii’s been through so many economic cycles that I’ve felt diversifying the business was an absolute requirement,” says Watts. “So what we’ve done is divested ourselves about four years ago by moving our company into more public-sector work and our current split of public to private work is now about 70 percent to 30 percent.” It is a transition, he says, that many companies will be seriously considering as private contracts start to freeze up.

Gary Wiseman, executive director of the Associated Builders and Contractors Hawaii chapter, agrees with Watts’ claim. “Private-sector work will be hit the hardest. Since government contracting officers are awarded projects based on factors other than the lowest cost, contractors with a solid history of accomplishment and an unblemished reputation should consider chasing after public-sector work,” says Wiseman. However, industry specialists caution that bidding on government contracts will be a whole new ball game for those heavily vested in private sector work previously.

The majority of smaller companies – who are especially susceptible to the inevitable decrease in activity in the private sector – may see significant losses in billable hours as they struggle to learn the detailed and resource-intensive process of bidding on government projects. “There is a Pandora’s box full of regulations just waiting to be sprung on unwary private-sector contractors that want to make the switch,” warns Wiseman.

Hawaiian Dredging Co. – whose parent company, Dillingham Construction Pacific Ltd., is the highest-ranked construction company on Hawaii Business’ 2001 Top 250 list (No. 25) – is already showing signs of being weathered by the drop-off in private sector activity. According to Hawaiian Dredging’s vice president of marketing, Allan Lock, the company is looking at year-end revenues of $200 million, down from the $250 million to $260 million the company had expected prior to Sept. 11.

“I think we’ll need to concentrate a lot on the government sector. Developers in the private sector are still being bullish, but over the next six months or so, we see those jobs being delayed,” says Lock. “Our work ranges from about 40 percent public-sector work to 60 percent private, but that could reverse.” Lock admits that the already stiff competition for government contracts will intensify and says that, like most other companies in this eat-or-be-eaten type of situation, Hawaiian Dredging will be going after all types of contracts, be it private- or public-sector work.Although, despite the grim outlook for private sector commercial contracts, most people in the industry aren’t at the edge of their seats just yet, claiming that the housing industry just might be faring well enough to hold up the bulk of the private-sector contractors. “The housing industry, unbelievably, is still one of the strongest parts of the construction industry … it represents about one-third of the entire industry,” says Dick Pacific’s Watts. “If housing stays reasonably intact, it will absorb a good deal of the shortfall. And everyone in the industry is hoping it does, because competition will get pretty fierce at that point. Construction is like a slow ship turning. It takes a while before it slows down and stops. But once that happens, it’s going to be very hard to get it started again.”

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Jacy L. Youn