BIA’s new Randy
Federal projects and residential construction on the Neighbor Islands dominate this year's building industry.
A Hawaii-based contractor who specialized in single-family homes, Randy Lau five years ago had an inkling that his company, Designer Built Systems Inc. had to redirect its focus, or else fold. Money-making opportunities were in federal government contracts, not the private industry. “I saw the writing on the wall, either change or close up, not because I was smart, but because I had to,” says Lau, president of Designer Built. The value of federal jobs at the time (1995-1997) rose from $442 million to $675 million.
Moving away from private, residential jobs was the right move. Not only did Designer Built survive to celebrate its 11th anniversary last year, but Lau last December was sworn in as president of the Building Industry Association, the organization that represents Hawaii’s construction professionals.
Lau says the building industry has nowhere to go but skyward these days. Analysts predict growth of as much as 15 percent this year, with the majority of projects coming from residential construction in the Neighbor Islands, the State Department of Education and the federal government.
Lau says. “It adds to our bottom line rather than being a burden. A few people see technology as being burdensome, but they haven’t educated themselves where they can actually see how it affects profitability.”Meanwhile, the Building Industry Association will continue to monitor legislative bills that are pro-technology. “Communication between job sites and documentation between the job site and home office has become paperless,”
How did the construction industry weather the economic storm over the past three years, and what are your predictions for the following year?
No one had anticipated the amount of time the slowdown would last. As a whole, lots of people got hurt or shut down. There were a lot of good companies that closed their doors. One, they weren’t able to respond quick enough, and two, economically their companies weren’t able to survive. Those people who didn’t respond quickly enough did not make it.
The construction industry actually is an indicator of the overall economic forecast. There was a ripple effect that went on throughout the rest of the island economy. Lots of construction companies were forced to run their businesses in new ways because of the economic slump. Those that are left behind now are the cream of the crop. Now with the upswing, I think people won’t be so quick to spend their money right away. They’ll start putting money back into the coffers for rainy days.
What happened to the industry’s labor pool during the economic slowdown?
Most of the construction industry labor stayed here, and a lot of people went into opening their own small companies, whereas they were employees before. We have new startups, while other people went to other companies that were still surviving. As far as the labor market, most of the labor market stayed here. With attrition, with retirement, we lost some. The mainland labor that was here left quickly.
How are these smaller startup companies able to survive?
In construction, even in down economic times, the startups are usually successful. Some are members of the Building Industry Association. And profitability for small startups is always good. You have your own hands-on labor. Your overhead is very minimal, so what profit you do have goes into your pocket. I think that’s the natural trend for any kind of business in a downturn economy, where people get dispersed. A percentage of them go on their startups, and those startups find out they can make money in a down economy.
How serious is the industry’s problem with fly-by-night operators, or illegitimate contractors?
That’s another result of the down economy. Rather than going through the process of getting licensed, you have a few that don’t take the proper channel. One, they either see it as temporary, or two, they don’t care about being in compliance with the law. The only control that we can make is through Legislation and by logging the Department of Commerce and Consumer Affairs on pushing the enforcement side of the licensing program. I know that Department of Commerce and Consumer Affairs is making strides on the enforcement side of it.
They (fly-by-night companies) usually do smaller remodeling jobs, or new, single-family types of homes. The biggest downside is that it puts the homeowner at an incredible risk. If someone gets hurt, they can lose more than their property. They can get sued. They get shoddy work. It is unlicensed activity. It’s negative, and it’s consistently the same people doing it over and over. Unlicensed people are hard to catch, because there is no information on this people. It’s also an irony because if there’s a complaint reported about a licensed company, all the information is there. It’s harder to document complaints for unlicensed people, because they’re not registered.
What are your projections for this year’s federally funded projects, and what are some of the large jobs slated for the next few years?
The federal sector has always been a strong, steady market. The federal budget for appropriated funds and non-appropriated funds are larger this year. We’re in a strategic military location, plus we have a good senior senator, Dan Inouye. It’s been a state salvation to have federal funds coming into our industry. I would say federal funding this year has an increase of about 20 percent off the coffer.
Ford Island is the biggest military project. It’s a long-term one, being developed into various types of projects. There’s a small sector for public information, public areas that tie in with Arizona Memorial and USS Missouri. Another sector includes housing, while another is office space and mixed-use sector of the island. They’re also looking at privatizing some of those developments on Ford Island. It’s such a long-term project that the phasing of it is at least 10 years.
What is your projection for construction jobs in the private sector in the next year?
In addition to the federal sector, the private sector is definitely on the upswing in new, single-family residential units, particularly medium- to high-range houses on the Big Island and on Maui. On Oahu, we have an increase in large, development type of housing, which is different from the single-family, custom high-end kind that we’re seeing on Maui and the Big Island. A couple of units on Oahu are the results of the money coming from young, tech entrepreneurs from the West Coast, Pacific Northwest.
The ones on the outer islands are all single-family, custom homes. These are huge projects, averaging around $2 million to $3 million. These are not tiny. They go beyond what we know as high-end projects. These are ultra-high-end projects. Oahu has its share of the high-end home market, but we’re limited by the amount of developable land that can be developed into that kind of homes.
How much construction activity do you anticipate from the state government?
We are expecting a lot of state government projects, because the state has a large construction budget this year. There are increases in tax collections. Unfortunately, we haven’t been spending the money in places, like the Department of Education. UH has been really neglected over the past five years because of lack of state funds. We have that pent-up demand now, plus a big budget was released this year. The downside is we’ve got five or six years’ worth of back-upped projects. Classrooms are in bad shape. University of Hawaii’s classroom infrastructure has gotten to the level of dilapidation.
Also, the state last September initiated the PIPS program (Performance Information Procurement System), a procurement system based on performance and quality. The government is saying, ‘We’re not necessarily going to award the lowest bidder anymore.’ Of course, dollars is one of the requirements, but performance, the quality of work is important.
How will the Performance Information Procurement System change the way construction companies operate?
I think by having this program, people who have been consistently doing poor work will either get weeded out because of lack of work, or they will be forced to improve their quality control. For the guys who always have done good work, it’ll be a positive thing, because now they’ll have a chance to get jobs where they have the budget to do it right. It won’t just be a matter of loopholing to get the job done. Now you have a budget that’s still compatible, but you’ll also have a budget to do it right.
As the new president of the Building Industry Association, what are you and your administration’s goals this year?
One of the high priorities of the BIA is to constantly monitor legislation, to watch the laws that affect us as small businesspeople. The past president did an incredible job in bringing that up to a high level. Another important point on our platform is technology, how technology is so rapidly changing and how it affects our industry. In my inauguration speech last December, I talked about the changing technology and how those of us who don’t embrace it will be left in the dust.