by Dan Friedman

With the economy sluggish for a number of years and with the New York metropolitan area taking a further drubbing in the aftermath of the terrorist attacks of Sept. 11, 2001, it is small wonder that the construction industry in the region is finally sputtering.

With new starts, particularly of commercial buildings, slowing to a trickle, specialty contractors are feeling the pinch.

"It's a very tight market," said Ron Barber, president of Vestal, N.Y.-based Marco Electric Co. "We're seeing very thin margins. This happens every time work gets slow. It's not shocking but it's definitely annoying."

J. Robert Mann, CEO of E-J Electric Installation Co., which is based in Long Island City, agreed.

"Things are really at the bottom as far as interiors are concerned," he said. "The small and middle-sized contractors are having a hard time. Very few high-rises are being started. No one gets financed until they have tenants. There's lots of projects in the design phase, but they're on hold."

Earlier this year, E-J was busy working on the American Airlines Terminal at John F. Kennedy International Airport, a major redevelopment project that began in 1999. But as American Airlines' business prospects continued to nosedive, E-J's efforts were abruptly halted.

"We were told to stop work, get off the job and don't come back for a year," Mann said. "So that's what we did. That's never happened before."

Competition for the jobs that are still out there, which always heats up when the economy cools, has been further intensified, according to some specialty contractors, by the emergence of more non-union contractors in the New York area.

"Pricing is really being pushed down by start-up, nonunion firms," said Paul Desser, CEO of Seasons Contracting Corp., an environmental contracting firm based in Lyndhurst, N.J. "No matter how you figure it out, what they're bidding can't be done. I'm not even talking about making a profit; I mean it can't be done without losing money."

"I'm a nervous wreck," confessed Thomas Ruttura, president of Ruttura & Sons Construction Co. Inc., a Farmingdale, N.Y. firm that has done excavation and concrete work since 1918. "We've always been very, very busy, always had everybody working. But the last two months we've caught up on all our jobs and it's getting quiet. As I see it, a lot of specialty contractors won't be around next year."

Not-So-Prompt Payment
Prompt payment, a challenge even in the best of times, is growing ever more elusive.

"Cash flow is a major problem in the construction industry in general and for the specialty contractor in particular," said Kevin O'Callaghan, president of Universal Builders Supply Inc., a Mt. Vernon, N.Y.-based hosting and scaffolding contractor that has done the scaffolding for the renovations of the Statue of Liberty, the Washington Monument and Grand Central Terminal, among others. "Retainage, at 10 percent, is now greater than the profit. It's very hard when you're working this tight."

Desser said the biggest issue is collections. "It seems like everyone is holding onto his last dollar and it's having a ripple effect all the way down the line," he added.

Desser told of a particularly frustrating job done for 7 World Trade Center, where Tishman Construction Corp. of New York is the project manager. The site is leased by Silverstein Properties Inc. for 99 years, but is owned by the Port Authority of New York and New Jersey. However, Con Ed had a substation on the site before the PA built the original 7 WTC and retained some property rights.

"Tishman is holding $319,000 owed us," Desser said. "The check is made out, but Tishman has to wait for a letter from Con Ed. Con Ed is waiting for some special language from the Port Authority. Plus, they still have my retention money."

Mel Ruffini, senior vice president at Tischman Construction Corp., responded that it was "just a matter of some paper work" and that Desser would get all that he was owned soon.

The problem is endemic, even with the most mundane jobs.

"Contractrors need to spend too much time and effort on collections," said Donald Romano, president of Deer Park-based Heritage Mechanical Services Inc., an Emcor company specialiazing in piping and duct work systems. "That same effort should be spent on working the jobs and bidding new work."

No Assurance of Insurance
Adding to difficulty of trying to turn a profit is the increasing price of insurance.

"Insurance is the most difficult issue out there," said Desser. "Many companies won't write demolition insurance at all. Others who will want 8 to 10 percent of your gross income."

Romano said his rates have gone up almost 35 in the last year. "We can't seem to get a handle on what our costs are with insurance, yet we need to predict them in order to bid accurately," he added. "Insurance costs have become a moving target."

Jerome Haber, president of W & W Glass Systems Inc. in Nanuet, N.Y., which does architectural metal, curtain walls and glass facades, said his firm has had good experience with liability insurance. "Our coverage is increasing, but it's still manageable," he said. "It's funny when you consider a 10 to 12 percent rise to be reasonable."

New York-based specialty contractors across the board blame the state's Labor Law 240/241 for their increasing insurance costs. The law allows injured workers to sue the owners of construction sites (who then hold up payment to general contractors who, in turn, hold up payment to the subcontractors), but does not allow the court to consider the role that the worker's negligence may have played in his or her inquiry.

"More and more companies don't want to cover anything in New York because of Labor Law 240," Mann said. "Everyone is going through it; there's no quick solution."

O'Callaghan argued strongly for reform of the law. "We have to get back to the days when we were responsible for ourselves," he said. "Insurance is designed for the tragedies, for the hard-working person who is hurt doing his or her job. But it's problematic when so much of it is going to attorneys getting rich misrepresenting their clients and giving them bad advice. All it does is add expense to everything we do. You want to help the guy who seriously got hurt, but (with the current law) you have to fight everyone as hard as you do the scam artist."

Construction and insurance industry groups continue to lobby the Legislature on the issue. State Sen. Dale Volker, (R-C-I-Depew Co.) and Assemblyman Joe Morelle, (D-Rochester) have each introduced legislation to reform Labor Law 240/241.

Recently the New York State Association of Minority Contractors lead a coalition to Albany that included the National Hispanic Business Group, the Minority Business Leadership Group, the General Building Contractors of New York State and the Building Trades Employers' Association. They spent the day with members of the Legislature's Black and Puerto Rican Caucus, seeking support for reform of the law.

Changing With the Times
The picture is not totally grim. The category of "specialty contractors" is broad and includes many different trades, some of which are doing fine.

Babu Khalfen, president of the Brooklyn-based Signs & Decal Corp., reported that business for his architectural signage firm is booming. The recent adoption of international signage standards for airports has brought the Brooklyn-based firm lots of work at JFK's Terminal 4.

In addition, the Americans with Disabilities Act requires signs of a certain size and type of lettering, along with a Braille component, all of which means work for Khalfen's company.

"This work has evolved like crazy," Khalfen added. "It used to be, when we started 30 years ago, we walked into a building after it was built and the owner said, 'Put a sign here, put a sign there.' Now it's part of the construction process from the start." Such exceptions aside, the number of construction projects is shrinking.

"In New York we saw markets tightening, so we focused on getting work with the big projects that we knew would happen," said Jeff Levy, president of Emcor Group Inc., an international network of about 80 operating firms. "We focused on 731 Lexington and the AOL Time Warner Building. We have many assignments on those projects both mechanical and electrical. At AOL, we're working for the developer and for many of the tenants."

Emcor's size also helps. Its network extends across the nation and around the world and includes a wide spectrum of specialties. "Our size and breath allows us to shift to where the work is," explained Levy. "That flexibility is not something all specialty contractors have. We can concentrate on strong markets and ride it out in weaker ones."

Even for smaller firms, the ability to change with the market appears to be what it takes to survive the construction contraction.

"The biggest challenge is getting new work," said Haber. "There's still a lot of residential, but we only do commercial and institutional. It's a different kind of work."

Romano countered that specialty contractors "have to cover all the market sectors, instead of just bidding the attractive commercial projects. ... We need to stay involved with schools and MTA projects. Those jobs require additional management, but when the other markets are lean these jobs fill out our backlong. They all have mechancial systems and that's what we do."

Desser added that contractors need to shift the paradigm of their business models to find work. "If you've been doing consistent demolition or environmental work for commercial developers, you now need to shift to government work," he said.

"It means a move from, 'Give me a price and let's get going,' to having to fill out 1,500-page documents. It means all sorts of meetings that you don't have to sit through in the private sector. The upside is you know you're going to get paid and paid what was originally agreed to."

Where the Work Will Be
Many specialty contractors in the region see the bulk of work shifting to the institutional and public sectors for the next few years.

"Institutional and education is where the work is," Barber said. His firm, Matco Electric, is currently busy in the expansion of the Albany campus of the State University of New York; the renovation and expansion of the Baseball Hall of Fame in Cooperstown; and the expansion of Bassett Hospital, also in Cooperstown. In addition, Matco is working for the Johnson City and Hornell school systems.

"There will be a lot of public work coming up and if all the money comes through there will be a lot of work," said Mann of E-J Electric. His company recently won a contract from the Port Authority of New York and New Jersey to upgrade the electrical system within the Holland Tunnel.

Desser pointed to a number of major projects on the horizon, all of which will depend on some form of public-private partnering. There is the old Washburn Wire Factory, a five-acre site on the East River at 118th Street. It is the largest site available for development (other than Ground Zero) in Manhattan. The talk is of bringing in big-box retail.

Rockrose Development Corp. is reportedly looking to develop the site of the old Pepsi bottling plant on the Queens side of the East River. Another possibility for redevelopment in Queens is the site of the old Daily News publishing plant.

Some contractors are even optimistic about commercial development. "There are some signs of commercial coming back," said Emcor Group Inc. president Levy. "There is the Hearst Building (at the corner of Eighth Avenue and 57th Street) and 7 World Trade Center. The opportunities are more selective than two years ago, to be sure. But they are out there."