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June 7, 2024 - 2:07pm

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Contractor revenue rises, but firms say higher risks and longer lead times are driving more investment in preconstruction.

When the Federal Reserve hiked interest rates 11 times last year in a bid to control rampant economic inflation, many Top 400 Contractors said they felt those policy changes in the form of project delays, rescopes or outright cancellations. Now, with construction costs at a prolonged high, firms say preconstruction has helped some would-be paused projects stay viable. But in a construction market where demand for resources far outpaces supply, firms say preconstruction has its limits against inflation.

“We believe the economy overall is more robust than the fed anticipated, and we don’t expect significant interest rate reductions this year,” says Anthony Johnson, Clayco executive vice president and president of the contractor’s Industrial Business Unit. The firm is ranked No. 23 on this year’s list.

For a second consecutive year, Top 400 revenue has increased by a double-digit percentage, rising 13.9% to $556.9 billion, from $488.98 billion last year. Median firm revenue is also up 10.9%, to $629.5 million, and of the 375 firms that filed this year and last, 77.3% reported an increase in general contracting revenue, slightly down from 78.9% on last year’s survey.

Yet behind the numbers, firms say there is a tidal shift among owners as they prioritize projects in sectors that will yield larger return on investment with lower short-term risks.

“Interest rate increases have made it challenging for some clients to obtain construction loans,” says Primus Builders Chief Financial Officer Matthew Hott. Although this has not reduced the No. 278-ranked contractor’s backlog, Hott says the delays can affect project starts, “which can move financial activities from one year to the next in some cases,” he adds.

Although the inflation rates are still higher than the Fed’s target average, some contractors are finding cost increases to be “a more manageable and predictable challenge than it was a couple of years ago,” says Clayco’s Johnson. For other contractors, the ability to manage such a challenge depends on the contractor’s ability to adjust already strained labor resources.

Shifting Sectors

As owners shift their attention to opportunities in lower risk sectors, Top 400 revenue numbers illustrate how contractors are following the demand.

From 2022 to 2023, revenue increased in all ENR-tracked sectors, except hazardous waste, which was down 9.7%. The largest growth was seen in manufacturing (up 74.8%), petroleum (up 46.7%), sewer/waste (up 38.8%) and water supply (up 28.6%). The manufacturing market in particular grew exponentially, with total general contracting revenue up 201% from 2021 and 2023. In 2021, 115 Top 400 firms had at least some manufacturing revenue. In 2023, that number increased to 142.

Industrywide, Top 400 contractors say projects funded by the Bipartisan Infrastructure Law (IIJA), CHIPS and the Science Act and Inflation Reduction Act (IRA) are also creating more opportunities.

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