Compensation Planning: Going Beyond Battening Down the Hatches - via:

3/09/2021 by Priya Kapila

The first quarter 2021 Heavy Civil Construction Index shows improving sentiment, increasing from 43.3 to 44.9. However, the measure remains below 50, suggesting a continued pessimistic outlook. Compared to last quarter, the general U.S. and regional economic outlooks retreated, while the book-to-burn metrics improved.

Continued relaxation of government mandated closures, increased hope for improving vaccination efforts, and the prospects for ongoing and increased government investment have not been enough to counter economic anxiety.

Though it is encouraging to find most contractors adding backlog faster than they are burning it, with only one-third experiencing a decline in this ratio, the trend may be a result of slower burn rates during winter months or an urgent effort to add backlog.

Survey findings also show that 85% of respondents are seeing an increase in competition and 60% are seeing lower bid prices, raising concerns about potential panic bidding scenarios.

For current issues topics, FMI asked respondents about capacity, backlog and hiring goals for 2021.

Concerningly, more than half of respondents (51%) indicated they are operating below 80% capacity, suggesting there is a need to either add backlog or shed capacity (especially if concerns over worsening market conditions solidify).

Most contractors (85%) noted that backlog going into 2021 is about the same or higher than it was last year. More than a third of respondents (39%) indicated they had lower hiring goals than a year ago, compared to those raising goals (33%) or staying about the same (28%), perhaps due to overcapacity combined with curbed confidence.

FMI’s fourth quarter heavy civil construction forecast for transportation and highway and street segments suggests 2020 will end nearly 2% lower than 2019, followed by 3% declines in 2021 and a 1% decline in 2022.

Pullback will be led by transportation, largely due to declining air and rail investment. Upon reauthorization of a federal surface transportation bill, positive highway and street investment growth is expected to return in 2022.

HCCI scores are based on a diffusion index where scores above 50 represent improving or expanding industry conditions, a score of 50 represents conditions remaining the same, and a score below 50 represents worse conditions than last quarter (or contraction).