Warming Up

For most demolition contractors, the early portion of 2003 started as slowly as a diesel engine on a cold January morning, but by the second half of the year, that engine started humming, and now 2004 promises to be the best year ever for some companies.

And well it should be, as the demolition industry is an early bellwether for the economy, which has been coming back strong in recent months. Notes William Moore, Brandenburg Industrial Service Co., Chicago, and incoming president of the National Association of Demolition Contractors (NADC), "Our industry is the first to be hit by a slowdown, and the first to pick up in a recovery. Now with the stock market and everything else going up, our industry is going up."

Such optimism is echoed by several of the demolition contractors we talked to throughout the country. Most say they are looking forward to some good times after the previous two-year lull, with many also pleased about the recent rise in prices for scrap metal. But several cite serious issues facing the demolition and recycling industries—including regulatory problems, waste franchises, insurance costs and something as simple as utility disconnections—that mean all is not a bed of roses.

In Middleboro, Mass., Dan Costello of Costello Dismantling says in 2003 more work was definitely available than in 2002, but every job was still very competitive. This year looks good, he says. "Low interest rates have helped stimulate the construction industry, and that means business for demolition contractors."

Costello adds that, "Material disposal is a big issue facing the industry in our area. Massachusetts is planning to ban a lot of C&D materials from landfills. This means there is a need to sort and process the material, either at the jobsite or at a separate facility. Demolition contractors will have to adapt."

He adds that the state has been very good about working with industry in implementing the ban, which probably will take place some time in 2004. He expects much of the material in New England to be recycled at mixed C&D recycling centers. "But I don’t know if demolition contractors will be the people running those facilities," he says. "So many in our area are planned or already in existence. You have to wonder how much it costs to handle and process the material, and whether it is worth it to do it. Also, in this regulatory environment, you don’t know how many environmental agencies will allow new recycling plants to open up."

Permits of another type are constant work for The Berg Companies, based in Baltimore, but these are demolition permits. According to David Berg, his company is working in so many different cities now, usually eight to 10 at any one time, that his people have had to learn many methods to get permits. "Every place is different," he says.

The reason his company is working in so many places is that it went out of its region to find more projects. "2003 was very good for us, but business was just OK around Baltimore," Berg says. This year does not necessarily look better, he says, partially because it takes so long for projects to get going because of delays caused by financial and legal concerns. "It can even take two months to get an electrical disconnection, and that is taking longer every year," he says.

Drew Lammers of King Wrecking Co. Inc., Cincinnati, said in 2003 the volume of business available was about the same as in the recent past, but the bottom line went down because of increased competition. Because the economy is coming back, he expects the level of available jobs to stay about the same, or perhaps increase modestly.

"The good news is the scrap market is back, and back big," Lammers says. "China is buying everything in sight. It is great when you are on a job that you have long [ago] priced out, and the price you get for the metal doubles almost overnight."

He cautions that there are still difficult issues, such as bonding and insurance. Lammers says King Wrecking has been fortunate not to have bonding problems, "but I know a lot of companies are facing that problem. And insurance is a problem for everyone. It is difficult to keep it affordable."

Affordable for the developer is a basic tenet for the demolition industry, according to Glen Martin, Statewide Razing, Greenleaf, Wis. In general, he says, "We usually can’t charge more for our projects than we do. If we go too high, the developer will find another spot where it will be cheaper to work."

Last year was a pretty mediocre year for the volume of demolition work available, Martin says, as was the year before. He cites fears concerning terrorism and the accompanying bad economy as the reason. But 2004 is certainly "back on track."

He sees government spending for public works projects staying down because many states and cities have overspent. "But private work is picking up," he says. "We like private work." Martin notes that he recently went to a public works bid conference for a government job, and 12 contractors were there. Later that day, in the same town, at a similar conference for a private project, there were only four competitors. He liked his odds much better then.

The biggest problems he sees are how government agencies are making regulations they don’t even seem to understand. Probably the best example is the lead-based paint on concrete issue. "Everyone gets carried away with that. Who is going to pay for abating or getting rid of it in landfills?" he asks. "We have told customers we can crush it and it is safe to use, but the government won’t let it happen."

Moore of Brandenburg Industrial Service agrees that regulations are a problem and cites another example—asbestos notification. The forms are lengthy and time consuming, but more importantly, he says, "If you are demolishing a city block with four separate street addresses on it, you have to fill out the forms four times. Then on the day you say you will start the project, you have to do some structural demolition in all four of the addresses." He doesn’t argue with the need for the regulations, just their burdensome nature. To that end, the NADC recently met with U.S. EPA officials to find ways to make sure the spirit of the rules can be followed while the process can take a more common-sense approach.

Moore adds, though, that even with all the regulations, it doesn’t solve the problem of what he calls the "rip and runs," the contractors who don’t follow the rules and, hence, compete unfairly.

Fairness is an issue in Southern California, where franchises for solid waste are granted by municipalities to waste haulers. Such franchises include C&D as part of the contract, so everything, including the boxes and the trucks used at a site, must be from the waste company, according to Charles Clark, Three D Services, Pomona, Calif. "Yet their service is awful, they do not respond when called to either drop or pull a box; same with the trucks," he says.

It is especially frustrating because Three D and many other demolition contractors have their own trucks and roll-offs. "Even scrap metal has to be hauled by that hauler," Clark says. Perhaps worse, because of the franchise agreement, the highly recyclable concrete is all carted off to the landfill, even though Three D has a crusher and is capable of recycling it.

Landfill destinations are another problem, Clark says. Disposal capacity at landfills is an issue because many are severely limited in the number of tons they can receive every day. "Most of them shut down by 11 a.m., and are closed on Fridays," he says. "It limits your disposal options."

Demolition contractors in the Southern California area had reason to worry about those disposal options for the second half of 2003, Clark says. "The third quarter on was great," he says of project opportunities, "but before that it was slow." Indeed, his company was doing a lot of public works projects in 2002 into 2003, but when the state’s fiscal crisis came up, much of that work dried up.

But for 2004 the outlook is as sunny as the local weather. "We expect to double our volume in 2004 over 2003," says Clark. "Our first three quarters are booked, and I have everybody I can find working."

Further north in the state in the Fresno area, the prediction is about the same, according to Jeff Kroeker of Kroeker Demolition & Recycling. "2003 was a very good year, at least the middle and second half of it. Military work slowed down because they went in another direction, toward Iraq. But we are seeing action in all sectors—commercial, industrial, residential and renovation."

He says the boom is caused by people selling their homes in other parts of the state for huge profit and practically paying cash for a home in the center of the state. That has caused "quite a backlog" for his company in 2004.

Kroeker cites a few issues facing demolition contractors, including over-regulation (practically a given in California), expensive insurance and—particularly irksome—utility disconnection barriers. "It’s always six to eight weeks to get anything disconnected," he says. "I don’t know if they are busy, if our work is just a fill-in for when they aren’t busy, or whether they are [intentionally] slow to show the state they need higher rates to hire more people."

In Sacramento, Rodd Palon of Two Rivers Demolition, reports roughly the same market outlook. "2003 started out slow, a hangover from the effects of 9/11," he says. "Then it just took off. This winter has been great for us, and our company is now bigger than ever."

The company may need its new personnel, because 2004 also looks good, and so does 2005. "2006 remains questionable, because by then the anti-growth activists may find ways to slow or stop residential construction, which is the engine that drives the construction market. It’s always difficult to tell what will happen that far off, but that is what we see," says Palon.

Insurance premiums are the biggest problem now, he says. "You can always say regulations, getting paid, contracts, etc., but it is certainly insurance now. We are paying $450,000 in workers’ comp every year, and this is for only about 50 employees. The insurance situation has changed our business."

Two Rivers was the waste franchise holder for a large, planned community project it was a contractor for, so the company has seen the upside of holding a franchise. But Palon still doesn’t like waste franchises. They are "just wrong," he says, "they stifle competition."

Another type of competition is a trend that Dave Whitley of Nuprecon, Seattle, has seen recently. Self performance of demolition general contracting is starting to emerge, he reports. "Some project managers think they can be a hero and save some money, but they don’t know how to factor in all the costs," says Whitley. "They bury those in the total project cost. Plus, they have higher-paid carpenters doing the work, which they don’t like to do."

He also reports seeing reverse auctions done online as a growing trend. Recently the General Services Administration tried to do one, emulating the big corporations that have started doing it. "But I don’t think those deliver value to all the constituents in a project. There needs to be guidelines developed to make sure they are run correctly."

Nuprecon is expanding out of its immediate Pacific Northwest area, but Whitely says it saw construction in 2003 down overall compared to 2002, mostly because of reduced public works in Seattle. However, Nuprecon is another company that now has the biggest backlog of work in its history, says Whitley. He says it is a lot of industrial work, with some improvement in other sectors.

So it seems that many demolition contractors are looking forward to a workload surge in 2004. Whether it goes beyond that is anyone’s guess.

The author is associate publisher of Construction & Demolition Recycling and executive director of the Construction Materials Recycling Association. He can be contacted at turley@cdrecycling.org.