2014 Construction Industry Market Outlook Survey Results

12014 Construction Industry Market Outlook Survey . Results

2014Construction

Industry MARKET OUTLOOK

SURVEY

RESULT

S

Building Trades Employers Association of New York City - BTEA1430 Broadway, Suite 1106New York, NY 10018www.bteany.com

SPONSORS

Queens & Bronx Building Association, Inc.16-66 Bell Boulevard, #745Bayside, NY 11360www.queensbronxba.com

ENR New York2 Penn Plaza, 10th FloorNew York, NY 10121www.newyork.construction.com

Grassi & Co. would like to express special thanks to the Construction Industry Market Outlook Survey sponsors.

Grassi & Co. is pleased to announce the release of our 2014 Construction Industry Market Outlook Survey Results Report. The goal of the Survey, which was conducted in March-April 2014, was to collect information regarding current market dynamics and to examine certain benchmarks to help predict and anticipate the projected market outlook for the Construction Industry in the regional New York area.

The responses collected from the Survey identified valuable metrics, new and emerging trends and industry insights that will help construction firms navigate through 2014 and beyond.

Read on to learn more about the trends and results of the survey.

If you have any questions regarding the survey or the content of this report, please feel free to contact us.

Sincerely,

Louis C. Grassi, CPA, CFEManaging Partner &Chief Executive Officer

[email protected](516) 336-2450

Carl Oliveri, CPA, CCIFP, CFEPartnerConstruction Practice Leader

[email protected](516) 918-5917

Disclaimer: The results of this survey are reported for informational purposes. The findings and conclusions may be generalized for informational purposes only. Please consult an accountant or attorney when making business decisions that may affect the operations of your firm.



Table of Contents

Market Outlook Survey Overview 6

Results Snapshot 7

Company Overview 8

Financial Overview 13

Bonding 17

Bidding 18

Backlog 19

Claims 20

D/M/WBE 21

Technology 22

Social Media 24

Human Resources 26

Insurance 30

The Future 31

Trends We See 34

Survey Advisory Board 38

Leaders in Serving the Construction Industry 39


Market Outlook Survey Overview

Construction companies are constantly looking for market intelligence tools and resources to assist in developing their business objectives and strategies. As such, Grassi & Co. conducts its biannual Construction Industry survey of companies based in the New York regional area to identify and examine current practices and trends that affect the industry.

The results of the Construction Industry Survey provide:

Important benchmarks for the industry

An identification of critical trends, that are necessary to understand in order to make thoughtful and prudent business decisions

Insights on current and future market conditions

ABOUT THE SURVEYThe 2014 Construction Industry Market Outlook Survey reflects the responses of executives from a cross section of the Construction Industry within the New York regional area.

The survey included 61 questions categorized into the following areas of study:

1. Company Overview

2. Financial Overview

3. Bonding

4. Bidding

5. Backlog

6. Claims

7. D/M/WBE

8. Technology

9. Social Media

10. Human Resources

11. Insurance

12. The Future


Results Snapshot

Industry executives are becoming more optimistic about the outlook of the construction market and about the growth of their companies in general. This is evidenced by a majority of the industry executives surveyed expecting growth increases in revenue in 2014.

KEY DATA POINTS 77% of the executives surveyed reported that their revenues are expected to be higher in 2014

than they were in 2013, while only 23% reported they expect their revenues to remain the same.

53% of industry executives surveyed expect their 2014 gross margin percentage will remain the same or decrease from 2013.

Well over half of the executives believe that the overall construction market will be better in 2014 than it was in 2013.

77% of the executives stated that their current cash flow was their primary source for financing their businesses.

62% of the participating companies reported that the average salary increase they distributed in 2013 was less than 5% and 21% did not provide salary increases at all.

91% of the respondents reported that none of the work they perform is international.

24% of union contractors are considering migrating towards non-union work.

Expansion of business offerings and expansion of geographical reach were identified by a number of executives to be primary business strategies that will be a focus in 2014. Additional focus areas include the implementation of Lean Construction Principles as well as acquisitions.


Company Overview

Overview of Respondents. Of the executives surveyed, 34% of the respondents held the title of President and 13% held the title of CFO (Chief Financial Officer) or CEO (Chief Executive Officer).

Of the firms that are represented in the survey results, 49% are Specialty Contractors, 39% are General Contractors (Construction Management/General Building), 15% are General Contractors (Civil/Heavy Highway) and 13% are Construction Management only companies.

Chairman3%

CEO13%

President34%

Vice President

9%

CFO13%

COO2%

Controller12%

Other 14%


Gross Revenues. A majority of the responding companies (51%) reported 2013 Gross revenue of < $25 million, 31% reported gross revenues between $25 million and $100 million and 18% reported gross revenues of greater than $100 million.

Company Overview

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Segment Breakdown of Respondents

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Company Overview

When asked about the legal form of their business entity, more than 50% of all executive respondents indicated that their company was organized as an S Corporation.

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Union vs. Non-union. 68% of the companies with revenue < $100M indicated that they were currently a union contractor, but 23% of them reported that they are considering migrating toward non-union work. Similarly, 88% the companies with revenue > $100M indicated that they were currently a union contractor, with 33% reporting that they are considering migrating toward non-union work.

Business Strategy. Although the economy is continuing to improve and the number of construction projects are increasing, many companies in the New York Metro Area are still focusing on developing a business model that differentiates them from their competitors and helps them to become more efficient and productive. This is evidenced by the following chart (supplied on the next page), which indicates that more than 20% of the responding companies have implemented (or are working to implement) business strategies that focus on expanding their business offerings (33%)

11


and geographical reach (23%). Additionally, 19% of the respondents reported their implementation of Lean Construction Principles as well as their consideration of acquisitions in the next six months. Surprisingly, 31% of the respondents indicated that they will not be implementing any new strategies in the near future.

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Company Overview

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Company Overview

When asked about joint ventures (JV), companies with revenue < $100M responded that their participation in JV activity is driven primarily by bonding requirements (47%) and Disadvantaged, Minority and/or Woman owned Business Enterprise (D/M/WBE) goals (32%). However, the primary reasons driving JV activity amongst companies with revenue > $100M are lack of in-house capabilities/skill set (60%) and need for local relationships at project location (60%).

Geographical Focus. More than 60% of the responding firms reported that more than 50% of their work performed is within New York City. Although a majority of the work performed by the responding companies does take place throughout the tri-state area, 26% of the companies indicated that more than 50% of the work they perform is outside the tri-state area. Surprisingly, 91% of the respondents reported that none of the work they perform is international.

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International

Geographical Breakdown of Work Performed

0% 1 - 25% 26 - 50% 51 - 75% 76 - 100%

13


Financial Overview

Financial Officer. The majority of respondents noted that they have a CFO as their highest-ranking financial professional. However, as seen by the chart below, the highest level of professional with financial responsibilities varies amongst companies within the industry.

Position % of Survey Respondents Avg. Salary

CFO 35% $181,000 Controller 35% $122,000 Director/VP of Finance 8% $156,500President/CEO 6% $240,000Bookkeeper 6% $82,000 Other 10% $148,000

Gross Margin and Expenses. 51% of the executives from companies with < $100M in revenue and 67% of the executives from companies with > $100M in revenue indicated that their 2013 gross margins were higher than margins in 2012.

With regards to Selling, General and Administrative (SG&A) Expenses, more than 46% of the executives from companies with < $100M in revenue reported that their SG&A expenses were 11% or more of their total revenue. However, only 11% of the executives from companies with > $100M in revenue reported the same thing, as 33% reported that their SG&A expenses were between 0% and 5% of their total revenue.

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Higher than 2012 Lower than 2012 Same as 2012

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SG&A Expenses (As % of Revenue)

$100M in Revenue

14


Financial Overview

Financial Tools. With regards to which financial management tools the executives utilize to manage their businesses, the survey revealed that:

40% of the respondents utilize annual tax projections

More than 50% of the respondents utilize: Monthly operations budget Monthly operations forecasts Monthly cash flow projection Internally prepared financial statement

64% of the respondents utilize monthly internal job/WIP (Work in Progress) contract schedules

75% of the respondents utilize annual audited/reviewed financial statements

The least popular financial management tool used amongst the respondents was the management dashboard, which gives a company a graphical snapshot of real-time data and trends. 44% of the responding executives indicated that they dont use dashboards. Of those that do utilize dashboards, they tend to do so on a daily and monthly basis. When asked which financial tools are the most important in helping run their businesses, the executives responded that internal job/WIP contract schedules and internally prepared financial statements were the two most significant followed by operations forecasts and cash flow projections.

Tax Benefits and Incentives. There are a significant number of federal and state tax credits available to construction companies, therefore the following responses are surprising as these credits can result in tax savings and ultimately increase working capital for the responding companies.

50% reported taking advantage of the Section 179/Bonus depreciation provision elections 8% reported taking advantage of the Cost Segregation Incentives 4% reported taking advantage of Code 460 Costing 31% reported that they follow look back requirements 17% reported taking advantage of the Domestic Production Activities Deduction (DPAD) 8% reported taking advantage Research and Development (R&D) credits 31% do not take advantage of any of the above listed tax incentives

Taking advantage of just one of these tax credit opportunities could translate into thousands of dollars in tax savings.

Financing and Credit. 77% of the executives stated that their current cash flow was their primary source for financing their business operations. With regards to credit, the majority of the executives surveyed did not report any changes in their available lines of credit from the previous year. In fact, 53% indicated that their companys maximum available line of credit was equal to the previous year.

Accompanying Chart Supplied on Next Page

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Financial Overview

When asked if their company was currently drawing against its line of credit, 44% of the executives from companies with < $100M in revenue responded that they were not drawing against their line, while 42% responded that they were. However, 67% of the executives from companies with > $100M in revenue responded that they were not drawing against their line compared to 11% that are.

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Equal to last year Higher than last year Lower than last year Don't have a line ofcredit

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Financial Overview

Financial Statement Assurance. 60% of the companies that participated in the survey are required by their Sureties to have a financial statement audit. A financial statement audit is also required by banks for 52% of the participating companies. These numbers reflect the higher level of scrutiny that has resulted from the recession. This increased level of assurance appears to be industry-wide regardless of the size of the company as both companies with < $100M in revenue and companies with > $100M in revenue recorded similar responses regarding the assurance requirements they have been asked to comply with.

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Bonding

44% reported that 0% of their work is bonded. In contrast, 23% reported that 51 - 100% of their work is bonded. When broken down by company size, 54% of the companies with revenue < $100M reported that 0% of their work was bonded, while 67% of the companies with revenue > $100M reported that at least 1 - 25% of their work was bonded. A majority (63%) of companies in both revenue categories indicated that their level of bonded work has remained the same over last year.

When asked what percentage of their bonding line has been utilized, the responses reflect that 62% of the companies are only utilizing 25% or less of their bonding program.

0%18%

1 25%44%

26 50%18%

51 75%14%

76 100%6%

% of Bonding Program Utilized

76% of the executives surveyed reported that their bonding companies require audited or reviewed financials on an annual basis and 53% reported that they are required to provide audited or reviewed financials on a semi-annual basis as well. 51% also indicated that they are required to provide quarterly or semi-annual internal financial statements and 57% indicated that they are required to provide contract/WIP schedules to their bonding agents on a quarterly or semi-annual basis.

0%44%

1 25%16%

26 50%17%

51 75%8%

76 100%15%

Percentage of Work Bonded

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27% of the participating companies reported 80 - 100% of their bids are for public sector projects and 40% reported that 80 - 100% of their bids are for private sector projects.

67% of the executives noted that the average number of competitors bidding against them on private sector projects is between two and five, which represents an increase as more than half of the respondents (55%) indicated that the number of competitors bidding in this sector has increased over the last twelve months. With regards to public sector projects, 62% noted that the average number of competitors bidding is between six and ten, which also represents an increase as 47% of the respondents indicated that the number of competitors bidding in this sector has increased over the last twelve months.

Bidding

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Backlog

70% of the executives from companies with revenue < $100M reported having a backlog of twelve months or less, while 67% of the executives from companies with revenue > $100M reported having backlog of at least more than one year (11% reported having a backlog that is greater than two years).

1 - 5 months11%

6 - 12 months22%

>1 year56%

> 2 years11%

Months of Backlog (Companies with Revenue >$100M)

1 - 5 months30%

6 - 12 months41%

>1 year25%

> 2 years4%

Months of Backlog (Companies with Revenue $100M responded that it does..

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Claims

The survey results indicate an increase in claims against project owners and subcontractors from 2012 to 2013, while claims against general contractors remained relatively consistent over the past two years. However, 48% of the participating companies indicated that they did not encounter any claims in 2012 or 2013.

With regards to the agencies associated with their claims, 18% of the companies with revenue of < $100M reported claims associated with the School Construction Authority, while 29% of the companies with revenue of > $100M reported claims associated with the Dormitory Authority of the State of NY.

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D/M/WBE compliance continues to be a challenge for many companies. As such, the survey asked the executives to identify the most difficult challenges they face on public contracts that require DBE or M/WBE compliance. The results identified the following, which are consistent with the responses to the 2012 survey:

D/M/WBE

Level of Difficulty Challenge

1 Most DifficultOutreach/How to determine which D/MWBEs are available to perform the types of contracts you need

2 Good Faith Effort Procedures3 Satisfactory Job Completion4 Least Difficult Record Keeping

When a similar question was asked of the D/M/WBE companies, the most difficult challenges identified were payments, reporting and the visibility of projects which require compliance. The executives from these organizations also reported that agency outreach events are their primary source from which they find new opportunities.

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Technology

100% of the executives indicated their Information Technology (IT) budgets to be 0 - 20% of their gross revenues. With regards to Enterprise Resource Planning (ERP)/Business Management software used in the industry, half of the participating companies reported using Sage 300 (formerly Timberline).

44% of the executives surveyed reported that they use Excel as their primary software for estimating, followed by Sage Estimating (15%).

Mobile Devices. When asked if their companies currently use mobile devices to access their systems, 51% of the executives from companies with < $100M in revenue and 67% of the executives from companies with > $100M in revenue, responded yes. However, only 33% of the participating companies reported using a Mobile Device Manager (MDM). Of this 33%, the majority (54%) use Symantec.

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Excel Accubid SageEstimating

ConQuest Onscreen HCSS Maxwell Hard Dollar Other

Estimating Software

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Technology

Data Security and Technology Investments. The majority of the participating companies (61%) reported that they do have security control measures in place for all systems. However, 27% indicated that they do not have security controls in place for all systems being utilized. Additionally, 12% of the companies (all with < $100M in revenue) reported having no security controls in place.

More than 25% of the executive respondents reported that their companies were looking to invest in construction field technology (i.e. jobsite technologies, fleet management, GPS, mobile devices), cloud based technologies and estimating software. Although most companies are considering making IT investments, 63% are not planning on implementing staff provisions/training relative to these new investments.

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Social Media

43% of the participating companies reported that they use Social Media to brand, share or obtain news and other business-related information. Among those companies, most engage social media as a business tool on a weekly basis and utilize LinkedIn (47%), Facebook (47%) and Twitter (25%) more than other networks.

With regards to employee restrictions and social media, 41% of the participating companies indicated that all employees do not have access to their companys Social Media networking tools. Additionally, 53% reported that they do not have an employee that is dedicated to maintaining social media on behalf of the company and 39% reported that they do not have governance policies in place to mitigate the risks associated with the use of these tools.

Yes43%

No57%

Social Media

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Human Resources

Personnel. The majority of respondents have involuntary (70%) and voluntary (73%) employee turnover rates of 5% or less; however, 20% did report a voluntary turnover rate of 6 - 10% and 24% reported an involuntary turnover rate of 6 - 10%.

Regarding hiring new employees, a majority of the companies reported that they are hiring at the Project Management level (65%) as well as the Labor/Craft worker level (53%).

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Human Resources

Compensation and Benefits. Although there have been signs that the economic and employment facets of the industry are improving, the average raises for 2013 were less than 5% for a majority (62%) of the participating companies. In fact, 21% indicated that they did not give raises in 2013. Additionally, the expected average percentage increase for 2014 was reported to be less than 5% by almost three quarters (72%) of the respondents, while 17% reported that they do not expect to give any raises in 2014.

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The distribution of bonuses was slightly more positive than the salary increases in 2013, as 42% of the participating companies reported giving bonuses of 5% or greater.

< 5%45%

5 10%34%

> 10%8%

Bonuses were not given

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Bonuses Distributed in 2013

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Human Resource (HR) Programs. When asked about human resource (HR) programs and other employee benefits, the executives responded that they have implemented a variety of programs in this area. As per the following chart, 68% of the participating companies have implemented a 401K matching/profit sharing plan for their employees, while 40% implemented incentive compensation programs and 30% implemented pension plans.

Human Resources

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Human Resources

With the Affordable Care Act (ACA) resulting in a great deal of concern and unanswered questions, the participating executives reported that they expect the biggest impact of this regulation on their businesses to be increases in healthcare costs (68%); however, 26% dont believe there businesses will be impacted at all by the ACA.

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Insurance

A majority of the executives surveyed indicated that their companys expected increases in general and workers compensation insurance levels are between 1% and 10% for their upcoming renewal period.

81% of the participating companies reported that insurance has not dictated their project pipeline geographically. Of the 19% whose project pipeline was dictated by insurance, 73% reported that a small percentage (20% or less)of their pipeline is outside of the New York region as a result.

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The Future

Growth Projections. A majority of the executives (70%) expect the outlook for the 2014 Construction Market to be better than it was in 2013.

Similarly, 77% of the executives expect that their revenues will increase for 2014 as compared to 2013; however, less than half (47%) expect that their gross margin percentages will increase in comparison to 2013.

Better than 201370%

Worse than 201313%

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Outlook for 2014 Construction Market

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Although a significant number of the responses to the questions asked throughout the survey indicate that the Construction Market continues to improve along with the economy, there are still a number of challenges within the industry that are a cause for concern for most industry executives. In fact, more than 60% of the executives surveyed indicated that the top challenges facing the industry include timely collection of receivables (70%), increased competition (64%), shrinking margins (64%) and increased cost of labor (61%).

The Future

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34


Trends We See

MARKET IS IMPROVING BUT NOT FULLY RECOVEREDAs evidenced by this report, there have been improvements in the local Construction Market and a majority of industry executives anticipate a better market outlook in 2014 than they did a year ago; however, not all executives are convinced. The study indicates that while a majority of companies are expected to see revenue increases in revenue in 2014, 25% of the companies with > $100M in revenue and 16% of the companies with < $100M in revenue expect to see a decrease in revenue in 2014.

Additionally, many executives are faced with more challenges than ever, including shrinking margins, increased cost of labor and increased competition. These challenges contribute to the moderate level of optimism regarding growth in the coming year.

CONSTRUCTION COMPANIES ARE NOT PROPERLY PREPARED FOR GROWTHAlthough many industry executives are optimistic about future growth, many of the responses did not indicate that these companies are properly planning for this growth. As indicated on page 14 of this report, only 50% of the respondents are utilizing monthly reporting and only 40% are focusing on tax planning. These procedures must be incorporated into any plan for a company in growth mode. Contractors need to know where they stand financially on a regular basis. Also on page 14, not enough companies are taking advantage of tax benefits and incentives. Contractors in a growth mode are forgoing significant benefits and savings if they dont focus on the incentives.

As companies grow, the need for more information becomes essential. As such, companies need to focus more on technology while in growth mode. As indicated on page 22, this is not the case for most participating contractors. Without the correct IT budget and programs in place, companies will fail if their revenue increases.

Moreover, as displayed on page 11, many of the respondents indicated they had no new strategies, which indicates that many companies are not taking a holistic view at growth or preparing their companies to sustain growth in todays market.

NEW YORK REGIONAL COMPANIES ARE MISSING OUT ON INTERNATIONAL OPPORTUNITIES91% of the survey respondents reporting that none of their work is being performed internationally leads one to ask if local firms are missing out on global opportunities. This inability to capitalize on the infrastructure boom in international markets may be due to local companies lack of talent and capacity to perform the work overseas.

It has been observed that many international companies are hiring more US talent, thus making it a challenge for local companies to compete. Based on the results of the survey, most local firms are focusing their hiring efforts on the project management level in 2014. As such, it is recommended that companies hire strategically to meet the needs of the international markets in order to achieve strategic goals related to their of expanding geographical reach.

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Trends We See

MIGRATION TO NON-UNION IS BECOMING MORE PREVALENT As noted on page 10, a relatively significant number of union contractors are beginning to migrate towards non-union work (24% overall). This is in-line with what experts are seeing in the market as the hold of the unions is slowly diminishing. For example, more established family-owned companies are developing new entities for the next generation. This strategy is ensuring the transfer of the industry expertise of the original company to the new company, without the tie to the union to restrict pursuit of non-union projects. These developments will likely lead to changes in how union contractors bid and compete for work, but also raises concerns with regards to the sustainability of the quality of the work delivered by non-union contractors.

Contractors that are entering the non-union arena must work closely with their consultants, accounting and legal, to ensure they are in compliance with all rules and regulations.

GOVERNMENT REGULATION AND SCRUTINY CATCHING LOCAL CONTRACTORS OFF GUARDAs regulatory scrutiny from the government continues to increase, construction companies need to ensure that they are prepared to properly comply with state and federal regulations. Based on the results of this survey, it can be surmised that local companies have not yet made the investments to ensure compliance. For instance, the expected hiring for 2014 focuses primarily on the project management and labor functions, which highlights that local companies are not looking to hire compliance executives to help manage, track and meet government restrictions.

Additionally, as more regulations come out, investments in technology are going to be essential to track a companys efforts to remain compliant. An example of this, is the fact that 27% of the respondents indicated that they do not have security controls in place for all systems. As data privacy becomes more of an issue in every industry, it is expected that government regulations and scrutiny in this area are going to increase. If this occurs, many local firms will not have the technology in place to ensure compliance.

Finally, as the study states on page 20, many contractors within the New York regional area still believe that D/M/WBE compliance is a challenge. Scrutiny in this area is still a priority for government agencies and as such, having the correct resources, both on the technology and personnel side, could be beneficial in complying with Good Faith Effort Procedures and other related regulations being enforced today.

HUMAN RESOURCE PROGRAMS TO RETAIN TALENTAlthough salary increases could be considered low and are expected to be on the same or lower level in 2014, local construction companies are implementing other HR programs to keep employees happy and retain talented personnel. For example, a majority of the participating companies reported implementing a 401K matching program, which is contrary to what is occurring in other industries. According to BenefitsPro.com, the number of companies matching their employees 401(k) contributions has dropped by 7% since 2009. Implementing a program like this is evidence of the Industrys efforts to remain competitive and attract talent.

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Trends We See

U.S. PRIVATE SECTOR IS LEADING SOURCE OF GROWTH FOR NEW YORK REGIONAL FIRMSAs stated in the report above, a majority of industry executives reported that more of their bids for work are within the private sector than the public sector. These results correlate to what was reported in Grassi & Co.s 2014 A&E Market Outlook Survey, which identified that the strongest revenue growth was expected in the commercial, residential and retail sectors and the weakest revenue growth was expected in the government and education sectors. Based on the responses from both surveys, it is likely that the U.S. private sector will be the leading source of growth in 2014.

MOBILE DEVICE MOVEMENT REQUIRES MORE ADMINISTRATIVE OVERSIGHT With 54% of all surveyed companies reporting their utilization of mobile devices, it is clear that the industry is beginning to adopt and benefit from this technology. Utilizing mobile technologies has now enables contractors to have instant access to documents and plans, assists contractors with job inspections and enables contractors to access workflow, scheduling estimating and other enterprise-wide systems directly from the field.

As the shift to mobile devices becomes even more prevalent, companies are going to have to reexamine their administrative and security oversight procedures regarding the use of these devices. Currently, only 33% of the companies that reported using mobile devices have implemented the use of a Mobile Device Manager (MDM). A MDM is a type of security software used by an IT department to monitor, manage and secure employees mobile devices that are deployed across multiple mobile service providers and across multiple mobile operating systems being used in the organization. It is expected that the implementation of MDM will increase over the next few years as increased security and governance with regards to the use of mobile devices will be essential in order to reduce a companys exposure to risk.

COMPANIES ARE LOOKING MORE TOWARDS CASH FLOW TO FINANCE THEIR OPERATIONS77% of the executives stated that their current cash flow is their primary source for financing their business operations, while only 17% of all respondents have looked to short or long-term financing to run their businesses. In fact, none of the companies surveyed that have > $100M in revenue reported using any outside source of financing. This trend to rely on jobs to fund operations rather than look to debt financing could be due to increased lending restrictions in the construction market and the economy in general.

Cash flow should always be an important function of a companys reporting process. As indicated above, proper technology and internal reporting is an integral component to allow companies to track cash flow. Companies need to incorporate these components of reporting into future plans and budgets.

SOFT SURETY/HARD INSURANCE MARKETSBased on the results of the survey, only 44% of respondents are utilizing up to 25% of their bonding programs, which has led to the softening of the surety market. This raises concerns regarding how project owners are protecting themselves from contractor default as well as whether contractors

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are properly insulating themselves from the potential risk of subcontractor failure to perform. However, the survey also indicates that the insurance market is still hard as most industry executives expect general liability and workers compensation premiums to continue to increase over the next year. As contractors look to grow and expand their geographical reach, limiting their exposure to risk, through proper insurance and bonding program utilization, is essential in order to successfully achieve these goals.

INCREASING EFFICIENCY TO IMPROVE THE BOTTOM LINEAs evidenced by this report, construction companies are increasing revenues and developing healthier project pipelines than they have in the previous few years. However, cost optimization is still a high priority in the industry, as many companies are continuing to identify areas where they can cut costs and become more efficient.

As noted on page 11 and 26, local construction companies are considering the implementation of Lean Construction Principles and are looking to hire at the Project Management level, which indicates that they are looking to looking to improve their management of the construction process to profitably deliver what their customers need. As more and more companies look to meet higher demands with fewer resources, the move towards Lean will help companies not only become more efficient and profitable, but will also provide them with a competitive advantage by eliminating waste and providing their customers with a higher quality product.

Trends We See

Bringing your goals within reach

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In order to ensure that the 2014 Construction Industry Market Outlook Survey addressed the most pertinent issues facing the Construction Industry and its executives, we enlisted the assistance of the following Advisory Board for their insights and recommendations.

Grassi & Co. would like to express a special thanks to all the participants on the Advisory Board for the help and advice they provided during the development of the survey.

Brett PhillipsChief Financial OfficerStructure Tone

Milo Riverso President & CEO STV Group, Inc.

Jeffrey CapazziOwnerThe Jobin Organization

Survey Advisory Board

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Grassi & Co. is one of the top 100 largest accounting firms in the U.S. and has considerable expertise, providing exceptional service and proactive advice to help construction and development companies run their businesses better. Our clients are served by a team of experts who work with construction organizations across the region and have industry-deep experience, which they leverage to ensure that the services we perform are being completed efficiently, accurately, and precisely.

Commitment to the Construction IndustryGrassi & Co.s Construction Practice is built around a team of experts who study the industry, building an unmatched knowledge base. By providing counsel to a cross-section of the industry, we are well equipped to bring best practices to our clients. We regularly interview industry leaders, sureties, bankers, attorneys and advisors across the industry to expand our base of knowledge and to develop innovative new ideas and services.

Grassi & Co.s commitment to the Construction Industry is unmatched. With more than 30 years serving this dynamic and challenging industry, we have established one of the largest Construction Practices in the country and provide professional services to more than 300 clients across all segments of the industry. Our team also studies the dynamics of the Construction Industry, gathering the necessary information to make positive business improvements for clients. We meet with dozens of influential individuals within the industry to learn about key points and developments impacting our clients. As a result, our depth of knowledge and experience allows us to keep our clients abreast of market dynamics and provide them with information on how market conditions can influence and impact their business decisions.

Industry Participation and Investment Grassi & Co. has made significant investments of time and resources in becoming leaders in the Construction Industry. We have partners who have served on boards and advisory panels of numerous industry trade organizations, including:

New York Building Congress (NYBC) Subcontractors Trade Association (STA) General Contractors Association (GCA) Construction Financial Management Association (CFMA) Associated General Contractors (AGC) Utility & Transportation Contractors Association Women Builders Council (WBC)

We are also members of Construction Industry CPAs/Consultants Association (CICPAC), a nationwide network of accomplished CPA firms specifically selected for their experience in and commitment to serving the Construction Industry. In addition to traditional accounting, auditing, and tax services, CICPAC members distinguish themselves by providing management and consulting services that meet the increasingly complex needs of construction and development companies.

Leaders in Serving the Construction Industry

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488 Madison AvenueNew York, NY 10022(212) 661-6166

50 Jericho Quadrangle, Suite 200Jericho, NY 11753

(516) 256-3500

www.grassicpas.com

ACCOUNTANTS & SUCCESS CONSULTANTS

2014 Construction Industry Market Outlook Survey Results

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