Words from the Wise
Predictions and Advice from Some of the
Biggest Minds in the Utility Construction Industry
By Keith Gribbins and Leanne Butkovic
 A new year always signals a new round of opportunities, but to prosper in 2012 utility contractors will need to understand how the market has evolved — from big ideas about legislation and federal funding down to nuts-and-bolts advice on how to bill machine hours and clean air filters. To drive good business, pros need to recognize all those new forks in the road, and who better to map the twists and turns of the 2012 utility construction industry than the people who help drive it? So we asked some of utility construction’s finest minds to share their best insights and advice for 2012. What can we glean from their wise words? We’re still moving in the right direction.
Keith Gribbins is Managing Editor and Leanne Butkovic is Editorial Intern with Utility Contractor.
 Ryan Schmitt
2011-2012 NUCA Chairman of the Board, President of Petticoat-Schmitt Civil Contractors Inc.
2012 will require our voices to be heard loud and clear with active participation in the legislative process. In 2011, NUCA saw legislative victories such as the repeal of the 3 percent withholding tax and Obama Care’s 1099 provision, largely because there were just so many battles to fight. With an increasing anti-business sentiment coming from Washington, D.C., and unprecedented regulatory growth, it seems our legislative efforts are akin to a game of Whac-A-Mole. There are so many battles popping up everywhere it’s often discouraging to think we will ever have a chance to win the war. The script of the future of our country and the construction industry will be written before our eyes in 2012. The 2012 election and the winning candidate’s platform will determine our future for years to come. Will we be a country that inhibits our freedom to successfully engage in small business, or will our leadership establish a government that understands that businesses, such as NUCA members, drive the economy and build the infrastructure that makes successful economies thrive? Frankly, I’m tired of fighting onerous legislation just to protect our liberties as business owners and citizens. I’m ready to enact sound government that will be the foundation of future growth and economic freedom.
 Rich Lavin
Group President of Caterpillar Inc., the Biggest Maker of Earth Moving Equipment in the World
For our country, economy and businesses to be successful, we need a strong foundation. This can mean a lot of things — good tax structure, educated workforce, open markets — but as we look at the country, I mean foundation in a literal way. We need infrastructure and fast. We drive on crumbling roads. We wait at overcrowded airports. We see outdated bridges and ports. We cross our fingers when we talk about the power grids. Meanwhile, other countries around the world are developing their infrastructure at a rapid rate, outpacing the United States. Our roads, railways and bridges used to be second to none. And ready access to roads, rail, power, airports and telecommunications was a major reason U.S. business prospered. We can’t get left behind. It’s not enough for us to fund infrastructure on a project-by-project or year-to-year basis. We need to have a sound, long-term strategy. Let’s not kid ourselves — infrastructure development takes money. That’s why projects must be selected carefully. I strongly believe our nation’s infrastructure is significantly undercapitalized, but we can’t merely focus on spending more. Worthy and efficiently built infrastructure projects can do much more than stimulate the economy. If done right, these projects can have a positive and lasting impact on U.S. competitiveness.
 Mike Vorster
David H. Burrows Professor Emeritus at Virginia Tech and Partner at CEMPCentral Inc.
I am frequently involved in heated discussions about the hourly rate for a piece of equipment. This is understandable. You have made a major investment that will not last forever. You need to know what hourly rate to charge so that you will recover your direct costs, provide for depreciation and produce a return on your investment. The rate is the benchmark against which you compare your actual costs and measure the success of your operation. The rate calculation itself is not complex. In its simplest form, all you need to do is add up the cost of acquiring the machine, estimate how much it will cost to fuel it, maintain it and repair it through its life, deduct what you believe it will be worth when you sell it and divide this lifecycle cost by the hours you believe the machine will work. The skill is not in how you do the arithmetic. It is in how well you are able to make the required estimates. The real wild card is in the estimated life of the machine. An estimated life of 8,000 hours gives a rate that is very different from the one you get if you believe you will run the machine for 12,000 hours. The hourly cost depends on the life of the machine, and the life of the machine depends on the hourly cost. Cost and life are two sides of the same coin. You cannot manage one without managing the other.
 Khrysanne Kerr
VP of Communications and Program Development for the Common Ground Alliance
Go into 2012 with a new mindset — focus more on underground utility safety. Underground utility lines pose a serious, expensive and dangerous threat to excavators, entire jobsites and the communities if unintentionally damaged. Results from the Common Ground Alliance [CGA] DIRT Reports throughout the years have consistently shown that an underground utility line is damaged once every three minutes, and one out of every three damages is the result of not calling 811 before digging. The most recent edition of the DIRT Report also showed that when an excavator notifies a call center before digging, damage occurs less than 1 percent of the time. The report estimates the total number of damage could be reduced by 30 percent if all digging was preceded by a locate request. CGA has many free resources to educate industry professionals about safe digging, including a new safety video and a 2012 Communications Plan that are available for public use on the CGA website. Start the new year by thinking more about underground utility safety.
 Keith Reester
Public Works Director, Loveland, Colo., and President of the American Public Works Association of Colorado
The regulatory, legislative and economic environments will continue to lay a foundation of uncertainty in 2012. Over the last three years, contractors, vendors and utilities have struggled with understanding the new economic environment and the development of long-term strategic planning to underlie those market conditions. Utilities and governments have spent dollars that were pipelined to them through the stimulus bills, but an underpinning of significant need, especially in capital maintenance, still overlays nearly every utility in the nation. Owners are faced with already angry rate payers, and confronted with asking for more fees in these lean times capital maintenance continues to get deferred. Those owners that are investing are faced with a skittish contractor and vendor market. Although industry losses have stabilized, anxiety is still widespread and contractors backlogs are still short at best. In 2012 we need legislative action to firmly end political wrangling over a renewal of SAFETEA-LU to move infrastructure planning forward, action to end 24 consecutive stop-gap funding bills for airport investment and the FAA, and finally a firm commitment to understanding the ballooning forecasted need in water and wastewater infrastructure across the nation. Additionally, Congress and states should consider acting on the recommendations of a 2006 Congressional bi-partisan legislative task force that created recommendations to streamline and improve the NEPA process, saving millions of dollars and speeding projects to construction.
 Goran Lindgren
President of Volvo Construction Equipment Americas
Some decisions can easily be put off. Others, however, require more immediate attention.Unfortunately, our legislators are treating the decision to extend the Highways Bill as the former type, when the construction industry — and country as a whole — clearly recognizes the urgency of making a decision. The construction industry supports a long-term extension of the bill, thereby ensuring the continued maintenance and repair of our nation’s roadways. But the current delay, postponement and ensuing uncertainty are putting the brakes on all sorts of investment decisions in the industry. This paralysis particularly impacts highway contractors who don’t know which way to jump when it comes to replacing or expanding their fleets. You need to be reasonably confident of what the future holds before committing thousands of dollars on new equipment purchases. Of course, as a manufacturer of construction equipment we have a vested interest in creating such confidence, but even an impartial assessment would surely conclude that improving America’s dilapidated infrastructure would be a boon not just for the construction industry, but for the world’s largest economy itself. The best way to begin kick-starting our economy is to put some gas in the tank of the construction industry.
 Mary Andringa
CEO of Vermeer Corporation and Chair of the National Association of Manufacturers
For 2012, emphasis on manufacturing will be key. Manufacturing has the greatest leverage of any industry to stimulate growth. For every dollar that’s produced by a manufacturer, it spins off another $1.40 in goods and services. As a manufacturer and as Chair of the National Association of Manufacturers, I believe there are four core areas that are of the utmost importance for strong U.S. economic growth. First, we need to be the best place in the world to manufacture. That means we need to have the right energy policy. We need to have the right tax structure. We need to invest in infrastructure, and we need to have common sense legal reform. We also need to have health care costs that are reasonable. Second, we need to work at expanding global markets to enable us to reach out to the 95 percent of consumers that are outside of the United States and the 87 percent of growth that is happening in the world outside of the United States. Third, we need to be a country that has a great skilled work force. And that is also something that we need to reinforce — science and technology and engineering and math — in our schools. And fourth, we want to make sure that the United States continues to be a great place to innovate and bring on new ideas and new solutions for the future. That has to do with R&D tax credits and recognizing the importance of intellectual property for the United States and innovation success.
 Brad Murphy
Executive VP and COO of Subaru Industrial Power Products
Regardless of the economy or market conditions, contractors need to be concerned with the reliability, durability and longevity of their equipment. All of it begins with the engine. Equipment requires high-quality engines, or you risk a machine that costs too much time on maintenance, too much money on repairs, or worst of all, it fails when you need it. In that case, you’re looking at downtime, which is the biggest waste of time, money and efficiency for a company. Dust, dirt and debris come in much higher amounts in underground applications than a typical jobsite, so the air cleaner is the first component to note. It should be designed for the environment; a low quality or even standard air cleaner won’t cut it. At Subaru, we’ve worked with an OEM that manufactures a trencher, and together we put in a special cyclone pre-cleaner system. This enables the engine to handle all the extra debris better. Also, there’s a lot of focus on Tier 4 right now, but there’s a new regulation going into effect for smaller gas engines everyone should know. As of January 1, Tier 3 EPA is taking effect, which affects Class 1 engines fewer than 225 cc and is in regards to evaporative emissions controls. We’re incorporating a modern design that allows our engines to easily meet the exhaust standard.
 Ronnie Lewis
President of Lewis Contractors with 40 Years of Underground Utility Work
Spring 2012 will mark 40 years since I subcontracted my first water line project. What I have learned from 40 years in the utility construction business? You have to be prepared to grow when the market dictates, but more importantly, you have to downsize when the market goes the other way. When the times are tough, we do just enough work to hang on to our core employees so we can rebuild when the time is right. It’s a real balancing act. I believe it’s time to move on with the rebuilding of our nation’s highways and public utilities. We sit by and watch Washington play politics with our safety and welfare, while our roads, bridges, water and wastewater systems fall more and more into a state of disrepair. Until we get rid of career politicians and this country is led by men and women wanting to truly serve and see good done, we will never see any real change take place. We need a government that is building new infrastructure projects and, just as importantly, repairing the ones that are already in place. We need this to happen to protect the investments made in this country for the last two-and-a-half centuries and to put people to work. Hopefully on future projects,the federal government will not be in panic mode and can fund projects that are really designed properly and truly shovel-ready.
 Brian Moore
Principal with FMI, Consultants to the Construction Industry
There are signs that businesses are investing again rather than hiding out until the economy blows over or blows up. FMI’s forecast for 2012 calls for a 6 percent increase over 2011 construction levels. The largest increase will be in the residential sector. There has traditionally been a link between residential and nonresidential construction. As residential construction increases, so does the construction of utilities, roads and infrastructure. According to FMI’s NRCI panel [Nonresidential Construction Index, Q3, 2011], views on the effect of the housing on nonresidential construction were mixed, with 23 percent believing the link is broken, 37 percent believing the link has weakened and only 32 percent believing the link is still strong. As growth in new housing developments remains slow, it is intuitive that demand for some forms of nonresidential construction will remain slow. However, factors such as new technology and a deteriorating infrastructure are driving demand in specific nonresidential construction markets. Power construction is leading the nonresidential growth trend. Put-in-place numbers for 2011 are estimated at $89.7 billion, or 7 percent more than 2010, with another 5 percent increase in 2012. This is due to continued demand for traditional power sources, as well as sustainable energy like solar and wind power. Water supply, as well as sewer and waste disposal, also shows a steady growth trend as the housing market slowly rebounds.
 Jim Hasler
Vice President of CNH Construction North America
We encourage Congress to start 2012 by passing comprehensive, long-term legislation to rebuild and expand the nation’s public infrastructure, including roads, bridges, rail, ports, public utilities and other vital elements. House Transportation and Infrastructure Committee Chairman John Mica [R-Fla.] recently announced that the House would not move on a long-term surface transportation bill until early 2012. The current short-term extension of federal transportation programs expires in March 2012. The construction industry contributes substantially to the U.S. economy and impacts the economy of every state. Research conducted by the Association of Equipment Manufacturers shows that investment in the nation’s highways, bridges, water and transit infrastructure creates 18,000 jobs for every $1 billion spent. Today, America spends just 2 percent of GDP on infrastructure, while European nations spend an average of 5 percent, and China spends 9 percent. America has an infrastructure gap compared to countries with which we compete for global business, global companies and global success. Long-term infrastructure funding is one of the most crucial issues impacting our nation’s future. A comprehensive infrastructure strategy will bring needed clarity and confidence to the market.
 Kevin Smith
Director of Product Definition and Research at Ditch Witch
Roughly 25 percent of our new product design resources have been dedicated to the implementation of engines compliant with new emissions regulations since they started. The downside to the contractor is that the changes required to meet the new regulations are not providing them advancements to help them perform their jobs. They’re also going to see significant cost increases in equipment moving into Tier 4 and Tier 4i compliant engines. Depending on the power level, size and complexity of the given piece of machinery, buyers should expect price increases throughout the industry. We expect to see a mix of some contractors purchasing equipment “early” to avoid Tier 4i, but also believe some contractors will be required to wait for Tier 4 or Tier 4i in the highly regulated areas. The technology utilized to meet Tier 4 and Tier 4i is dictated by the engine suppliers and so you will see a mix of exhaust aftertreatment, cooled exhaust gas recirculation [EGR] and high pressure common rail [HPCR] fuel injection systems depending on the horsepower level.
 Mark Bridgers
Principal with Continuum Advisory Group, Consultants to the Construction Industry
The Mayan calendar abruptly ends on December 21, 2012. Is this the end of the world as we know it? No! There are lots of positives to talk about. And regardless of the Mayan calendar, we will exit 2012 intact. In 2012, we can look forward to the following:
- Slowly declining U.S. unemployment.
- Increasing competitiveness of U.S. exports due to a declining value of the dollar.
- The lowest borrowing and financing costs/interest rates we will ever see.
- Some aggressive owners accelerating capital construction activity into 2012-2013 to get ahead of labor, material and borrowing cost inflation anticipated to accelerate beyond 2013.
- Increasing capital construction spending in all utility sectors in 2012-2013 due primarily to a combination of regulatory and environmental compliance, deferred maintenance and aging infrastructure.
- Very low general inflation (although higher inflation rates on food, energy and construction commodities) for all of 2012.
- Stable natural gas prices and abundance of domestic gas supply.
A convergence of power, water and sewer infrastructure integrated through communication technology will be one solution to the U.S. economic competitive advantage and create construction work in 2012 and beyond for innovative contractors capable of serving two or more of these sectors.
An America that retains its dominant position globally due to our richness of hard-to-replicate resources including: a large, healthy, long-lived and well-educated population on average; the largest combination of arable land and fresh water access on the globe; unmatched global combination of natural gas, coal and oil production and bio-fuel potential; superior global performance in electric energy, wind power and geothermal power production and solar power potential.
The shale oil and gas finds in the United States are going to transform the U.S. energy and process manufacturing landscape in ways that are hard to envision. Several potential outcomes include: U.S. exportation of liquefied natural gas [LNG]; a domestic steel pipeline manufacturing resurgence to supply needed pipeline construction materials locally in Ohio and Pennsylvania; a domestic plastic pipeline manufacturing resurgence to supply needed pipeline construction materials across the United States; a refinery and chemical processing facility resurgence in Pennsylvania, Ohio, Texas, Louisiana and Oklahoma to crack the rich finds of natural gas liquids [NGL] associated with shale gas; a surge of high paying exploration, production, engineering, construction and manufacturing jobs in North Dakota, Colorado, Pennsylvania, Ohio, Texas, Louisiana and Oklahoma, all of which are going to create dramatic growth in construction spending.
I close with the following thought: There is room for significant optimism in 2012 and beyond founded on my belief that “American Exceptionalism” is alive and well. |
