Declining bid prices coupled with rises in equipment and fuel costs just don’t stack up.
To preempt any criticism, let me completely up-front here. I am not a demolition contractor and never have been; I have never done the estimating on a demolition contract; and I have never submitted a tender bid for any form of demolition contract.
However, I do consider myself a businessman and an entrepreneur. And I do own a fully-functioning calculator. All of which, I hope, allows me to comment upon the dire financial status of the global demolition business and the US demolition business in particular.
In recent months, we have reported endlessly and with a growing sense of foreboding on the erosion of profit margins among US demolition contractors. We have reported on low bids, out-of-state bids, bids by non-demolition professionals. In fact, we have reported it that often that I recently set my computer keyboard to autopilot and no-one even noticed.
So when we received news from Columbiana County of another round of below-expectation bids for the demolition of a series of dilapidated houses, the first temptation was to drop the information into a file we’ve marked “same old, same old”.
But what made this particular item stand out was its timing.
News that a dozen bids had come in more than 20% below what city officials had anticipated coincided almost perfectly with the arrival of another, separate email reporting that Caterpillar was planning an across-the-board 2% price hike for 2010. The US has recently seen further rises in fuel costs, and there are no signs of insurance companies charging to the industry’s rescue with heavily slashed premiums.
Now I am sure some of you are mentally preparing an email response or comment saying that city officials know nothing about pricing and that I know even less. But hold on.
There can be little doubt that demolition work is more scarce, bid prices are lower and profit margins thinner now than they were 12, 18 and 24 months ago. Ironically, construction equipment sales could say much the same. Let us not forget that Caterpillar was forced to announce 20,000 lay-offs around the world to fend off the impact of the recession.
But that, sadly, is where the similarity ends.
While Caterpillar – no doubt buoyed by the gradual release of stimulus package funding – has sensed an upturn in the air and has planned to raise its prices accordingly, demolition contractors remain locked in their race to the bottom.
Ironically, all of this news coincided with a report by CNBC encouraging more realistic bidding on stimulus package contracts to protect existing and create new jobs, and to restore some public and consumer confidence.
But the facts are simple, even for a non-demolition type like myself.
If you’re working less and making less while paying more for equipment, fuel, insurance and wages, something’s gotta give.
You do the math!
