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Easier access to construction financing seen.

As economic conditions improve, construction contractors are finding credit easier to come by. According to an annual survey of financial managers in the construction industry, more than three-quarters (78 percent) said that their company's availability of credit improved over the past 12 months.

"The availability of credit, clearly a signal that the economy is easing out of recession, is a strong leading indicator of this industry and should translate into more work across the country," said Dale A. Wark, national president of the Construction Financial Management Association (CFMA), which conducted the survey titled Sixth Annual Construction Industry Financial Survey 1994 Edition.

The survey polled approximately 4,000 financial managers, including CFMA members and managers from the Engineering News Record's list of U.S. contractors with annual revenues greater than $1 million. Of the 915 survey participants, 88 percent provided detailed financial information and 61 percent participated in last year's survey.

This year's survey respondents were very optimistic about 1995. Nearly two-thirds (64 percent) of those surveyed said they expect an increase in next year's volume compared to 56 percent who indicated so last year and 47 percent who indicated so in 1992. As evidence of further optimism, more than half (54 percent) of the respondents indicated that their backlog was higher than it was 12 months ago, while only about one quarter (28 percent) said backlog had declined. This year's survey, which provides five-year comparison data from 1990 to 1994, also found the following:

Substance Abuse Testing: Spurred by escalating liability exposure, contractors have dramatically increased substance abuse testing over the past six years. In 1994, nearly two-thirds (63 percent) of those surveyed said that they test employees for substance abuse, while in 1989 (the first CFMA industry survey) less than one-quarter (22 percent) indicated that they had done so, nearly a three-fold rise.

Heightened Competition: Industry expansion has led to fears of increased competition. Nearly three-quarters (72 percent) of the respondents said they anticipate greater competition from new U.S. contractors entering their region and nearly two-thirds (6-4 percent) said they expect more competition from contractors already in their region but not now in their market. About one in six (16 percent) said that they fear foreign competition.

Dwindling Profits: Similar to last year's findings and despite respondents' optimism about the future, net income as a percentage of revenues, return on equity and composite gross margins all have fallen steadily since 1990. While the recession has been a major contributing factor, escalating competition has also severely dampened profitability.

Total Quality Management: To keep pace with the competition, and in response to client demands, many contractors are putting greater emphasis on quality. This year more than one-third (36 percent) of those surveyed said that they have implemented a quality management program, up only slightly from last year (35 percent) but up significantly from two years ago (23 percent).

Hospitalization Costs: The increase in health care costs seems to be abating. According to the survey, respondents said their hospitalization costs rose by 11 percent in 1994, a decline from last year, when respondents indicated that hospitalization costs had risen by 16 percent.

Industry Challenges: Insurance continues to be the most significant challenge facing contractors, cited by 73 percent of the respondents. Next most-cited concerns included sources for future work (45 percent) and litigation (37 percent), similar to last year's findings.

CFMA's Sixth Annual Construction Industry Financial Survey 1994 Edition was conducted by CFMA's Accounting and Financial Reporting Committee, with results and analysis prepared by KPMG Peat Marwick. Copies of the survey can be ordered through CFMA Headquarters, 707 State Road, Suite 223, Princeton, New Jersey 08540 or by calling (609) 683-5000.

The Construction Financial Management Association is the only non-profit organization dedicated to serving the financial professional in the construction industry. Established in 1981, CFMA's general members represent all types of contractors - including general and subcontractors - as well as developers, construction managers, architects, engineers and principals. Currently, CFMA has approximately 5,600 members and 74 chapters across the United States.
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Copyright 1994, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Architecture & Construction: Real Estate Weekly Supplement
Publication:Real Estate Weekly
Date:Dec 7, 1994
Previous Article:Improving wasted assets; keeping profits in the family.
Next Article:Identifying construction issues before closing the deal.

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