The growing disparity between large and small contractors is becoming more evident as larger firms report an increase in backlogs, while smaller firms face a slowdown, according to a survey by Associated Builders and Contractors (ABC).

Construction backlog dropped to 8.3 months in February, reflecting a decrease of about 1% compared to January, based on ABC's survey conducted between February 20 and March 5. The decline in backlog was particularly noticeable among contractors with less than $100 million in annual revenue, while firms exceeding $100 million in sales saw an increase in work booked, softening the overall decline.

Despite the decrease in backlog, contractor confidence remained steady in February, although expectations for profit margins declined, and sales projections stayed level, according to the ABC survey.

The reduction in backlog reveals a widening gap between large and small construction companies, the report notes. Larger firms, particularly those with annual revenues exceeding $100 million, have expanded their project pipelines. Executives from public construction firms have largely shrugged off concerns about tariffs and policy changes, citing strong demand for large-scale infrastructure projects, data centers, and energy developments.

In contrast, smaller firms are struggling with a decline in backlog, which presents challenges for their operations. However, industry experts still anticipate a rebound in business conditions later this year.

“While many other economic sentiment readings have deteriorated in recent months, contractors remain optimistic that business conditions will improve through the first half of 2025,” said Anirban Basu, ABC’s chief economist, in the report.

Despite the downturn in backlog, hiring expectations for contractors rose in February. Nearly 60% of contractors indicated plans to increase staffing over the next six months, marking the highest level of hiring intent for contractors in over two years, according to ABC.

“These hiring expectations suggest that the recent slowdown in industrywide employment is largely confined to the residential segment,” Basu noted. “Yes, there are some broader signs of emerging economic weakness, but the results of this ABC member survey suggest that contractors will remain busy over the next few quarters.”

While smaller firms grapple with a decrease in backlog, larger companies continue to benefit from a growing pipeline of projects. This divide is a clear reflection of how the market is responding to the ongoing demand for large infrastructure projects and a continued surge in energy and data center development.

The rise in staffing plans also points to a more optimistic outlook for the construction industry, as companies appear ready to adjust to evolving market conditions despite challenges posed by the global economy and construction slowdowns in certain segments.

As the construction sector anticipates future growth, the demand for skilled labor, particularly for major infrastructure and energy projects, may drive hiring even further, ensuring that larger companies continue to fill their backlogs while smaller firms work to recover.

Looking Ahead

‍Industry insiders are optimistic about the future, particularly in sectors related to public infrastructure and commercial development. The sustained interest in large-scale projects, along with the anticipated hiring boost, suggests that the industry is preparing for a resurgence in 2025. However, the path forward will likely continue to favor large firms, further complicating the recovery for smaller contractors who are still dealing with declining backlogs and shrinking margins.

“Larger firms continue to benefit from market conditions, but smaller firms face greater challenges in maintaining momentum,” said Basu. “Overall, we anticipate growth, but it will take time for smaller contractors to regain their footing.”

Originally reported by Sebastian Obando in Construction Dive.