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Financial Valuation: Applications and Models, + Website, 3rd Edition by James R. Hitchner

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Chapter 26

Special Industry Valuations

A: CONSTRUCTION

Introduction

Construction contractors range from small, sole proprietorships to large, publicly traded, multibillion-dollar corporations. However, the vast majority are small entities. According to the Bureau of Labor Statistics, about 80 percent of construction companies employ fewer than ten people.1 IRS statistics indicate that approximately 75 percent of construction contractors are sole proprietorships, approximately 5 percent are partnerships, and approximately 20 percent are corporations.2

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The U.S. market for construction contractors is approximately $500 billion. About 6,000 firms have revenues exceeding $10 million, just over 100 firms have revenues exceeding $500 million, and only a handful of firms have revenues in the billions of dollars.

Types of Contractors

Construction contractors are generally separated into two categories: general contractors and subcontractors. General contractors are engaged by property owners and developers to coordinate and oversee construction projects. They hire subcontractors to perform the specialized tasks required for the project. More and more general contractors are engaging in design/build and construction management services. Design/build services are when the construction contractor not only coordinates the construction process but also oversees the design of the structures ...

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