Hard Times

Sep 20, 2011 5:47 PM, Beck Ireland, Staff Writer

EC&M unveils its 2011 top 50 contractors list

Fig. 1. Almost two-thirds of the Top 50 firms described the 2010 business climate as "fair," yet none characterized it as "strong."

As the broader U.S. economy showed signs of a slow recovery in 2010, the total revenue for electrical and datacom services reported by the firms on this year’s Top 50 electrical contractors list took yet another hit from the ongoing recession in the construction industry. Last year, the top players in electrical construction weathered the third year of stalled and cancelled spending on new projects in both the private and public sectors, depending on solid working relationships with past clients and innovations in lean construction practices to keep crews busy in the field and profits up.

Together, the firms on the 2011 Top 50 electrical contractors list earned $11.9 billion in total revenue for electrical and datacom services, a 6.3% drop from the $12.7 billion reported for 2009 (see The Top 50 Electrical Contractors). The 41 firms included on last year’s Top 50 list were almost evenly split between an increase and decrease in revenue. Nineteen generated a year-over-year increase in revenue, whereas 21 experienced a decrease, and one held steady. Overall, the 41 firms balanced each other out for an average year-over-year decrease of less than 1%.

Fig. 2. A quarter of survey respondents did not meet their sales goal for 2010.

Surprisingly, nine firms were able to secure an increase of more than 20%, with Pittsburgh-based Wellington Power Corp. (No. 19), moving up 16 spots, and Lenexa, Kan.-based Wachter Electric Co. (No. 28), moving up nine spaces, both garnering jumps in revenue for electrical and datacom services of more than 60%. However, nine firms amassed a drop in revenue of more than 20%, led by Houston-based Fisk Corp. (No. 11), losing five spots with a decrease in revenue of 49.3%; Baltimore-based Gill-Simpson, Inc. (No. 43), falling 14 spots with a 35.3% decrease; Fenton, Mo.-based Sachs Electric Co. (No. 24), dropping 10 spots with a 32.7% decline; and Houston-based Integrated Electrical Services, Inc. (No. 5), slipping three spots with a 30.8% decrease.

(click here to see Top 50 Table)

Fair game

Fig. 3. More than half survey respondents expect to meet their sales goal in 2011.

Although none of the firms on this year’s Top 50 electrical contractors list described the 2010 business climate as “strong,” almost two-thirds of respondents characterized it as “fair” (Fig. 1). Market and geographic diversification was the key to a better business climate last year, according to John Curcio, chief commercial officer of San Jose, Calif.-based Cupertino Electric, Inc. (No. 10), which moved up two spots on this year’s list with a 10.8% increase in revenue. “The sectors that we serve, and even geographically where we serve, are pretty diverse,” says Curcio. “As one comes down, one starts to pick up somewhere else. Each one of these markets goes through different changes as the world changes.”

Although Cupertino Electric performs most of its work on the West Coast, in 2010, it was awarded a contract for a data center in Lockton, N.Y., by long-standing client Yahoo! “That’s not a normal market we would be in, but as we follow customers around, it gives us geographical diversity,” says Curcio. “Because we’re originally a Silicon Valley-based company, we’ve got a lot of relationships with high-tech companies, and they tend to migrate as their business climates change.”

Fig. 4. Many of the firms on the Top 50 list bid projects at a lower number in 2010.

Design-bid-build and design assist remained the top project delivery methods in 2010 (click here to see Table 1). However, in 2010, bidding projects was particularly competitive. For this reason, Seattle-based Cochran, Inc. (No. 31) also relied on established relationships with clients for part of its 12.7% increase in revenue. “On a lot of the standard electrical and technology projects that we work on, the competitive marketplace was such that where we would have seen three or four bidders on projects, we were seeing up to 10 bidders,” says Colette Duck, marketing director for the firm. “We had hyper competition in our markets, and one of the ways we were able to combat that was to rely heavily on our established relationships with clients that don’t competitively bid work. We’ll follow our customers anywhere they want us.”

Health care remained the top market sector from which projects completed in 2010 made up the greatest dollar volume (click here to see Table 2) for the respondents. Notwithstanding a significant portion of its revenue in 2010 coming from this traditional market, Cochran began work in new market sectors and provided new services to its clients that year. “Health care is probably the strongest market that’s out there right now for conventional construction,” says Duck. “But we’re really diversifying our offerings so that we’re not only in the conventional electrical and communications markets but we’re also doing audiovisual projects and security installations. We’re doing wireless LAN and distributed antenna systems (DAS), which not a lot of other firms are doing.”

Fig. 5. More than half the firms on the Top 50 list expect to bid projects at the same or higher levels in 2011.

A quarter of firms reporting on their 2010 sales goals revealed they did not meet them (Fig. 2), although more than half expect to meet them in 2011 (Fig. 3). This may be because increased competition forced firms to adjust their bids on projects in 2010 (Fig. 4), with bids rebounding in 2011 (Fig. 5). In fact, 33 firms on the Top 50 list acknowledged adjusting their bids on projects last year for smaller profits. “What we’ve seen is competition on every project in every market has increased dramatically,” says Jeffrey M. Levy, president and CEO of New York-based RailWorks Corp. (No. 30), which experienced a 1.8% increase in revenue for electrical and datacom sales in 2010. “Frankly, we found that we needed to tighten down our margins and put more pressure on our suppliers and subcontractors.”

Fig. 6. More than two-thirds of the firms on the Top 50 list implemented lean construction practices into their projects in 2010.

According to Levy, on average, the firm’s margins across all of its businesses were down 10% to 15%, so it bid 10% to 15% — even 20% — down. “If the margin was 10%, we’d bid 8%,” he explains. “We had to be a little more aggressive, but the expectation was that we’d earn back the fees in performance. There’s very little room at the time of a bid to negotiate. Today, customers — and the competitive market — expect that we have to be as aggressive as we’re going to be at the time of the bid.”

Lean into it

More than two-thirds of the firms on the Top 50 list reported implementing lean construction concepts into their business in 2010 (Fig. 6), and more than three-fourths expect to implement lean construction concepts this year (Fig. 7). “‘Lean’ is a huge buzzword in the industry right now,” says Duck. “It’s something everyone is striving for. We’re trying to be as lean as possible.”

Fig. 7. More than three-fourths of firms on the Top 50 list plan to implement lean construction practices into their projects this year.

One lean strategy for many of the firms on the Top 50 electrical contractors list for 2010 was to hire and lease on an as-needed basis. For example, almost as many firms on the Top 50 list reported laying off employees as adding them in 2010 (Fig. 8), yet fewer expect to lay off employees in 2011 (Fig. 9). Accounting for these hires and layoffs, seven firms reported closing branch offices in the United States in 2010, whereas 10 announced opening branch offices (Fig. 10). Only six firms expect to open or close a branch office in the United States in 2011 (Fig. 11). “We’ve looked at solidifying an office that will be closer to one of our geographic markets,” says Levy. “We’re probably going to expand our presence in California, given it’s such a large transit market for us. We’re bidding quite a bit of work, so we’re going to be putting more resources there. It’s a matter of following the work.”

Fig. 8. In 2010, firms on the Top 50 list both added and laid off employees.

Less than half the firms on the Top 50 purchased major construction equipment in 2010 (Fig. 12), and even fewer expect to do so in 2011 (Fig. 13). However, sticking to an as-needed strategy for equipment preceded the construction recession. “We just don’t buy a lot of major equipment,” says David Krahling, VP business development, Sioux City, Iowa-based Interstates Cos. (No. 44), which gained a 0.7% year-over-year increase. “Some of the other equipment, we just always rent.”

Cochran also found itself without the need to purchase new equipment in 2010. “We have a few major pieces of equipment that we use that are in good repair that didn’t need to be replaced,” says Duck. “Depending on the application, it just doesn’t make sense for us to buy it.”

Fig. 9. Firms in the Top 50 expect to retain or hire employees in 2011.

Nine firms reported using Building Information Modeling (BIM) on 50% or more of projects in 2010 (Fig. 14), but 27 firms revealed they expect their use of BIM to increase in 2011 (Fig. 15). Still, some firms have discovered ways to use BIM in lean construction applications. “Every large project that we have, we’re using BIM,” says Duck, who explains the firm uses BIM for more traditional MEP coordination, but also in conjunction with a GPS-assisted electrical layout device to cut down on time and labor. “Everything we would lay out with a tape measure, a string, and two guys, we do with this device and one guy. It’s cut our layout time by about 65%.”

Additional time and labor savings can be found in using BIM for prefabrication efforts. “We’re able to get very precise measurements, pre-bend all of our conduit, and then ship it out to site the day before it’s going to be installed,” says Duck. “It can save 30% or 40% on the labor.”

Fig. 10. Only a few firms on the Top 50 list opened, closed, or acquired a U.S.-based branch office.

For a large modernization project at the Dawson, Minn.-based soybean processing facility of Ag Processing, Inc. (AGP), Interstates — responsible for installation of a new electrical system, including electric utility transformers and lighting, as well as rewiring all motors and instruments to new power distribution and control systems — used 3D modeling and prefabrication to install the new electrical system alongside the existing system that was keeping the facility online. Final installation was completed on the outside of the building above railroad tracks along the area that the main electrical duct entered the facility. With the entire conduit rack prefabricated offsite, crews were able to install the rack in less than six hours. This allowed AGP to schedule just one plant shutdown and coordinate with the railroad to complete the installation.

Fig. 11. Very few firms on the Top 50 list expect to make a change in their number of U.S.-based branch offices in 2011.

“We’ve worked really hard on applying lean principles that started in the manufacturing arena, and use them to construct projects,” says Krahling. “We’re doing things, such as prefabrication, to drive waste, or ‘muda,’ out of our processes, and we’ve made some progress there that’s allowed us to, in some cases, just be a little more competitive and aggressive with our pricing and still maintain some profitability and margin. It’s a work in progress, but it’s been part of the answer.”

Early adopters

Only seven firms reported that 50% or more of their projects became registered with the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) in 2010 (click here to see Fig. 16), but 21 firms reported that they expect this percentage to increase in 2011 (click here to see Fig. 17). One of the firms, Laurel, Md.-based Freestate Electrical Service Co. (No. 37), credits its steady revenue — the same revenue as in 2009 — to its ability to provide LEED-accredited work on projects seeking registration. “LEED wasn’t something that we searched out specifically,” says Perry Giovacchini, the firm’s business development manager. “It just seems to be the trend. There are a lot of LEED opportunities, and it certainly helped get our numbers up.”

Fig. 12. Firms were closely split in 2010 in purchasing major construction equipment.

In 2010, Freestate performed electrical work on the $60 million American Pharmacists Association headquarters building in Washington, D.C., which is pursuing LEED gold certification, as well as the Project 2010 Day Care Center, a two-story child care facility that includes daylight harvesting and carbon monoxide detection systems. The latter space is seeking LEED Platinum registration. In addition, the firm added a geothermal ground-source heat pump to the building in which it has its own headquarters, which is registered for LEED Silver.

Although only two firms reported that 50% or more of their projects included a renewable energy component (click here to see Fig. 18), 28 firms expect this to increase in 2011 (click here to see Fig. 19). In fact, for future growth, “green” may be as important as “lean,” according to Cupertino Electric’s Curcio. Among other projects with sustainable components, the firm’s New York project for Yahoo! features a new design and engineering approach focused on harnessing the region’s cool lake winds to reduce overall energy consumption and associated operating costs. It was built in two phases on a 30-acre parcel of property and houses a six-winged structure connected by a main hall way. Each phase of the data center contained 72,000 sq ft of floor area (no raised floor). The incoming electric utility service was stepped down through an owner-operated utility-style substation designed and constructed as part of Cupertino Electric’s electrical scope.

Fig. 13. Most firms on the Top 50 are not planning on purchasing major construction equipment in 2011.

“We definitely have a client base that is early adopter, and sustainability is a big part of that right now,” says Curcio. “It has been for quite some time, and it’s definitely becoming the norm. So to have the capability to do it and participate because we have those solutions — that helps us overall.”

Innovation shouldn’t solely be left to the owners and developers, according to Krahling. Opportunity can be found in expanding the interpretation of renewable energy as well. Over the past several years, Interstates has been involved in several bio-fuel projects, and recently began work on a geothermal project. “Everybody has a slightly different interpretation of what renewable energy looks like,” says Krahling. “For a long time, it was all about ethanol and biodiesel. That’s been a strong component of what we’ve done, and those plants continue to be modified and upgraded. More recently, there’s a geothermal project that we’re working on that I would consider renewable energy.”

Fig. 14. Of the firms on the Top 50 using BIM, most used it for less than 50% of their projects in 2010.

Additionally, Interstates Cos. has begun installing electric vehicle supply equipment. “It’s a small project, but one that is building momentum,” says Krahling. “That’s not really renewable energy, but it’s related to the green effort.”
In March 2011, Interstates Cos. announced that technicians from its Southwest Regional Office installed the first residential all-electric car charging station at a residence in Tucson, Ariz.

Despite strategies for cutting margins, including lean practices, as well as new opportunities in green building, 20 firms on this year’s Top 50 list are forecasting a decrease in revenue for electrical and datacom services for 2011 (click here to see Fig. 20). “Business has actually been pretty good this year, but the industry in general is spotty,” says RailWorks’ Levy. “There’s not a lot of happy people.”

Fig. 15. More than half of the Top 50 firms expect to increase their use of BIM in 2011.

In addition, 70% of the Top 50 firms do not expect the construction economy to improve until 2013 (click here to see Fig. 21). Despite this, some optimism persists that there will be enough projects for firms to hold steady until then. “We’re going to remain focused on the companies that are still moving forward” says Curcio of Cupertino Electric. “There’s a lot of corporate America that’s sitting on the sidelines, but there’s also a lot that is going forward with its plans. They’ve got record profits, and some of those dollars are going to go into expansion plans in the markets that they adjust to. They’ll start with some of those plans sooner than 2013 because if the economy’s going to rebound by then they would need to have these projects well underway before that time.”