Underneath record revenues, EC&M's top 50 electrical contractors reveal a workforce stretched thin by the continuing availability of nonresidential construction projects
An unprecedented 47 of this year's Top 50 electrical contractors reported an increase in sales from 2005 to 2006. One of the firms leading this trend is Logan, Utah-based Cache Valley Electric Co. (No. 20) with a 76.1% jump in electrical and datacom services revenue. Jim Laub, president and CEO, partially credits his firm's success in 2006 to the increase in construction activity in Utah and the intermountain west. But the economics of geography isn't the only factor driving the company's gain in revenue.
For most companies in the Top 50 (click here to see the Top 50 Chart), it's common to work on projects in additional states and geographic regions. Cache Valley Electric boasts a branch office in Oregon and another in Idaho — and is licensed to work in up to 18 states. In 2006, the key markets for its core services (the steel and chip-manufacturing industries) were part of the continuing nationwide rise in nonresidential construction. “We had two major projects going on at the same time,” Laub explains. “Plus, all of our other divisions did a lot of spin-off work from those two major projects and those two major services.”
Like most of the firms in the Top 50, Cache Valley depends on its supervisors and managers, particularly for the projects in outlying areas, to orchestrate these projects. Historically, the company has had a low turnover rate, and Laub would like to keep it that way. “That's really key for what we do,” Laub says. “We must have the continuity of supervision and leadership throughout the country where we work.”
Its estimators are also integral to the company's ability to take advantage of the plentiful projects up for bid. With leaner times a not-so-distant memory, Laub says the company uses what may seem like a simple strategy. At the risk of overworking its estimators, Cache Valley takes an aggressive stance toward bidding. “It goes against my philosophy to walk away from any project,” Laub says. “We like to bid anything we can that's within our scope of services. A lot of our estimators are stretched to the breaking point, but it's still hard to turn away from those projects.”
It's clear that other firms aren't turning away from any projects either. Cache Valley Electric isn't alone in its impressive rise in total sales for electrical and datacom services from 2005 to 2006. Baton Rouge, La.-based MMR Group (No. 9) tops the list with a 93.6% increase, followed by Walker Engineering, Inc. (No. 16), Fort Worth, Texas, with a year-over-year spike of 60.9%; Industrial Specialty Contractors (No. 26), Baton Rouge, La., with a 59.4% jump; Bergelectric Corp. (No. 6), Los Angeles, with a 57.6% increase; Miller Electric Co. (No. 13), Jacksonville, Fla., with a 55.9% hike, and Star-Lo Electric Inc. (No. 48), Whippany, N.J., with 52.5% growth.
The overall average year-over-year gain for the Top 50 electrical contractors measured 26.7% for a total of $12.4 billion in sales for electrical and datacom services in 2006 — well over last year's $7.3 billion record. More than two-thirds of the firms described the 2006 business climate as “strong” (Fig. 1), with only one firm, Detroit-based Motor City Electric Co. (No. 15), reporting a weak economic climate, due to the struggling automotive industry in that region.
“The Big Three mainly didn't spend a lot of money because they're losing a lot of money,” says Richard Martin, VP of sales, Motor City Electric. “Overall, that affects all the suppliers that we work for in the general area too. Michigan — Detroit in particular — is bucking the trend, and the rest of the country is doing very well.”
The downturn in the Detroit area isn't new or specific to 2006. To ride out the ups and downs of the automotive industry, Motor City has opened offices in Windsor, Ontario; Las Vegas; and Kokomo, Ind. “That's made the difference for us,” Martin says. “It keeps us in the $200 million range across the board.”
Through strategies like this, only four of the Top 50 firms missed their sales goals in 2006: three by 5% or less and one by 6% to 10%. More than one-third of the firms exceeded their sales goals by more than 10% (click here to see Fig. 2). Even more astounding were the net profit numbers. Out of the 26 firms that reported that figure, eight firms claimed a net profit of more than 5%, with three in that group reporting a net profit of more than 9%. The net profit in 2006 averaged 5.4%, with the lowest at 1% and the highest at a whopping 15%.
In this competitive market, the Top 50 firms were forced to look for ways to retain experienced project managers and supervisors (click here to see Fig. 3). Many implemented training programs or added incentives, such as extra time off or bonuses. While the firms have yet to report an actual shortage of workers, with more than two-thirds of companies on the Top 50 list hiring additional labor to complete their myriad of projects (Fig. 4), it appears to be only a matter of time before this prediction comes true. Most firms have already encountered fierce competition for experienced project managers (click here to see Fig. 5). Only six firms in the Top 50 employ less than 500 employees (click here to see Table 1).
The value of private nonresidential construction soared in 2006. According to the U.S. Census Bureau's Construction Put-in-Place, some markets experienced year-over-year increases in double digits. This was good news for the majority of Top 50 firms that reported being active in the industrial, commercial, institutional, and health care markets (Table 2). But even those in other markets experienced a rise in revenue figures, as well as difficulty finding an experienced workforce. The Top 50 also reported that, on average, 68.1% of their projects are new construction versus retrofit.
In 2004, Rosendin Electric Inc. (No. 7), San Jose, Calif., established its wind power division. However, it wasn't until 2006 — when Congress extended renewable energy tax credits for two years — that the division really took off.
“That boosted the market quite a bit,” says Larry Hollis, Rosendin's VP of business development. Rosendin's renewable energy division constructs wind energy plants that will produce more than 500MW of capacity throughout the United States. Its crews install underground and overhead 35kV collection systems, fiber-optic supervisory control & data acquisition (SCADA) systems, turbine and tower wiring, substations, and overhead transmission lines to connect these generating plants to utility grids.
From 2005 to 2006, the revenue from the firm's wind power sector grew from $25 million to $40 million. “Because we were early adopters, we were well positioned to go in and do these projects for all the big companies that are putting them in,” Hollis says.
The biggest obstacle in the division, however, is finding workers willing to travel to the sites. “These things are all over the middle of Texas and Wyoming and the gorge up in Oregon,” Hollis says. “They're all over the place, so it requires people who can travel, and that's not an easy commodity to find sometimes.”
Also through diversification of markets, Motor City Electric Co. has been able to raise the number of its employees. “For the last 10 years, we used to run between 400 and 600, but we were down to 300 for the last couple of years,” Martin says. “But now we're picking up. We're back up to 500 or so.”
Currently, Motor City is using those workers to finish work on a casino. The firm also entered the health care market a few years ago. “Until two years ago, we weren't really heavy in the hospital market, but it is a big market in the Detroit area now,” Martin says.
To keep pace with these projects, many firms will look to advanced technology to lead the way (Table 3). In 2006, Flushing, N.Y.-based Unity International Group (No. 25) pushed its electrical maintenance services into another dimension by building an application that enabled remote monitoring and remediation capabilities for mission-critical services. For many years, the firm has provided maintenance for critical power systems for several financial service institutions in New York. However, two years ago, a client asked the firm to track its tickets on a database, and it found that the database wasn't robust enough for the task. So, the maintenance division teamed up with the firm's IT division, a subsidiary, to build out a maintenance tracking system that allowed time capture for all of the service tickets. Then it was combined with a managed services platform for IT for remote monitoring and remediation of network problems that was being built at the same time.
“When we built out that platform, we did it with an eye toward being able to monitor things that exist in both spheres, so to speak,” says Bob Babcock, Unity's director of marketing & communications. “On the IT side of the house, there is a shorter cycle of technology swap out. Because we're on that side and in that shorter cycle, this makes us capable of catching any changes that occur in the building and electrical side. We're able to look into these buildings and check on any number of issues that involve the flow of data and energy.”
Another benefit to increased monitoring is that the platform is able to fulfill Unity's clients' needs with a smaller, more efficient workforce. “We're able to track down to a few minutes how long it takes to do a job,” Babcock says. “Rather than have somebody on a full day's salary, we identify the problem and dispatch accordingly. We do that through tight management of our labor. Nobody is there just to perform one function during the day. Rather than have staff there doing circuit checks, like walking a circuit and checking each device, we're getting those signals regularly.”
Currently, Unity's programmers are engaged in revamping and redesigning all of the firm's time capture across all the different divisions so that the company will have a better understanding of how much time is paid out and how much is billed at the end of each month.
“We'll be able to increase our capacity with our existing staff rather than have to bring on new staff every time we bring on a new job,” Babcock says. “Much of our overhead has to do with managing how many workers are on the job, how much material was purchased for the job, and what was the cost on that day versus the next day, and doing all of that back-office type of project management. Over the last year, we have taken a look at all the systems that were in place and are trying to bring them all in line with one another.”
Building information modeling (BIM) may be another way firm's can maximize the efficiency of their staff. However, those who have used the system say it comes with a steep learning curve — even for those who have worked for years in the 2D format — so it may not be the best choice to adopt during a busy project schedule.
“It took a good bit more time than we anticipated,” says Rick Bartlett, project engineer for Atlanta-based Cleveland Electric Co. (No. 44). Cleveland Electric is currently working on its third project with a BIM 3D MEP application, but Bartlett says that it doesn't meet all of the electrical needs. “My personal experience on it is it's more of a mechanical HVAC kind of program,” he says. “Electrically, it's a bit weak.”
Timing is everything
New York-based RailWorks Corp. (No. 35) was one of the few firms that did not experience and increase in its number of employees in 2006. The 20% drop in its electrical workforce was due largely to the timing involved in public budgets and funding. Last year, the firm was forced to lay off a number of employees after it wrapped up a few major projects, knowing it would rehire them in the near future once work begins on projects it was awarded that same year.
“New York City has the largest transportation funding program in the five-year plan by $23.5 billion dollars,” says Jeffrey M. Levy, president and CEO of RailWorks. “However, because the federal funding was two years late, New York's transit agency couldn't begin to put projects out. So we actually saw the first new projects come to bid in 2006. If you look at the original forecasts, there probably would have been a half dozen jobs awarded from 2005 forward. But because the funding was late, the agency couldn't put the projects to bid.”
According to Levy, it's a similar story for public projects around the country, and not just a product of the two-year Congressional delay of the transportation bill. The majority of public projects — even local projects — are tied to some type of federal funding and generally are budgeted several years before they're funded. Thus, when a project is budgeted in 2005 but funded in 2006, taking into account rising materials costs, etc., it can be significantly over budget. “The agencies have to focus on what they want to do then,” says Levy. “Whether they increase funding by shifting it from other projects, raise new bond revenues, or de-scope the project, they can't proceed with a project unless they have funding for the contracts they sign.”
And the delays don't end once the project is awarded. The start-up time on a new public project can be lengthy. “There's a long lag between the award of a job and putting men in the field, particularly on the design-build jobs or the design-assist type jobs,” Levy says. “The good news is that once they get started, they run for three to four years. That gives us a pretty good planning horizon, allowing us to really manage our workforce and our material procurements pretty nicely.”
After being awarded two New York signal jobs this year, Levy is confident his firm will continue to secure work and be able to hire back the laid off workers, even if the firm is in competition with companies working in robust private nonresidential markets. “Trade labor seems okay for now, but there's definitely very aggressive competition for the supervisory and managerial personnel because other industries are moving faster,” Levy says. “We're doing well keeping people, but there's more competition for hiring. We're recruiting aggressively and hiring people that have worked for us before, but it's still tough because the work itself is coming slowly.”
To stay competitive, RailWorks invests in training, particularly for project managers. “We're fortunate we've got a reasonably deep and young workforce so we're able to bring qualified people forward, which is very helpful,” Levy says. “When you're planning jobs up to three and four years, you want to make sure you've got people who are going to be there.”
Currently, the firm is considering upgrading to an integrated project management package. “What we're really looking for is to see if it gives us the kind of efficiencies and flexibility that it's supposed to,” Levy says.
The systems RailWorks has been using evolved organically over the years and were mostly comprised of spreadsheets, but now Levy would like to link the accounting system to the project management process. “The nature of our projects is similar, so it justifies it a little bit more,” he says. “We're looking to see how much customization we need to do and how much you have to be an expert in the system to use it. You don't want to be stuck with only one person trained on the system. You want to be able to cross-train as many people who can handle those things.”
Levy warns, however, that firms should not adopt technological innovations for services and the design and construction process solely to solve their workforce woes. “If we have systems that are structured, it's easier to bring new people in,” he says. “The more that the systems and procedures are structured, rather than historical, it's easier to train new people in the company. But it's a collateral benefit, not the principal objective.”
Looking to the future, more than two-thirds of the firms on the Top 50 list expect an increase in sales in 2007 (click here to see Fig. 6). The firms seem more cautious about the coming year than they did the year before. Although some harbor concerns that the scandals plaguing the subprime mortgage lenders may eventually have a negative impact on lending for nonresidential construction, the outlook remains optimistic. “There are a lot of uncertainties with the economy right now, but we still remain optimistic about the future of construction here for the next year or two,” Laub says. “Whether it continues to the degree that it has in the past couple of years remains to be seen.”
However, there may be a brighter side to the current mortgage problems. “Maybe there'll be a silver lining,” says Levy. “If demand goes down, we may get copper cheaper. It's one of those things that's tough to see what one change does to another market.”
But Levy's not entirely sure there wont' be a negative effect on nonresidential projects — even ones funded by public money. “We're a little concerned,” he says. “We really haven't seen it hurting us in the near-term, but we're hearing it starting to affect borrowing costs, and some projects may slow down. Clearly, if a client needs to raise additional funds, even a municipality, and the credit markets are less accommodating, it's going to put a crimp in things. If there's a softening of the economy in general, governments tend to pull back their spending and be a little more cautious. I haven't heard anybody talking about projects being canceled. I think it will slow down a little bit, but I haven't heard yet where commercial projects have been affected.”
Finally, there are those firms that will benefit from legislation passed in the last year or two. A two-year extension on the bill for renewable energy in the United States certainly gives hope to the firms in those markets, yet the workforce problem will continue to hamper their ability to accept projects. “Next year is fairly booked for us,” Hollis says. “Part of our problem is that people are coming to us now, and we've had to turn them down because we just don't have the people.”
Sidebar: A Significant Acquisition
Media, Pa.-based InfraSource Services (No. 3) will no longer appear in the Top 50 list after this year. Quanta Services, Inc. (No. 1), Houston, recently acquired the company through an all-stock merger valued at $1.26 billion, based on Quanta's closing stock price on March 16. As a result, InfraSource became a wholly owned subsidiary of Quanta. The combination of Quanta and InfraSource will create a specialized contracting services company serving the electric power, natural gas, telecommunications, and cable TV industries.
“Our strategy remains clear: Deliver value to our stockholders, quality infrastructure services to our customers, and growth opportunities for our employees,” says John R. Colson, chairman and chief executive officer, Quanta Services. “This acquisition enhances our engineering, distribution, and transmission capabilities, substation construction services, gas distribution capabilities, and industrial service offerings, and adds a unique dark fiber leasing business.”
The companies' combined 2006 revenues totaled more than $3.1 billion. With the acquisition, Quanta comprises a mobile workforce of 16,000 employees, as well as the largest equipment fleet in the industry.
Sidebar: Call for Entries
The information used to generate EC&M's Top 50 electrical contractors list was obtained through a proprietary survey and original research. If you would like your firm added to our survey mailing list, please contact Staff Writer Beck Ireland at email@example.com
Sidebar: Top 50 Firms Year in Review
Dulles, Va.-based M.C. Dean (No. 8) broke ground on the first phase of the Michael D. Dent fabrication and logistics complex in Caroline County, Va.
In December 2006, Ken Orlowski became president and chief operating officer of Houston-based Fisk Corp. (No. 14). Larry Brookshire remains with the company as chairman and CEO. In addition, the Houston operations of Fisk Electric Co. were consolidated into a single operating center under the leadership of Wayne McDonald, who assumed the title senior vice president - Houston group.
St. Louis-based Guarantee Electrical Co. (No. 41) promoted Stephen C. Juan to vice president of preconstruction. In his new position, Juan oversees Guarantee's design/build division as well as central estimating.
San Jose, Calif.-based Rosendin Electric Inc. (No. 7) was named a recipient of Intel Corp.'s Preferred Quality Supplier (PQS) award for outstanding performance in providing products and services deemed essential to Intel's success. For the second consecutive year, the company was recognized for its efforts supplying Intel with electrical construction services.
Fenton, Mo.-based Sachs Electric Co. (No. 17) was awarded the Keystone Project of the Year in the Specialty Contractor Building Construction ($2 million or more) category from the Associated General Contractors of St. Louis for its work on the new Busch Stadium in St. Louis.
Columbia, Md.-based SPL Integrated Solutions (No. 33) opened branch offices in Phoenix, Kansas City, Mo., and Denver, as well as Dubai, United Arab Emirates. In other news, the company helped the NSCA Education Foundation meet its $100,000 fundraising challenge with an $8,400 donation, and Chad M. Gillenwater, president and CEO of the company, was appointed to InfoComm's Board of Governors.
Lenexa, Kan.-based Wachter (No. 32) won the Associated Builders & Contractors (ABC) Excellence in Construction award for its Lafarge Maxcem Blends project. The company also won an ABC platinum award in the Safety Training & Education Process (STEP) category.
The Massachusetts chapter of the Associated Builders & Contractors (ABC) granted Wayne J. Griffin Electric, Inc. (No. 23), Holliston, Mass., a merit award for its contributions to the EquiServe Data Center project in Canton, Mass. The New Hampshire/Vermont chapter of ABC granted the company a merit award for its contributions to the Dartmouth-Hitchcock Medical Center project in Lebanon, N.H.