Find more from the Top 50 of 2009
With depleted backlogs and fewer projects on the horizon, the firms on EC&M's 2009 Top 50 electrical contractors list restructured in 2008 to face the challenges this year and beyond.
Notwithstanding the beginnings of a decline in non-residential construction following the housing sector's fallen house of cards, revenue for electrical and datacom services reported by the firms on this year's Top 50 electrical contractors list remained steady, with a total of $13.3 billion (The Top 50 Electrical Contractors). However, only a few firms experienced significant revenue gains, which were boosted by ample backlogs and the closeout of large projects. “The 2008 fourth quarter marked the culmination of the most successful year in our company's history,” says Frank T. MacInnis, chairman and CEO of EMCOR Group, Inc., Norwalk, Conn., whose firm remained in the No. 1 spot by accruing an 18.6% year-over-year increase. “We significantly outperformed expectations as we continued to benefit from the steps we have taken to diversify our business across markets, services, and geographies.”
Of the 40 firms present on last year's Top 50 list, 30 experienced year-over-year gains in revenue, yet less than half declared a gain of more than 10%. In addition, only eight of these firms reported increases in electrical and datacom sales of more than 20% from 2007 to 2008, with San Jose, Calif.-based Rosendin Electric (No. 2) in the lead with a 63% jump in sales, followed closely by FSG Electric (No 18), Austin, Texas, with a 57.5% increase. Additionally, drops in revenue were also tempered. Of the 10 firms that revealed a decrease in revenue from 2007 to 2008, only three reported drops of more than 20%. These moderate highs and lows combined led to an overall average increase of 9.1% over the disclosed totals for 2007.
Twenty-one companies disclosed their net profit in 2008, with an overall average totaling 5.8%. However, once again proving a disparity in earning among members of the Top 50, these numbers ranged between 0.08% and 20%, with a median of 4.1%.
Baby got backlog
Despite dire predictions for the health of the construction industry in 2008, only five of 48 firms indicated they did not meet revenue expectations that year, while 16 reported meeting revenue goals and 27 disclosed they exceeded revenue expectations (Fig. 1). Those that did not meet revenue expectations most commonly cited economic conditions as the factor that influenced their financial results for 2008 (Table 1). However, only five of 48 respondents characterized the 2008 business climate as “weak,” while almost half the firms on the Top 50 list described it as “fair” or “strong” (Fig. 2 on page 29).
The firms that met or exceeded revenue expectations credited strong markets and existing backlogs in those markets most often as factors that influenced financial results in 2008. In March 2008, the backlog for EMCOR Group, Inc. (No. 1) stood at $4.39 billion, an increase of 14.3% over backlog of $3.84 billion in March 2007. “Nearly 50% of EMCOR's contract backlog is in market sectors that are stable, growing, or counter-cyclical, such as health care, water and wastewater treatment, refinery maintenance, and transportation,” explains MacInnis. “The balance is represented by a reliable portfolio of contracts with blue-chip customers in the commercial, gaming, and hospitality sectors of the private construction market.”
The markets in which the Top 50 firms report being most active include commercial, health care, and industrial, with the least active markets comprising V/D/V and home networking, general manufacturing, and security (Table 2). In addition, a few Top 50 firms expanded their electrical services group to include maintenance. For instance, EMCOR acquired MOR PPM, Inc. (PPM), Society Hill, S.C., a privately held industrial maintenance company with 2008 estimated revenues of approximately $80 million. The company is an industrial maintenance service company providing in-plant operations and maintenance, scheduled outage repairs, and plant improvement projects for the independent power, pulp/paper, and general manufacturing industries. “PPM has leading positions in the power plant and heavy industrial sectors and will be a valuable addition to EMCOR's facilities service capabilities,” says MacInnis. “The addition of PPM expands our industrial services footprint and bolsters our growing U.S. facilities services business. We plan to leverage our relationships with our industrial customers and provide them with an unparalleled array of services through the combined capabilities of EMCOR companies.”
Although only three firms claimed to be active in the renewable energy market, many others acknowledged plans to enter or expand their presence in this arena. For example, the wind generation group of Libertyville, Ill.-based Aldridge Electric (No. 15) began building wind projects in Utah, Kansas, Illinois, and New York. “Expanding into the wind industry has been a natural and obvious growth path for Aldridge,” says Ken Aldridge, owner and CEO. “The company has more than 50 years of experience installing most of the components that make up a wind farm.”
Although active in the renewable energy market for quite some time, Rosendin Electric (REI) (No. 2), San Jose, Calif., began pursuing solar for utility-scale projects in 2008. “We have recently set up a preconstruction Solar Task Force to assist developing REI's strategy to attack this market,” says Steve Scates, regional VP. “Several of our customers active in wind project development are also developing solar projects. We intend to leverage our experience and relationships with these customers to gain opportunities on their upcoming solar projects.”
Improved efficiency also influenced financial results for 2008. Los Angeles-based Bergelectric (No. 6) ramped up its preconstruction abilities, including the addition of a 5,000-sq-ft prefabrication shop in Austin, Texas, a central location with potential for bulk-materials purchasing. “Clients are very interested in our prefabrication capabilities because they're aware of the associated cost savings,” says Bobby Pruitt, regional manager at Berg.
The company plans to use its prefabrication capabilities on projects with repetitive space, such as hotels, prisons, hospitals, or military housing. Its largest use of prefabrication to date was the Temporary Unit of Action at Fort Bliss, Texas, in which the company delivered 900 light-fixture assemblies, 14,500 ft of PVC tel/data ductbank, and 25,000 ft of PVC 13.8kV power ductbank for use in more than 1,100 modular and site-constructed buildings on the $165-million project.
In addition to prefabrication capabilities, several Top 50 companies reported varying project delivery methods to improve efficiency. Design-bid-build remained the most popular project delivery method, but design-assist and both forms of design-build received more votes than in previous years' surveys (Table 3). Bergelectric varied its project delivery methods, depending on the job. For instance, under a Multiple Award Task Order Contract (MATOC) for a Phase 3 project at Fort Benning, Ga., the firm worked closely with the electrical engineer to develop cost estimates in a design-assist capacity. For the renovation of San Quentin State Prison, San Rafael, Calif., — particularly the addition of the health facility, the Central Health Services Center (CHSC) — the firm worked as part of the a design-build effort, which included using its 3D modeling capabilities to provide detailing for almost every element of construction, including wall and switch boxes, fixture mounts, overhead racks, and the wall and integrated ceiling system. “Our detailing department made it possible to proceed confidently with the placement of conduit in these prefabricated wall panels that ultimately fed the outlets and switches in each patient room,” says Tom Blake, Berg's general foreman.
Other Top 50 companies also reported using 3D modeling or Building Information Modeling (BIM) to speed project delivery and cut costs. EMCOR Group is a good example. It expanded the use of BIM technology, and now currently deploys the technology at 26 of its operating companies. Participating branches or subsidiaries are interconnected through a common platform that enables the firm to aggregate and deploy the technology and information anywhere, as needed. As part of the process, EMCOR also uses the same customized collaborative concepts when working with its clients, throughout the lifecycle of a project. “We developed our use of this technology out of necessity; now our clients are demanding it,” says David Morris, director of virtual construction for EMCOR Construction Services.
In addition, EMCOR Group, Inc., launched an initiative to emphasize efficiency in its facility services group. EMCOR Facilities Services (EFS) developed a lean operations model on behalf of one of its clients that develops equipment and services for the semiconductor industry. The model was then implemented in order to create a more formal, programmatic approach that would increase accountability, return on investment (ROI), and productivity in EFS' delivery of services to its campus headquarters. The services EFS provides at the facility include: major systems repair and maintenance; environmental health and safety; janitorial and landscaping; project management and design; and process support. “Lean management was originally developed in the manufacturing sector to eliminate waste and increase efficiencies during the production process, but the applications for EFS in facilities management are just as relevant and really represent a new frontier in this space,” says Jessica Beers, a director at EFS. “It's a model we look forward to continuing to build out and customize for clients in the whole range of industries and sectors that EFS serves.”
Safety in numbers
Concentration on safety is another way several firms opted to improve efficiency. MYR Group, Inc. (MYR) (No. 4), Rolling Meadows, Ill., a holding company of specialty contractors, announced that the Chattanooga, Tenn.-based district of its subsidiary, The L.E. Myers Co., received a recognition award for achieving STAR status in the U.S. Department of Labor's Occupational Safety and Health Administration's (OSHA) Voluntary Protection Program (VPP) for the Mobile Workforce Demonstration for Construction. In September 2008, The L.E. Myers Co. achieved STAR status, the highest VPP recognition level awarded by OSHA for workplace safety and health for work it performed for the Tennessee Valley Authority (TVA) across multiple states. “I am proud to recognize MYR Group as the first Mobile Workforce VPP participant in Region IV,” says Cindy Coe, Region IV Administrator at OSHA. “This further demonstrates how the employer, its employees, and OSHA (working together) can improve safety and health in the workplace. By reducing injuries and illnesses, the company is more profitable and employees are more productive. It's a true win-win accomplishment.”
EMCOR Group married safety and productivity in 2008 with the development of its Personal Productivity Equipment program, playing off the traditional definition of “PPE,” meaning “personal protective equipment.” Because this equipment was often uncomfortable, inconvenient, or impractical, many workers did not use it, leading to injuries that would then negatively impact productivity. “If you remember what gloves or safety glasses were like 10 to 15 yr ago, you can see how they might impede productivity,” explains Dave Copley, VP of safety and quality management for EMCOR Construction and Facility Services. “But that has all changed. Now there are many different types and styles of gloves and protective eyewear for every task that not only prevent injury, but also increase productivity.”
The program includes: LED task lighting in gloves; eyewear- or hardhat-mounted headlamps; proper footwear or working surfaces to reduce fatigue; and the consistent use of gel knee pads to make working at floor level safer, less tiring, and more productive. “The use of PPE is not only the safe and responsible thing to do, it's one of the best ways to help improve productivity,” says Copley. “If we can reduce risk, fatigue, injury, and downtime through the use of PPE, overall results will improve. It's simply not acceptable for production losses to occur because PPE is not used.”
While some firms contended with a slowdown in projects, others ramped up. Therefore, the firms were split almost evenly between losing jobs (48% of respondents) and adding jobs (37% of respondents) (Fig. 3). The most common reasons given for layoffs in 2008 were less availability of work; project closeouts, cancellations, or delays; restructuring; and managing overhead (Table 4). However, the greatest challenges faced in 2008 by the Top 50 firms seem to contradict each other. Although restructuring and managing overhead ranked high on the list, it was offered up by firms experiencing a loss of jobs as well as those needing to recruit despite the continuing experienced worker shortage (Table 5).
As layoffs swelled the number of firms with fewer than 500 employees to 12 from last year's five (Table 6), some firms experienced growth, including expansion into new geographic areas or market sectors, which required additional employees. This prompted some firms to launch retention initiatives. Power Design, Inc. (PDI) (No. 25), St. Petersburg, Fla., currently one of the biggest employers in the Tampa Bay, Fla., area, opened its new 70,000-sq-ft corporate headquarters. The company supports close to 700 employees across the Southeast, Mid-Atlantic, and Southwest. For 2008, it launched a new employee reward program, “Answering the Call for Excellence” (ACE). The program was designed to reward employees who represent the company's core values: integrity, accountability, teamwork, innovation, and growth. The year-long program worked as an incentive for employees to adhere to company values as well as recognize fellow employees who demonstrated a strong commitment to teamwork. All nominated employees have been entered into a grand prize drawing, to be awarded in September 2009. One employee will receive $10,000, and five second-prize winners will be rewarded with $5,000. “Our goal with the ACE Awards was to keep the mission and values of Power Design alive,” says company CEO Mitch Permuy. “As we grow and expand, we must remain one team focused on the same goals and ideas.”
Even with better-than-expected numbers in 2008, the firms in the 2009 Top 50 electrical contractors list aren't expecting much from 2009. Only 13% of respondents are predicting an increase in revenue, and 43% are forecasting a decrease of more than 10% (Fig. 4 on page 36). No respondents expect to see signs that the residential market is in recovery this year. In fact, 60% of respondents think recovery will occur in 2011 or beyond (Fig. 5).
Fewer jobs to bid and increased competition for those jobs were reported as the most common challenges expected for the remainder of 2009 and into 2010 (Table 7). In addition, many firms anticipate having difficulty picking up new projects due to tighter credit standards for owners and developers, despite very few firms themselves reporting trouble accessing credit or experiencing tighter credit standards in 2008 or into this year (Fig. 6). Certainly, the firms in the Top 50 don't have their hopes of an early recovery pinned on the American Recovery and Reinvestment Act of 2009. Only 11% predict a big effect from the government money, while the same again anticipate no effect and 78% anticipate little effect (Fig. 7).
Instead, the firms in the 2009 Top 50 electrical contractors list implemented a variety of strategies throughout 2008 and, in some cases, years earlier, to offset or minimize the expected decrease in sales of electrical and datacom services in 2009 and beyond. Many reported bidding competitively, yet selectively, to build a backlog of viable projects. Other strategies included: diversifying markets, expanding geographic territory, managing overhead and margins, staff and field workforce reductions, increased efficiency, and increasing marketing efforts (Table 8). For instance, as part of a branding effort to establish and align name recognition, Faith Technologies, Inc. (No. 19), Appleton, Wis., completed the final phase of converting all 10 of its Town & Country Electric locations in Wisconsin to one name — Faith Technologies. With more than 1,000 employees across Wisconsin, Faith Technologies now operates under one brand. “It is important for us to consistently communicate with our customers, align our employees, and establish a constant presence as one brand with the same values and business goals while we continue to grow in Wisconsin and across the country,” says Roland Stephenson, CEO.