Resilient Revenue: EC&M’s 2023 Top 50 Electrical Contractors Special Report

At Cupertino Electric, Inc. (No. 6), San Jose, Calif., 2022 was a solid year in which expectations were generally met and revenues ticked higher, giving the company a two-year growth rate of 5% to 10%. President/CEO Tom Schott says the firm’s heavy involvement in three core sectors provided a mixed bag of performance, but one that yielded a steady flow of work.

“Continued softening in the commercial market was a problem area, but data centers and energy stayed strong as it has the past few years for us,” he says. “Interest rates and inflation presented some problems that led to some general caution in the market and companies maybe not expanding as much as they’d like. Cost of construction was a factor.”

Reporting one of the highest Top 50 revenue growth rates for 2022, MDU Construction Services Group, Inc. (No. 4), Bismarck, N.D., enjoyed strong demand in the utility, mission critical, and high-end manufacturing segments and benefitted from a presence in centers of torrid growth.

Five Star Electric Corp. (No. 42), Ozone Park, N.Y., although low bidder on many large-scale public bids, has seen reluctance of owners/agencies to move forward and award many of these projects. Rising construction and borrowing costs combined with supply chain issues and extended material/equipment lead times have presented many of these clients with financial and political headwinds, says Russ Lancey, president and CEO.

“We had a good year overall, but given the macroeconomic challenges, we endured a lot new projects being delayed, canceled, or going out for rebid.”

Higher and more unpredictable materials and labor costs, contractors say, have made attempts to squeeze out higher profits more difficult. For many operating in 2022, the primary goal was not to take stinging hits by failing to factor in that volatility and uncertainty. Of eight factors possibly compromising a firm’s ability to complete jobs on time and within budget, material delivery delays and logistics was the largely unchallenged top choice (Fig. 4).

Willis Wiedel, CEO of Encore Electric (No. 38), Lakewood, Colo., sees evidence of supply chain stabilization and moderating prices and the prospect of a more profitable and predictable 2023. If that proves to be a mirage, though, the company still sees a path through the turmoil.

“Things feel like they’re getting better compared with a year ago, with the escalation in prices having stabilized some,” he says. “But we’ve also learned how to manage the supply chain issues better, and we have to continue to do that.”

Schott also sees signs that supply chain snarls that disrupted project timelines are easing, improving prospects for smoother jobs with fewer potentially costly surprises.

“It’s hard to not have some margin erosion when you have projects that have to pause, but we’ve been able to come up with some creative solutions to keep projects moving,” he says. “The worse may be over on supply chain issues, but we’re not completely out of the woods.”

With the current fiscal year-end looming, Guarantee Electrical’s Arb sees a big revenue number coming, a result of a recent geographic expansion effort paying dividends and strong organic growth in some key sectors. Moving into 2024, though, he’s factoring in the risk of an economic downturn that would bring a tapering of that growth. An early sign is data pointing to a slowdown in projects-in-design.

The market menu for contractors is expanding, but the action remains centered in a handful of areas. For the sixth consecutive year, contractors deemed data center/mission critical (Table 1) as the hottest market sector. Close behind again were manufacturing and health care. The power market surged back into the top five after being out for several years. Also continuing a trend, the slowest markets for contractors in 2022 (Table 2) were private office, hospitality, and retail — areas struggling to recover from the pandemic era.

“Markets like data center and renewable energy are more dynamic and changing faster than we’ve typically seen during similar cycles,” he says.

Likewise, MDU is being drawn into changes occurring in the energy markets. A transmission and distribution market specialist, the company is working on more utility transmission system upgrade work.

“There are some growing opportunities in West Coast undergrounding of service, with PGE undertaking a big initiative in the San Francisco area,” Thiede says. “Transmission line reconductoring is another area where we see some emerging opportunity.”

Commonwealth Electric Company of the Midwest (No. 30), Lincoln, Neb., sees continued strong demand for mission critical work — new and upgrades — in its Nebraska/Iowa and Arizona/Utah operational hubs, says Neil Davidson, executive vice president. But other markets beckon.

The markets picture for contractors could become cloudier if economic recession fears are realized. A steadying factor could come in the form of pre-committed public infrastructure spending. Most Top 50 firms, though, see limited near-term benefit.

Two-thirds see the Infrastructure Investment and Jobs Act (IIJA) having at best a moderate positive impact on their business (Fig. 11) in 2023. If any 2023 company revenue can be tied directly to spending under the act, roughly half say it will be miniscule, and half say it could be in the 6% to 19% range (Fig. 12). Projects most likely to produce that revenue (Fig. 13) are electric vehicle charging infrastructure, renewable energy, and electric grid updates. Given the act’s goals, EV infrastructure work may be the most accessible for the average contractor, and the survey confirms it. Most said they’ve handled such work recently (Fig. 14). But 85% say 2023 revenue tied to that work won’t exceed a 5% share.

Infrastructure work funded through the act, though, could come with some caveats for contractors. Many projects will likely require all contractors to sign on to project labor agreements (PLAs) that would subject them to rules laid out in an executive order mandating them on many federally funded infrastructure projects. Non-union contractors are balking at the PLA requirement and could be reluctant to take on infrastructure work that requires the agreements. Top 50 contractors were split on their view of PLAs, with roughly a third each (Fig. 15) saying they’d be a positive, a negative, or of no consequence for the electrical industry.

Encore’s Wiedel doesn’t see much immediate benefit from infrastructure upgrades, nor long-term upside because that’s not a focus specialty. Some EV charging station work has come the firm’s way, but only as a supplement to facility construction. Other infrastructure-like projects have filtered in, but they haven’t stirred excitement.

“A few years ago that was just onesie-twosie type work, but now it’s more of a pure play where we’ve done entire campuses involving dozens of charging stations and associated infrastructure,” he says. “To accommodate that additional load more generation is needed as well as upgrades in switchgear and distribution.”

Though cautious on 2023 revenues, Five Star Electric is seeing signs that the infrastructure spigot is opening. “A record number of new opportunities are starting to hit for us,” Lancey says. “We’ve come out of the post pandemic slowdown and are seeing many publicly funded project opportunities on the horizon.”

Labor worries persist

“We could bid more work and build our backlog if we could consistently find the labor we need,” Davidson says, noting Commonwealth Electric’s greatest needs are journeymen and project managers. Entry-level slots are somewhat easier to fill, he says, but that entails the “long game” of hiring and training that requires a strong commitment to steadily cultivating a workforce.

Hunt Electric’s labor challenges vary, with field workers abundant in some regions and scant in others, and slots like project managers and senior estimators a struggle to fill but modelers and BIM experts easier. One way the company is working around the field labor issue, Axelson says, is employing more prefab where union rules permit, building components off site and shipping to areas where the skilled labor pool is shallower.

The complexion of labor availability and management issues for contractors has changed in the wake of the Covid pandemic, which necessitated more remote work in some job classifications. The ability to design more jobs that require minimal in-person, in-office collaboration has opened the hiring lens for more contractors and yielded some productivity benefits. Still, contractors may be slowly moving away from remote work; most Top 50 contractors say only a fraction of their employees who had started working from home were still doing so (Fig. 21). Yet half say (Fig. 22) they’re letting formerly office-bound employees continue working from home on a full- or part-time basis.

“We started offering remote as an option before Covid, and we’re continuing it,” he says. “On our BIM modeling side, it’s allowed us to hire more people. We have to try to understand what different generations in the workforce are looking for.”

At Cupertino Electric, about a third of non-union support workers are in hybrid setups, a good compromise that puts most headquarters personnel in the office two to three days a week.

“More time in the office is probably better for our culture, but remote can help us attract and retain,” Schott says.

Guarantee Electrical continues to explore emerging technologies that could move the needle.

Sargent Electric’s Smith says AR and VR hold some promise and are being used with some clients for BIM modeling and training. And AI could be helpful in data mining that could improve areas like project planning and manual preparation.

“All new technology takes longer to gain widespread deployment than people anticipate,” he says. “But Apple’s new AR offering, VisionPro, could help make that more mainstream.”

Technology in its most basic, well-established form continues to make a difference for contractors, but it demands attention as it evolves. Of various areas contractor employees might need better training in, field apps and software was the overwhelming choice (Fig. 28) of the Top 50.

Encore Electric views mobile devices as a critical conduit for getting all types of vital information to workers, most members of the “generation that does so much on mobile devices,” Wiedel says. That understanding has expanded Encore’s appreciation for how they can be utilized beyond relaying shop drawings and installation specifications. Information on managing mental health, substance abuse and addiction — critical issues for construction workers — can be easily relayed to employees, 70% of whom are in the field. “We’re able to meet our people where they are,” he says.