Reason for Optimism Among 2004 Giants

SOME GIANTS MUST feel that they can’t catch a break. After enduring three or four years of rugged business conditions, these large mechanicals finally were seeing a reversal in their fortunes when they were hit with rocketing prices of steel and copper products and other materials.

As they’ve done in the past, however, resourceful contractors have learned to adapt to difficult conditions and are emerging from the downturn as stronger and smarter companies that can deal with rising materials prices and other obstacles to their success. Therein lie the lessons for contractors of all sizes to follow.

To be sure, when you look down our list of Giants, you still can find minus signs to indicate the kind of year some large mechanicals struggled through in the preceding 12 months. And, times are still tough for any number of them.

The decline in the manufacturing sector resulting from facilities that have closed down and moved overseas has created fewer industrial opportunities. Mechanicals are seeing more online reverse auction bidding on projects as margins continue to get squeezed.

Still, many of the Giants sound more optimistic now than they have in the last few years. Many of them report an upturn in medium-sized and larger jobs taking place now or in the planning stages.

Public sector work appears particularly active. Governments at all levels are building through turnkey lease-back programs where a developer puts up a building and leases it to a government entity, which assumes ownership down the road. This way, governments don’t need upfront financing and can control their costs.

Governments are contributing to mechanical contracting jobs in other ways as well. Facilities are doing government-mandated maintenance work such as emission requirements that might lead to a fine if the work isn’t done. Plants are also doing safety-related work, especially if OSHA gets involved.

Publicly and privately funded school projects seem to be gaining momentum. Elsewhere in the private sector, medical construction is going strong regionally with new hospitals being built and older hospitals being rehabbed. Projects are underway for medical research and biotech facilities.

The basis for optimism is not necessarily grounded in an economic recovery, however. In fact, some contractors have used the economic downturn to figure out where they want to take their business in the future.

Notable Giants such as EMCOR and McKinstry Co. have learned how to get closer to their customers. EMCOR has leveraged its experience in the facility service business, especially in site-based service where technicians stay on the customer’s site, to reduce risk for itself and its customers through long-term contracts.

Similarly, McKinstry is turning its slogan, “For the life of your building,” into reality for its customers. The Seattle-based contractor did $20 million in energy service-related work last year.

As important as new construction is to the Giants and other contractors, McKinstry believes that the mechanical contractors of tomorrow also will have to be more oriented toward being facility service firms. With so much of a building’s operating costs tied to mechanical systems, more contractors should use their expertise to do more property and facility management, says McKinstry Executive Vice President David Allen.

We agree that this focus can only bring mechanical contractors closer to building owners and managers. Partnering in this way doesn’t have to be the sole domain of the Giants. Smaller contractors can develop these relationships with owners and managers.

The Giants have dealt with rising material prices in different ways, but one common result has been to work more closely with customers and suppliers to keep projects on track. Contractors stand to gain from these relationships as prices eventually stabilize.

So, the Giants have reason to be optimistic. More work seems finally to be shaking loose and more of them are better positioned to handle it. They’ve learned from their recent struggles, and they can apply those lessons to their business now and in the future.