When Louisiana Energy Services celebrated the groundbreaking of the National Enrichment Facility near Hobbs, N.M., in 2006, it faced many problems. This $1.5 billion uranium plant is expected to eventually produce 25 percent of all fuel from U.S. nuclear power plants, but it is located in a remote area with little nearby labor force or housing.
For the contractors involved in the project, the challenge is getting the manpower to this location by the dozens and potentially the hundreds, while still keeping their New Mexico customers covered.
Rosendin Electric Inc. and Prime Electric Inc., both based in Albuquerque, N.M., and Budwine Service Electric Co. Inc., Carlsbad, N.M., formed Trico Power, a joint venture, because none of the companies wished to supply the manpower or resources to commit to this project alone. Trico has sent approximately 45 electricians to begin laying miles of underground ductwork at the site.
Initially, all three contractors—Prime, Budwine and Rosendin—planned to compete for the job. The local International Brotherhood of Electrical Workers (IBEW) Local No. 611 committed to provide the manpower, while New Mexico Gov. Bill Richardson appealed to local contractors to do the job.
“That’s when we decided to sit down together with the three of us and see what we could provide as far as manpower,” said Dale Phagan, president of Prime Electric. “When we sat down with the IBEW, it evolved to the fact that we could bid against each other, but I don’t think anyone was ready to take the whole liability of trying to find the manpower for that project.”
Issues would exist for any crew, said Rick Beard, division manager of Rosendin. “There are some major housing issues; this is not an easy place for someone to go to work,” he said.
Currently, Trico workers are putting in duct banks with 159,000 feet of 4-inch ducts, scheduled to be completed in July 2008.
Speaking from experience
Although these three contractors don’t regularly participate in joint ventures, there are some that do and have profited from those partnerships. Three companies in particular have entered numerous joint ventures: ERMCO Inc., Indianapolis; TAM Electric Co. Inc., Memphis, Tenn.; and Sachs Electric Co., St. Louis. According to those companies, their joint ventures have allowed strong business growth, expansion into other geographical areas and have helped keep their local customers covered.
ERMCO Inc. has made joint ventures a major part of the business. The 45-year-old company earned $79.5 million last year and has been growing. Part of that growth has been away from the Indianapolis area where the company is based.
“We did a lot of stadiums within the Indianapolis area,” said David Peterson, director of business development. The stadiums included Victory Field, RCA Dome and Conseco Field House where the Indiana Pacers play.
Once the company gained the stadium experience, it began looking at stadium work elsewhere, especially at the request of general contractor Hunt Construction, Indianapolis, which had already completed several large projects with ERMCO. Since then, the company has used a series of joint ventures to complete projects such as the Paul Brown Stadium in Connecticut, Heinz Field in Pittsburgh, the Houston Rockets’ Toyota Center and the Pyramid Arena in Memphis, Tenn.
For some contractors, joint ventures have been a part of business for decades. Clay Scharff, president and CEO of Sachs Electric, said the company has been involved in joint ventures for more than 60 of its 82 years in business. Currently, Sachs is working with Van Ert Electric Co., Wausau, Wis., at Weston Power Plant in Wausau, and with Commonwealth Electric of the Midwest, Omaha, Neb., on several projects in San Antonio.
Style and function
There are several options in joint venturing. Integrated joint ventures represent a true partnership, because the parties share profits and losses. This common strategy is typically used by companies with strong long-term relationships.
On the other hand, some joint ventures do not share in profits and losses. Each member takes on a specified scope of work and is responsible for the profits or losses associated with that scope of work. In this case, each member is solely responsible for the resources necessary to perform its specified scope of work.
Either way, while the joint venture is not a partnership—and typically the agreement will expressly stipulate that point—its structure and form closely resemble a partnership.
The management board usually selects the project manager, but frequently, the terms of the joint venture agreement will rule who may be nominated as the leader of the joint venture and, in turn, who may select the project manager.
Risks and rewards
A joint venture typically will reward the contractors more than it will damage them. Joint ventures generally bring advantages to all parties involved, specifically in the areas of work force shortages or knowledge of different types of installations.
For example, ERMCO brings its knowledge of stadium work to similar projects in other parts of the country, and ERMCO benefits from working with local contractors because they know the area, the general and subcontractors, etc. In fact, the local contractors often have a relationship with the project owner or the general contractor, if not both, and a connection to local manpower to get the work done.
“We could provide the preconstruction expertise and the management. We already know the pitfalls and road blocks of stadium construction, while they have the local connections,” Peterson said. “Typically, they can provide the labor force, and we manage the job.”
The owner often can have a comfort level with one partner, while the general contractor is familiar with the other. “That tends to make everyone more comfortable on the project,” Peterson said.
Contractors also can collaborate with companies that have an established organization in one state with a contractor based elsewhere that brings specialized engineering knowledge or skill.
“We see it as part of our strategic plan to grow the company without stretching our resources,” said Darrell Gossett, ERMCO president.
Hunt Construction has worked in electrical contracting joint ventures with a variety of companies, including Sachs and ERMCO. From the general contractor’s perspective, said Thomas M. Boyd, MEP project manager, joint ventures are an advantage.
“We’ve had good experience with joint ventures,” he said. “I see no difference than having a typical electrical contractor. They both bring the experience and resources, which just makes it a smoother process.”
Another advantage for contractors can be the minority- or woman-owned status a company can bring to the project, especially for those projects that require a minority partner. Calmi Electrical Co. Inc., Baltimore, a minority-owned business, has formed several joint ventures, most recently with Gill-Simpson Inc., Baltimore, on the L1 Building at Johns Hopkins Biopark. Calmi Electrical, which employs an average of 15 to 20 electricians, did not have the capital to bid on the $3.7 million job itself, so it teamed up with Gill-Simpson, a company with which Calmi Electrical has had a long relationship.
Together, the two companies brought the degree of expertise that made the owner comfortable, Calvin Mims, Calmi Electrical’s president, said. In fact, they were not the lowest bidder, but the companies’ cumulative experience made them the best choice.
The risks of partnering are few, but some are potentially serious. For instance, when a company takes advantage of joint ventures and expands outside its typical coverage area, it might leave behind work in that original base, which can be bad for business. In Indianapolis, Peterson said, building is booming, and ensuring the core customers are covered means you have to be careful bidding on major projects.
Some monetary risk inherently exists when joining forces with others, though some joint ventures actually add fiscal benefits. For example, a joint venture spreads the financial risk by sharing resources and manpower. In addition, combining two contractors can generate bonding capacity that each contractor would not have individually. And, for bidding, Gossett said, joint ventures often can add accuracy to the process.
“Now you can sit down side by side,” he said, adding that this is done after having completed independent bids. This ensures the final bid prepared is as accurate as possible.
Seeking a partner, and making it work
Each venture is unique, Gossett said, and in each, the companies involved come away with some lessons learned, foremost being to take care when selecting a contractor.
“We ensure our philosophies are the same, that we have the same core beliefs and ethics,” Gossett said.
Parnering can bring out the best in each contractor. “There are many good companies out there, and when you can combine the best resources of two companies, it creates a great electrical contractor for the customer without paying a premium,” Scharff said.
To make a joint venture work, every contractor must know the needs of its partners, share goals and have some degree of trust. This is not a venture for a company or for managers who don’t trust others, said Gossett.
However, working effectively with new partners doesn’t happen instantly. “You learn from every job. In each case, you tend to have a new partner, and each new partner has its own way of doing things. Everyone works differently,” Peterson said.
And, if the contractor doesn’t look like a good fit—for example an aggressive, profit-at-all-cost contractor—Gossett said, his company declines the venture. “If there’s any chance what they do is going to damage our reputation, then it’s not worth creating the partnership. It’s a people business, and you’re taking a chance. We spend a lot of time building a reputation, and we don’t want anyone damaging that,” he said.
And there are times, Gossett said, when ERMCO declines a joint venturing opportunity if it can’t bring an advantage or value to another contractor.
“Pick your partners well. If it does not seem like you are compatible with the other firm, don’t partner … it is a long relationship together,” Scharff said.
Calmi Electrical, too, has found that not every joint venture has been as rewarding, Mims said. In those cases, he said, taking more time to ensure compatibility with the other company would have saved a lot of trouble.
“It wasn’t a problem with the projects. It was the bad match,” he said.
Tips from the veterans
Those who have completed joint venture projects come away with plenty of information that will help in future ones.
Regarding the bid, Boyd said, “I always tell contractors to ensure their financial strength is appropriate for the project they’re going to joint venture on. Make sure their financials, their insurance is in order. That’s the important thing from the start.”
When things go wrong, joint venture partners have the contract to draw from, Peterson said, but that rarely happens.
“That’s not commonplace by any stretch,” he said, adding that they strive to avoid problems. If a tiebreaker is needed, however, those kinds of concerns need to be written into the contract.
As with many business relationships, word of mouth is essential to finding and forming partnerships. “We always have a referral or existing relationship. We know a lot of contractors around the country.” He added that Sachs is part of the Electric Roundtable, a national peer group that provides tremendous geographic diversity for partners.
There still is room for contractors to grow and joint ventures to form. Despite the degree of success ERMCO had with joint ventures, not many contractors take part in it.
“I think there’s still only a handful of companies doing it properly,” Peterson said. “There’s still a lot of opportunity out there.” EC
SWEDBERG is a freelance writer based in western Washington. She can be reached at email@example.com.