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In some ways, there is no difference between small and large contractors. Each one earns its own reputation based on its quality of work and customer service. That reputation, in turn, determines today’s success and tomorrow’s viability. And yet there are major differences. Large businesses—with more than 100 employees—require different types of business aptitude and management and leadership skills. Similarly, large companies can complete certain projects and contracts that are simply beyond the reach of small and mid-sized firms.
There is general agreement among contractors that being big provides more opportunities. That is because any size contractor can bid on smaller projects, but only the really big contractors can bid on the really big projects.
“We want to be big enough to follow any customer anywhere for any project,” said Clay Scharff, president, CEO and board chairman for Sachs Electric Co., which operates three offices in Illinois, Michigan and Missouri (as McGraw Electric Co.).
“So far, we have not encountered a project that we could not take on,” he said. “That means that we are able to serve our clients wherever they need us. And this company is built on serving our clients, so being big enables us to do that best.”
As a result, with its staff of about 600 electricians performing $292 million of work in 2008, Sachs Electric has worked on projects in 48 states, Canada and Puerto Rico.
Dick Martin of the Detroit-based Motor City Electric Co. agreed.
“There are only about a half a dozen electrical contractors in the Midwest that can do a $30–40 million job,” he said. “We can go in and sell a whole project, but in order to do that, we need to be able to do it all from [overhead power] line work all the way down.”
The firm has about 500 employees in seven offices and subsidiary locations from Tampa to Las Vegas and as far north as Windsor, Ontario; it performed $262 million in volume in 2008.
Jeff Withers of California’s Collins Electrical Co. Inc. added that large contractors can be more competitive than smaller contractors on jobs requiring lots of manpower, tools and equipment.
“Larger projects will have less competition, and the owners will usually prequalify a group of subs who then provide valuations based upon their interpretations of the drawings and specifications.
“Because larger contractors tend to purchase more materials, we usually get better discounts on them,” Withers said. “And, of course, [large contractors are more likely to be] financially stable enough to provide the bonding and cash flow to do the job.”
In fact, bonding is an issue that comes up frequently when talking with large contractors.
“In order to have more opportunities, a company must have sufficient bonding,” Martin said. “It didn’t used to be this way, but now 90 percent of our jobs over $20 million must be bonded, and we can bond up to $100 million on a job. That’s just not possible for a lot of smaller companies.”
Similarly, labor availability is a consistent issue for large companies.
“It’s not uncommon for us to have projects with several hundred employees on them at a time,” Scharff said. “So that can be a real limiting factor. Ours is a service industry, so we have to ask, ‘Do we have the people to do this job?’”
“Some of the jobs we take really challenge our personnel limits,” Scharff said. “On a really big job, we can outgrow the local market’s supply of qualified workers. So we really need road warriors who are willing to travel and to be apart from their family and kids.
“But we’ve also learned how to do that really well: how to travel effectively. Our people are motivated by tough, dirty projects that others don’t want. When someone says to us, ‘Oh, that can’t be done,’ for whatever reason, be that schedule, local politics or whatever, we take that as an opportunity because we’ve probably done it before. So we know how to take on more risk and to do it both well and profitably.
“We’re always looking for people who can do that for us, so our No. 1 issue is to find the best and the brightest people because they are the key to our success. And then we look for exciting opportunities for our staff and our customers.”
“Our No. 1 asset is our people,” Scharff said. “We have our offices, tools and equipment and all that. But it is our people who make us who we are.”
Scharff is passionate about his staff and his employee-owned company and feels his employees are indispensable.
“If you take care of your people, they’ll stay with you,” Scharff said.
In addition to performing traditional electrical work, large contractors have the luxury of maintaining their own in-house specialty services.
“We have about 30 electrical engineers on our staff,” Motor City’s Martin said. “Some of those mostly do design work in the office for us, and others spend the bulk of their time at construction sites. And we have three or four that spend their whole time doing low-voltage engineering work.”
Collins Electrical and Sachs Electric also maintain their own in-house design and drafting departments.
Such diversity sets large contractors up for extensive design/build work and even further-reaching opportunities, including general contracting under the right circumstances. Martin reports that about half of his firm’s work is either design/build or design/assist.
But Withers explained that there can be a large variance in that type of work, as well.
“Our design/build work varies from year to year and a branch to branch,” he said. “You have to move with the market and opportunities put in front of you.”
“We do a limited amount of general [contracting], but it needs to be highly specialized and heavy on the electrical work, meaning more electrical work than anything else,” Scharff said. “After all, we don’t want compete with our general contractor friends.”
Of course, there are additional challenges that come with being a big contractor. One of the first items on everyone’s list seems to be bidding against smaller contractors on small to mid-sized jobs.
“One of our biggest headaches is project owners ‘bid shopping’ and using the big firms’ job quotes to drive the project prices down,” Martin said. “Cheap price does not mean a good job, but some owners don’t see it that way. And some low bids don’t include bonding.”
“It can be hard to compete on smaller projects,” Withers said. “In today’s market, the small bid market of $5 million and under is too competitive and we see bids too low for the work, which will eventually take its toll on the smaller and mid-size contractors.”
Like everyone else, large contractors would prefer to negotiate for their work and not have to go to bid.
“Customers want to control their own outcomes, but they often don’t realize that going to bid does not give them that,” Sachs Electric’s Scharff said, adding that, “If they are concerned about who is on the project, and if they want control over that, they will negotiate a project instead of going to bid. Sophisticated customers who want a guarantee of success align themselves with a qualified team by selecting contractors and negotiating fair commercial terms.”
“Small contractors can afford to be selective and just cherry pick the jobs of that suit them,” he said.
However, large firms don’t always have that luxury.
“We just can’t sit still,” Martin said. “We’ve got to make our own opportunities.”
Like every other business, large contractors report that collecting money can be difficult and that they don’t always get paid promptly for their work. And the bigger the firm, the bigger the payroll.
“Believe it or not, too much work with not enough cash flow will crush and bury a contractor,” Scharff said. “Booking one or two large contracts can send a contractor out of business. A company must be very, very well capitalized before taking on a big project. It is a big step to go big.”
“It’s easier being big or being small,” Martin said. “It’s easier for little guys to get enough steady work, and the big guys can sustain their size easier. But the in-between guys often don’t make it, because that is where the bidding frenzy can kill you, and design/build work takes a lot of depth. So companies need to decide to stay small or grow big. But they need to know that it takes years to prove their ability and develop credibility.”
“Your level of capitalization drives the size of jobs that you should go after,” Withers said.
As the head of a large electrical firm, Scharff reflects, “The grass isn’t any greener for a large contractor than it is for a smaller contractor, but it is different.”
Good electrical work is good electrical work, regardless of the size of the company that hires the electrician. But life at one of the nation’s large firms does, indeed, look different than it does for the many small and mid-size firms.
MUNYAN is a freelance writer in Olathe, Kan., specializing in technical and business writing. He can be reached at www.russwrites.com.