When Times Are Tough

By John Paul Quinn | Aug 15, 2008
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With the economy at best flat-lining, electrical contractors are facing the same challenge as every other type of business: finding projects to replace traditional jobs that have been stalled or put on ice indefinitely.

“As the noose tightens around our necks in this economy, there are fewer projects to go after, so we’re looking at opportunities that we wouldn’t ordinarily pursue,” said Gary Misicka, vice president and general manager of Lyons Pinner Electric Co., LaGrange, Ill. “We’re looking more at the public sector where, for example, there is ongoing school construction in Chicago.”

The problem with this sort of project—as with any municipal work—is the bureaucratic regulatory wrapping on the package.

“This business is stressful enough, what with wondering whether you’ll make money or not, and if you’ve included enough man-hours and materials in your estimate,” Misicka said. “You don’t need to have to worry about whether you’ve met municipal minority employment requirements, which can result in penalization with liquidated damages charges.”

But in difficult times, a contractor has to put up with hassles that otherwise would be avoided, and Lyons Pinner has gone this route before.

“A few years ago, when things tightened up, we went after fire stations,” Misicka said, “and right now we’re working on one of those as well as renovating two high schools.”

By design, the company has no niche, he said, having learned over time to diversify so that the loss of any part of its business wouldn’t be debilitating.

“It’s like a stock portfolio … although maybe that’s not such a good analogy to be making right now,” he said.

Part of this strategy has involved working on the railroad, which now offers yet another option—provided, again, that the company is willing to accept a certain amount of inconvenience.

“Railroad work has become a good part of our business, and they’re always building yards and maintenance facilities,” he said. “They often asked if we’d travel outside of the area, but we didn’t in the past. Now we’re listening, and this is probably the biggest change we’ll make at this time.”

Necessary travel

With the traditional Chicago market tightening, traveling has become a more acceptable option for a number of contractors.

“We’ll go anywhere we feel can compete effectively,” said Jack Dougherty, chief operating officer of Huen Electric Inc., in Broadview, Ill. “The decision depends on the market and the individual opportunities within it, not on how far away it is. Right now we’re working at least 1,000 miles from our home office.”

For the most part, Huen has chosen to stay with the market sectors it has traditionally served but has stressed to clients that it will work in other parts of the country where they may not have a relationship with a local electrical contractor.

“We’ve been a little surprised at how much healthcare work there is out there,” Dougherty said. “This fits well into the company’s strategic plan, since that is one of our target markets in which we have a record of performing successfully for the client. We intend to stay essentially with what we do best but will travel to do so.”

This sort of travel, in the context of current harsh economic realities, is largely precipitated by profit margin pressure.

“Historically, we’ve only gone out about 50 to 100 miles,” said David Witz, president of Continental Electrical Construction Co., Skokie, Ill. “But now, more than ever before, we’re traveling outside of our usual jurisdiction to find profitable work. We’ll go anywhere in the country, but mostly we’re talking about Michigan, Indiana, Iowa and Wisconsin.”

This roadwork is, for the most part, what Witz described as “mission-critical,” related to the company’s data market field of specialization. This includes data centers, call centers, and voice and data cable work.

“If we’re going to maintain our margins, we have to keep looking outside for additional opportunities,” he said.

The margin squeeze, according to industry observers, has a lot do with migration within the contractor community. Many residential contractors, feeling the fall-off in home construction, have moved into other markets, initiating more competition and the inevitable margin trimming.

This has impacted not only the data market, but also areas such as the aforementioned healthcare.

“A fair number of pretty large residential contractors are coming into the healthcare arena,” said Mike Deger, vice president of Block Electric Co., Niles, Ill. “On the first couple of jobs they do, they can’t believe you can lose that much money, but after they do a few more, they realize you can. So they either get out or start raising their prices, but by then the damage has been done.”

Faced with this situation, Block has become more involved in out-of-state work for existing customers that are setting up new remote locations. In those cases, the company works with local general contractors.

In addition, the firm is always open to requests to travel for specialty projects.

“We’ll travel to do lighting and control systems work,” Deger said. “A local customer put us on to a job involving a substantial piece of decorative art that includes intricate special lighting effects. There’s still work out there, but you just have to work harder to get to it. Like this artistic lighting job. It’s in Atlanta.”

No rest for the weary

Even if your market and business have so far been spared the recessional rigors afflicting other parts of the country, it pays to be prepared.

“To date, San Francisco has managed to buck the national trend, and construction is up,” said Mike Garner, vice president of sales at Cupertino Electric Inc. “And our diversified efforts in niche areas like data centers and casinos have worked out well. But we felt we had to expand both geographically and also into new disciplines. We see a significant growth opportunity in the Los Angeles marketplace because of its sheer size.”

In line with this strategy, the company opened a new office earlier this year in Santa Fe Springs and also is continuing to develop a photovoltaic/alternative energy group. While cognizant of the somewhat tenuous future of solar technology’s use because of its dependence on tax incentives and utility rebates— which are expiring and may not be continued due to the present economy—the company intends to persevere in its photovoltaic operations. And there is ongoing major concentration on its data center work.

“This market is seeing a significant rebirth,” Garner said. “Data centers were going strong during the dot-com era before that bubble burst, but now it’s coming back. Instead of speculative dot-coms, now the players are revenue-generating companies like Yahoo and Microsoft that need data center space.

“Because of our 10 years of experience, this work now represents 30 percent of our business, and we want to be sure we’re positioned to travel for any customer who wants a data center in any part of the country.”

The chameleon defense

Whatever the particular circumstances may be, the consensus is that diversification is critical to survival in troubled times.

Metropolitan Electrical Construction Inc., also in San Francisco, has a tripartite structure—electrical, data communications and special projects.

“If one division slows down, almost invariably another picks up,” said Jack Minkel, Metropolitan general manager.

The special projects unit has been especially successful, he said, because the group began focusing on the wireless phone industry virtually since the technology’s inception.

“We work with all the major carriers: Verizon, Sprint and AT&T,” he said. “And since 1996, we’ve been building their cell sites, which are basically relay stations or antenna facilities. As the industry grew and the vendor roster expanded, with cell phones becoming an everyday, every-minute necessity for the general public, the technology had to evolve to meet growing customer demands for system speed and range. So most of the original sites have had to be modified with updated equipment. This has kept Metropolitan busy for 15 years, and it’s obviously an industry that’s not going to go away.”

Another major client base for the group is banking. Given the extremely competitive nature of this business in today’s financial environment, most financial institutions have adopted the practice of updating their facilities every two or three years to be more customer friendly, which requires refurbishing all branches in a chain.

And, in this culture of breaking headlines, the public appetite for the latest news has to be fed. The last thing a news-gathering agency needs is electronic downtime, so the San Francisco Chronicle has a team of 20 Metropolitan electricians on hand 24/7 to make sure the newspaper operation is up and running.

“Diversification is key,” Minkel said. “And this applies not only to the markets we serve, but also to the training of our people. We try to keep our electricians moving from one business group to another, so that they can keep up with technological changes. Then when demand grows in one area, there is a universally trained work force on hand to fill in, switching over from another area where things have slowed down. This is where flexibility counts, and it’s something we’ve striven to develop.”

Looking ahead, the company has its eye on photovoltaics and is training some of its people in solar work.

“The demand isn’t there yet commercially,” Minkel said, “but the city of San Francisco has plans to set aside funds for converting many of their buildings to the ‘green mode.’ So we’re getting a number of our people LEED-certified, and when we see the demand growing, we’ll be in a position to step in.”

Summing up the company’s emphasis on diversification, Minkel drew a zoological analogy: “Anybody can make it when there’s prosperity. But when it’s slow like this cycle we’re in now, you have to be able to do different things to survive. You can’t afford to pigeonhole yourself in this business. You’ve got to be a chameleon to stay ahead.”

QUINN reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached by phone at 203.323.9850 or by e-mail at [email protected].

About The Author

John Paul Quinn reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached at 203.323.9850 and [email protected].





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