Entering the Growing Institutional Market

At the beginning of 2000, industry forecasters from McGraw-Hill predicted increases in virtually all segments of electrical construction, except for the residential and office sectors. According to several electrical contractors, that prediction has proven true, particularly for institutional projects. “In our market, there has been an increase in institutional projects,” observed Jonathan Ostrow, vice president and general manager of Ostrow Electrical Co. Inc., Worcester, Mass. Ostrow attributes the growth in hospital and educational facility work to both a booming economy and to Massachusetts’ historically progressive attitude toward public welfare and cultural projects. In Franklin Park, Ill., headquarters of Divane Brothers Electric Co., both hospital and governmental projects are on the rise. “Governments are realizing that infrastructures have been neglected and must be modernized,” said Bill Divane, president. Jack Beck, Sr., CEO of Enterprise Electric Co. Inc., Baltimore, Md., has recently seen a local increase in educational facility projects. “The state of Maryland is spending a great deal of its budget surplus on schools,” he said. Bill Heller, president of Heller Electric Corp. Inc., Brandywine, Md., also said that work in educational facilities is growing. “A lot of existing facilities are remodeling to integrate the next generation of automated building technology.” There has been a big push in the area to bring structured premise cabling into the school districts to allow facilities to integrate their systems, as well as to provide modern computer systems for the students. “In general, governments today have more money to establish more research facilities and to provide more services to varied groups,” said Jack Singleton, president of Singleton Electric Co. Inc., Gaithersburg, Md. Although Singleton is presently performing less work in hospitals, the company has more projects for other types of medical facilities. “As demographics continue to shift, fewer patients will be receiving care in hospitals and will be in either assisted living facilities, outpatient care facilities, or nursing homes,” he explained. The prison market is also on the rise in Singleton’s market, and he attributes that growth to both the building of new prisons and to the retrofitting of existing facilities to accommodate such laws as the Americans with Disabilities Act (ADA). According to Heller, Washington-area prison work is stagnant. However, with nationwide overcrowding in facilities, he predicted the prison segment of the market will remain healthy. At Jamerson & Bauwens Electrical Contractors Inc., Northbrook, Ill., changes in the hospital segment of the institutional market are the only constants. “Change in this segment is predicated on the explosion of new medical technologies and the advances in patient care,” said Howard Bauwens, president. Defining institutional work The institutional market, which includes hospitals, prisons, and educational facilities, is on the rise. “Institutional projects are in the public sector, but are not sponsored by the government, and consist of facilities that serve educational, cultural, and medical needs,” Ostrow said. They are demanding, complex, large-scale projects requiring a high level of technical sophistication with strict construction schedules and deadlines. Ostrow considers government work to be a separate market segment that includes prisons and other government-owned facilities. “Government work involves tax dollars, public bid laws, and prevailing rates,” he explained. Other contractors, however, include governmental projects as part of their institutional market. Divane defines institutional projects as either governmental or hospital facilities, while Beck adds state-run educational facilities to the list. “From our standpoint, most institutional projects are either mainly federal, state, or city government work, or any part of an educational facility, including dormitories, art centers, and classrooms,” he said. “Most of our work is primarily for local government, including prisons and schools,” Heller said. And Bauwens defines the market as mostly hospital work, including both new construction and retrofit projects. “Regardless of how an individual company defines the institutional market, it is very labor intensive,” observed Singleton. How does the institutional market differ, then, from other electrical construction? “Institutional work requires more direct contact with owners on issues such as priorities, scheduling, and value engineering,” Ostrow said. Owners are more involved in these projects because usually facilities such as hospitals or cultural centers are non-profit and have smaller staffs. These owners also demand a higher level of service. “Many facilities, especially those that are smaller in size, only have major renovations or start a new project once every 10 years or so and rely on the contractor for value engineering,” he said. “Contractors in the institutional market have to deal more with government agencies and with owners that have more stringent requirements for the materials used and the installation provided,” Divane said. What differentiates the institutional market segment from the others is the number of specialized systems involved, according to Heller. “Modern hospitals and educational facilities require a great deal of telecommunication backbones, computer, security, sound, and intercom systems, and special stage and stadium lighting systems not generally found in the commercial, retail, or residential segments,” he said. Singleton agreed that institutional work involves specialized markets. “Prisons require particular security systems, while hospitals involve specific nurse call, security and fire, patient care, and emergency systems, all of which is constantly changing with advances in telecommunication technology,” he said. The differences don’t end with technology. Learning how to deal with government entities and estimating these projects also distinguishes the institutional market segment. “Institutional projects tend to be larger and fully designed, and so require estimators with the experience to work with architects, engineers, and lighting consultants,” Ostrow said. “Estimating is the most important step in the process because in the public sector you are not able to adjust your pricing figures,” Divane said. Financial strength is another requirement because public bids are submitted along with bid bonds or other securities that stand as a guarantee that the project will be performed for the amount of money quoted. Bauwens said estimating institutional projects involves higher labor costs than estimating other types of jobs do. “The electrical installations at institutional facilities are more technical, and require higher levels of training and costs.” Dealing with government entities requires a great deal of awareness. For instance, practically all government agency-owned institutional projects require that certain percentages of the contract be subcontracted to minority- (MBE) or women-owned (WBE) business enterprises. “The institutional electrical contractor must keep current on federal, state, and local regulations, such as certified payrolls and Davis Bacon,” Beck said. “The government constantly adds standards and procedures that must be followed,” Singleton added. Companies involved in institutional work, therefore, must have office staff that is proficient in preparing the various reports required by the government. The advantage of dealing with the government, however, is that these same regulations guarantee that the electrical contractor will be paid. Breaking into the market According to Ostrow, larger, more established firms have a greater chance of entering the institutional market successfully. “This type of work requires both financial depth to qualify for the necessary bonds and a longevity that inspires trust by the customer.” Companies that succeed in this market must also have depth in their management and engineering staffs in order to provide the higher levels of service institutional customers require. Bauwens also believes that it takes years of building a base of knowledge and developing a reputation in order to succeed. “It’s helpful if you already have an excellent reputation and proven track record as a commercial contractor before trying to break into the institutional market,” he said. For the electrical contractor ready to give it a try, he advises performing extensive market research, having the willingness to invest in additional training and equipment, and obtaining manufacturer certification in products. “To break into this market, you need qualified people with backgrounds in estimating, bidding, installing, and maintaining the types of highly specialized systems required by institutional customers,” Heller said. He believes that the greatest expertise needed for successfully breaking into institutional work is estimating. “The key to success is knowledge,” he added. Once the decision is made to break into the institutional market, the electrical contractor needs to fully commit to it. “The experience gained will enable the company to expand and grow.” Divane believes in eliminating mistakes by having a detail-oriented operation and the financial resources and equipment to perform the work. “Institutional projects are complex and each one is unique,” he said. When dealing with government institutions, however, Beck believes it might actually be an easier market to break into because of the inherent anonymity. “Private owners tend to deal with companies they already know, but government agencies are not allowed to discredit a bid just because they don’t have a previous relationship with the contractor,” he observed. The market’s future “As long as the economy remains robust, there will be more money invested in health and cultural facilities,” Ostrow predicted. He foresees institutional facilities becoming larger and more sophisticated to satisfy the community’s demands. “The institutional market is always on the cutting edge of available technologies, which creates a constant flow of opportunities for contractors.” Singleton envisions continued growth in institutional facilities, such as assisted living facilities and nursing homes, as new advances are made in medical technology. “Institutional projects will become more complex and electrical contractors will be installing more fiber optics and more low-voltage systems that transmit voice and data faster than they do today.” Bauwens agreed and said the hospital segment of the institutional market will continue to grow as technology advances and the aging baby boomer generation demands more sophisticated medical services. In Washington, D.C., Heller predicts that new construction for educational facilities will continue to grow and be driven by the area’s increasing population and shifting demographics. “The retrofit segment will also continue to grow as existing facilities age and require the installation of modern technology,” Heller said. He also believes that the prison and hospital segments of the institutional market, driven by increasing populations, will continue to grow, although not at as high a rate as educational facilities. Both Beck and Divane predict that the institutional market has a bright future. “In today’s economic climate, there is a lot of spending on new or retrofit construction,” Beck observed. The construction market as a whole, partially driven by a tight labor market, has been performing well over the past four or five years, and Beck said he sees no reason this trend won’t continue. “The modernization of the infrastructure has really only just begun, and there are thousands of challenging opportunities across the country for electrical contractors as hospitals, government agencies, prisons, and educational institutions require upgrading to take advantage of the latest technologies,” Divane said. BREMER is a freelance writer based in Solomons, Md. She can be reached at (410) 394-6966 or by e-mail at dbremer@erols.com.

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