According to “The Federal Commitment to Green Building: Experiences and Expectations” report from the Department of Energy’s (DOE) Office of Energy Efficiency and Renewable Energy, the U.S. government owns nearly 500,000 buildings that cover 3.1 billion square feet, account for 0.4 percent of the country’s energy usage, and emit about 2 percent of the nation’s building-related greenhouse gases.
Along with being a sizable market, America’s government buildings have also demonstrated a strong commitment to supporting energy-efficient measures. In the interest of enhancing our nation’s global competitiveness, legislation such as The Energy Policy Acts of 1992 and 2005 required federal buildings to reduce their energy use by 35 percent by 2010 (compared to 1985 levels). Other laws, executive orders and policy instruments, such as the Energy Independence and Security Act of 2007, have continued to require or promote green building practices in this sector. More recently, President Barack Obama challenged the federal government to complete $2 billion in federal building upgrades without the use of taxpayer money by using long-term energy savings to pay for upfront costs, according to the Environmental Protection Agency. Federal agencies have since identified the target projects and have already awarded more than $400 million in construction contracts.
Ranging in size from buildings of a few thousand square feet to landmark structures (such as the Pentagon and U.S. Capitol), government and municipal buildings come in many forms, including National Park visitor centers, Army barracks, single-family homes, post offices, veterans’ hospitals, embassies, prisons, schools, Air Force hangars, border stations and office buildings. Their applications and purposes vary widely.
Based on the collective mandate to be upgraded and using more energy-efficient technology, however, these diverse buildings represent great business opportunities for contractors that understand and are willing to meet the needs of this unique customer segment.
“Government and municipal projects are heavily reliant on public funding, which has been impacted significantly by recent economic conditions,” said Kevin Kohl, commercial product manager for Pass & Seymour, Legrand Electrical Wiring Systems. “Major vertical markets like education have felt these effects, and funding has yet to recover from prerecession levels. That being said, however, the economy is set to rebound from its slumber, and modest, single-digit growth is predicted for education and institutional verticals, according to recent AIA [American Institute of Architects] forecasts.”
While these statistics speak to construction starts in particular, Kohl said that there will also be a range of smaller scale opportunities available in the form of retrofits.
“These opportunities exist because, just like commercial enterprises, municipalities need to repair, maintain and update individual rooms/offices or even retrofit entire floors and buildings,” he said. “Changes in building and energy codes are also creating great opportunities for electrical contractors, as they bring forth added opportunities that can be seen in all stops along the value chain.”
Though Kohl said that the recession hit the government and municipal construction market especially hard, he believes that this segment, along with the overall construction market, is poised for a rebound.
“Most economic forecasts point to 2015 growth projections in the 5–7 percent range for new construction,” he said. “Retrofit activity will continue to be prosperous as well, as tenants will seek upgrades in functionality, flexibility and overall efficiency. Now is a great time for contractors to become engaged in this market opportunity.”
Andrew Wakefield, director of Government Solutions for Lutron Electronics, is optimistic as well.
“There are many great opportunities for contractors to pursue in the government and municipal market, particularly in the retrofit energy-reduction space,” he said. “New construction opportunities certainly exist, but many organizations are looking for ways to make their existing buildings more efficient, so contractors who build up an expertise in this area are providing a service that’s in high demand.”
Otto Kirchheiner, vice president of Tri-City Electric Co. Inc., a Miami-based electrical contracting firm that has served southeastern Florida for more than 50 years, concured that this market can represent a good opportunity, but only if a contractor approaches it prudently.
“Because jobs are often awarded strictly on the lowest bid, you have to pick and choose the jobs that best fit your needs and expertise,” he said. “Jobs that have a lot of holes, extras, add-ons or additional phases are the ones that can be most lucrative.”
Relative to the key needs and trigger points of this market, Kohl said, “government and municipal customers want contractors and manufacturers to help them achieve a number of key objectives, and meeting current energy, electrical and building codes is at the top of the list. This means that the contractor has to install Code-compliant electrical devices that meet the respective building, electrical and energy codes as required by the state, federal government or municipal entity. Government and municipal customers also want high-quality, dependable products that can be easily upgraded or reconfigured as tenants’ needs change. They also want products to be installed as quickly as possible with minimal disruption so that they can get on with the business of serving the public and their various constituents.”
Wakefield said it behooves contractors to understand that government organizations are tasked with accomplishing some form of mission, one that can involve anything, from providing drivers’ licenses to training fighter pilots.
“It’s important for contractors to understand their government customer’s mission and to speak to it in their proposals by describing how the specific solution proposed will contribute to, and support, that mission. In our industry, that’s usually focused on being more sustainable and reducing energy and operating costs with lighting controls. Contractors who can tie the specific goal of a project to the overall mission of an agency stand the best chance of winning the business,” Wakefield said.
In Kirchheiner’s experience, government and municipal work can involve a long business cycle.
“It starts with an architect, then goes out for bid, is often rebid to keep it within a certain budget, and then needs to be approved by a team that can involve a city commissioner, attorneys, procurement people, etc.,” he said.
The bottom line is that it can take 6–8 months from the time of the original bid for a project to see the light of day, Kirchheiner said.
“There are also layers and layers of paperwork in the process, such that government projects don’t necessarily represent a fast-turnaround payment situation,” he said. “You have to make sure that you can finance yourself if you’re doing this type of work.
“Government and municipal customers are often looking for contractors who offer diversity through minority, veteran and other small interest group status, so it’s helpful to align yourself with these types of groups, possibly through some kind of joint venture,” Kirchheiner said.
“Opportunities are often set aside that can only be awarded to a small business, for example,” Wakefield said. “The key to finding these opportunities is to do your homework, understand the rules of the road and partner with vendors who have experience in the space.”
Our experts shared the following tips to help contractors successfully navigate and succeed in the government and municipal market.
Know the rules of the road: “Items such as wages, small-business set-asides, affirmative action plans, and the installed product’s country of origin commonly need to be factored into a project,” Wakefield said. “It takes a while to understand all of these rules, and they’re individualized to specific government customers.”
Make a commitment: “To make money in this sector, you need to focus on it 100 percent,” Kirchheiner said. “You can’t do it as a sideline. Rather, you need to have an individual dedicated to it to take charge of this work and follow all public invitations and notices.”
Wakefield suggested that the best way to achieve success is to “focus on a segment and understand it completely. For most contractors, it can be overwhelming to try to specialize in every aspect of government business.”
Hot products: “In our market, lighting retrofits are the most popular projects being done, and [light-emitting diodes]LEDs are the major technology being used,” Kirchheiner said. “Schools and street lighting are some of the biggest opportunities in our area, along with water treatment work because that infrastructure is old, and systems are breaking down.”
Meanwhile, Wakefield said, “We’re seeing a demand for total lighting control solutions that can tie into building management systems, provide energy and usage reports, and even contribute to energy security by integrating with the smart grid or installation microgrids. We’ve also seen a broader acceptance of wireless lighting controls and sensors in government buildings, as they provide a great opportunity to reduce retrofit costs.”
Control costs: Kohl said that being cost-competitive is key to successfully serving the government and municipal markets.
“Government and municipal sectors are price-sensitive, are constantly looking at expenses, and want a return on investment that’s within budget,” he said.
Stay true to specs: “Keep your bids exact to specs,” Kirchheiner said. “You may find a lower cost option, but the customer could come back and challenge you for taking a shortcut, which could end up in a lawsuit.”
Wakefield’s experience has been similar.
“Never guess at something, as the costs to fix noncompliance can mount quickly,” he said.
Be patient: “It can take some time to get set up to start submitting and winning bids as either a sub or prime contractor, so contractors need to take a long view and approach these opportunities with patience. Looking for a quick payoff is likely to be frustrating,” Wakefield said.
“There are a lot of ins and outs to this market. All of the various government and municipal projects have a different system, and there’s definitely a learning curve,” Kirchheiner said. “But, if you have the time, the understanding and the people to stay on top of all of the paperwork, this market can be profitable.”