Commercial Contractors Reveal: Survival Tactics

Posted on:

July 1, 2012

The recession has hit some commercial contractors harder than others, with the severity depending on their locations and types of business. For example, Richard Bodwell indicates that business has been booming in Orlando. “We don’t do any new construction,” he says. “We’re strictly a service, maintenance, and replacement business. We’ve seen growth throughout the entire time. We saw a 40 percent increase last year, and we’re 45 percent ahead of where we were this time last year.”

The situation isn’t as sunny on the West Coast, reports Bob Helbing. “Unemployment in California is still around 11 percent,” he says. “In L.A. County, I think it’s closer to 12. We’re not quite the worst in the nation, but we’re pretty close, so we haven’t seen the pickup that people are seeing in the rest of the nation.”

IE3 recently interviewed four commercial contractors to find out how they are faring, what steps they have taken to boost their businesses, and what they foresee in the future. Roundtable participants include:

Richard Bodwell, president, Innovative Service Solutions, Orlando, FL
Pat Halaiko, president, Custom Air Conditioning and Heating Company, Gahanna, OH
Bob Helbing, president, Air-Tro, Monrovia, CA
Ann Kahn, president, Kahn Mechanical Contractors, Dallas, TX.

How is the economy faring for commercial contractors these days?

Kahn: It’s picking up in Dallas. There seems to be an awakening. For several years now, it’s been a little slow. There have been more public jobs than anything else.

Halaiko: For us, it’s improved. It’s doing well compared to 2009 and 2010, but is still not at previous levels.

Helbing: We just landed a couple of projects at USC, and we’re starting to see some more plans come in. We are seeing activity at colleges and universities, churches, and private schools. Those groups still seem to have enough money to get things done. In terms of the manufacturing sector and retail, we’re not seeing much.

The one part of the commercial sector that seems to be growing everywhere is healthcare. However, in California, we have an unusual regulatory scheme: If you wish to do any work on a hospital that keeps patients overnight, you have to run everything through a special state agency. For example, we replaced two chillers at a hospital seven or eight years ago. It took us two weeks to get the chillers installed and two months to get the paperwork approved by the state of California. In my market, expanding into healthcare represents a special issue, but commercial contractors in other states are doing well by focusing on the healthcare sector.

What approaches have you taken to stimulate business during the downturn?

Kahn: We have had woman-owned status for many years, and we have taken advantage of that to drum up business. As a minority, you have an in to bid, but you still have to be low bid. It’s not all peaches and cream.

Bodwell: We never stop stimulating business. We’re always out there knocking on doors. We’re service driven and client focused. We spend a lot of time with our clients.

Helbing: I did a postcard campaign to the commercial sector last year with four or five mailings sharing a common theme. I can’t say I generated much activity. We also tried a web log, “Dr. Dave, the Energy Expert,” with monthly blog postings talking about ways building operators could cut costs by taking care of their heating and air conditioning systems. I didn’t see much activity from that either.

Did you try any other marketing efforts?

Helbing: One comes to mind. Southern California Edison (SCE) launched a large HVAC optimization program. The essence of it is to encourage commercial business owners to get more professional maintenance done at a higher level. Edison will pay a substantial part of the cost for doing proper maintenance. We’ve been marketing that, but it’s been a struggle. As in most utility programs, SCE is requiring a fair amount of paperwork, which puts off the purchasing agents. For example, SCE asks for a complete inventory of HVAC equipment onsite. The purchasing agents don’t have that information, they don’t want to pull it together, and they don’t want to share it, so that program hasn’t been very effective. We’ve landed a handful of maintenance contracts, but the program needs to be more straightforward so people can participate.

Have your companies taken steps to reduce expenses?

Halaiko: Absolutely. We had to cut overhead and expenses and watch our costs closely. Everybody sacrificed. We had to lay off some people for the first time. Before the recession, commercial was the dominant group in

our company, doing a good 65 percent of our business. That dropped in 2009 by 50 percent, which was a big hit for us, but in 2009 and 2010, there wasn’t a whole lot we could do. We could not control the market. What really helped our retail group was the tax incentive for residential replacements, which was a boon to business.

The service group became a bigger part of our volume. Both our retail and service divisions have grown since the recession.

Helbing: I’m mad at my customers for cutting their maintenance budgets, but I’m kind of doing the same thing myself, so I know where they are coming from. For example, our building could use a facelift , but we postponed it.

Kahn: We tend to be frugal all the time. We have an acronym here “DSKG,” which stands for “Don’t Stop, Keep Going.” You can’t rest. You have to keep focused and look down the road.

Have you made changes to your product lines?

Kahn: Yes. We’ve gotten more involved in heavy commercial. We’ve started doing a lot of piping and have added welders to our staff.

Bodwell: We’re doing larger projects now for our existing clients.

Halaiko: A lot of our competition went after public work, because that’s what was out there. Everybody was chasing it. We didn’t see that as a way of surviving. It was all low-bid work. We stayed out of that. We stayed true to what we do and what we do best.

Any other steps you’ve taken to cope with the economy?

Helbing: We’re just trying to make sure the bills get paid, and there’s work for the guys. That’s really what it comes down to.

Kahn: We’ve been very careful in our estimating. We’re also using a lot more subcontractors.

Halaiko: We’re more cost conscious. We have less waste and are more efficient. We have a greater appreciation for our long-term relationships with customers and suppliers.

What mistakes are commercial contractors making?

Bodwell: The mistake I’m hearing is that a lot of contractors are bidding at or below cost, just to keep guys busy. That’s not the way to do things. We’re also seeing a lot of residential coming into light commercial, which isn’t helping the commercial guys.

Halaiko: It’s always a mistake to build volume with no profit. That’s a desperation move.

Helbing: Being in California, this state is not a particularly welcome environment for new industrial operations. Planning is difficult. Zoning is difficult.

I heard one of the top local development economists referring to California as a “Banana Republic.” In this case, banana stands for “build absolutely nothing anywhere near anybody.” Given the obstacles that a potential new business might encounter when building in California, not that many people want to start large manufacturing facilities. The ones that have existing facilities aren’t looking to expand.

I’m sure any businessman anywhere in the country will tell you that government regulation is a problem, but I think we do a particularly bad job of regulating in California.

What’s ahead? Care to make a prediction?

Kahn: I’m an optimist, so I think things will get better. We have to have bottomed out. Enough is enough.

Halaiko: Central Ohio is doing better than a lot of areas of the country. We’ve been very fortunate. We see growth ahead in retail and service. We believe our commercial work will slowly get back to pre-recession levels.

Bodwell: We’re planning for growth. I’m hiring another salesperson.

Helbing: We’ve had a series of four or five mild summers in California so purchasing agents have been able to defer maintenance and replacement without impacting operations. If we have a warm summer this year, a lot of that deferred maintenance and replacement will come due. There’s deferred demand out there that will come alive — probably all in the same day. That’s the way it always happens.

For the first summer in three or four years, I’m looking at gearing up staff. The thing that has kept us going is our service business. Established accounts, even if they aren’t growing, still have work that needs to be done.

Any advice for fellow commercial contractors?

Halaiko: Everybody who has survived the recession has had to control overhead and job costs. My advice is to value your relationships with your customers, as well as suppliers. Our suppliers were key to getting through this. They were supportive and suffered along with us.

Helbing: Stay in regular contact with your commercial service accounts, so if equipment needs to be replaced, you’re the guy they call. Had we not had the service department to pay the overhead while the economy went south, we might not be here. Keeping the service department healthy and customer relationships strong is vital to a commercial contractor.

Bodwell: Understand your financials. Don’t pick up just any work. Make smart decisions. Being the cheapest is not being the best. Focus on service development.

Kahn: We’ve been in business 38 years so we’ve seen several downturns. They are a normal part of the business cycle. My advice is to save money when times are good. In another six or eight or 10 years, there will be another downturn. Be ready.