Staying Afloat

Many specialty contractors face tough decisions in difficult economic times

By Debra Wood

Subs see value in looking ahead and investing in training while waiting for market to turn. But is it feasible?

Specialty contractors on large-scale jobs like the New Meadowlands Stadium in East Rutherford, N.J. are learning valuable new technologies that will help them remain competitive in the future.

During the economic recession, specialty contractors are being forced to do what they can to be more competitive and attractive to contractors. For some, that has meant upgrading skills, learning the latest about building information modeling and sustainability. For others, it has meant spreading out geographically. But all agree that surviving in this climate is about embracing change while still doggedly pursuing traditional jobs.

“There continues to be abundant opportunities for specialty contractors, even in this economic climate,” says Henry L. Goldberg, an attorney with Goldberg & Connolly of Rockville Centre, N.Y., which represents subcontractor firms. “The federal stimulus program, primarily with its emphasis on public works jobs, enables contractors already entrenched in this marketplace to readily take advantage of these opportunities, while contractors first expanding into public works must do so only with careful planning and guided by seasoned counsel.”

Diversifying for longevity “The key word is diversification,” says Gary Segal, chairman of GreenStar Services Corp. of New York. “A construction company is all about the talented people within the company, and if you have the people to diversify, do an apartment building and the next year do a school or a Department of Environmental Protection plant, that’s huge.”

GreenStar’s Five Star Electric Corp. and WDF divisions are working on more than $250 million in electrical and plumbing work, respectively, at One World TradeCenter for Tishman Construction of New York. Five Star recently completed the electrical work on The Visionaire, a 40-story, LEED-platinum condominium building in New York for Turner Construction Co. of New York. In addition to private projects, the firm provides mechanical, electrical, plumbing and specialty general construction for infrastructure jobs, such as transit and water treatment facilities.

GreenStar recently received more than $370 million in construction, electrical, heating and plumbing work at a New York City DEP project at the Newtown Creek Wastewater Treatment Plant in Brooklyn. WDF and Five Star are completing $150 million in plumbing and electrical work on eight transit stations for the Metropolitan Transit Authority in New York.

“That type of work ranges from two to four years [duration] and gives you a solid base of revenue and profits where you can keep your key people,” adds Joe LoCurto, president and COO of GreenStar. “When times change in the private sector, it [will] allow us to mix private work in with our public sector work.”

Another company leveraging its public sector experience to buffer a decline in private projects is EMCOR Group of Norwalk, Conn., which performs work in refineries, power plants and water treatment facilities. Its Welsbach Electric subsidiary is completing an electrical installation at a new clean-water treatment plant in Westchester County for the New York City Department of Environmental Protection and a system at the Newtown Creek water treatment plant.

“That allows us to have more earnings stability than your typical one-trade contractor working in one area,” says Tony Guzzi, EMCOR Group president and COO. Guzzi says EMCOR is focusing on core operations and cutting excess people and cost. The company also has reduced workweeks and frozen salary increases.

Clockwise From Top Left: Goldberg, Segal, LoCurto, Nunez, Barrett and Grassi.

Innovating and finding a unique niche Nunez Electric of Long Island City, which historically has performed mainline, low-voltage work, recently began looking at electrical high-voltage work and performing projects for DEP and the transit authority.

“As the economy changes, we are becoming more diversified, specifically in terms of looking into energy conservation construction, and are diligently training our personnel to estimate and install this new industry,” Raquel Nunez, president of Nunez Electric, says in an e-mail.

Raymond Saleeby, president and CEO of Remco Maintenance, a building restoration and maintenance contractor based in Long Island City, credits much of his firm’s current success with diversifying, broadening the services it offers. It added waterproofing and painting of skyscrapers, finding a specialized niche that few other firms can handle. Remco is currently painting 270 Park Avenue in Manhattan and is waterproofing One Chase Manhattan Plaza.

“We have 57 scaffolds in the air at any one moment,” Saleeby says. “In some portions of the business, we became known as able to mobilize a lot of people on major projects.”

Remco is finding the most effective, environmentally friendly cleaning products and using them on its service jobs. Saleeby says the company had the best year ever last year, and has started several large projects, with two- to three-year durations.

New York Gypsum Floors of Larchmont, N.Y., also performs specialized services—placing underlayments and leveling cement in everything from wood-frame apartments to high-rise structures and installing radiant heat in single-family homes. The company keeps busy by working in multiple market segments, new and renovation, and operating in a 150-mi geographic area, says Eric Johnson, the firm’s vice president.

Revenue at New York Gypsum Floors was up 12% in the first quarter of 2009, mostly with new work. Johnson says that while opportunities have slowed some, he expects the company will finish 2009 with about the same amount of revenue or perhaps 5% less than in 2008.

E-J Electric Installation Co. of Long Island City, N.Y., launched E-J Energy Services in February. It installs solar energy arrays, waste heat generation, fuel cells, automated controls and other energy systems.

“We’re trying to be solicitous to our good clients and trying to come up with other ideas our clients would appreciate,” says J. Robert Mann Jr., CEO of E-J Electric Installation Co., which recently completed work on the new Yankee Stadium and Bank of America tower. “We have just started an energy company to save clients money on doing energy projects.”

Investing in people Some firms are investing in their human assets.

“We’re building a foundation for a company that will last,” GreenStar’s LoCurto says. “This business is all about people. Anyone can buy equipment and tools. That doesn’t make you a contractor.”

GreenStar has maintained staff and is still bringing on talent.

“If that person would make us better or give us an advantage to do more [of a certain type of work], we would hire,” LoCurto says. “If someone talented comes along, we would grab them, even if we didn’t have the work.”

And if GreenStar employees have a desire to learn and improve their expertise, the company will train them in management skills, software and other aspects of construction, LoCurto says.

GreenStar companies also employ building information modeling. LoCurto says BIM makes the company more efficient and able to deliver better-quality work, but he doubts it makes the company more competitive.

But James P. Barrett, manager of virtual construction technologies at Turner Construction Co. in New York, says BIM is a differentiator that helps firms stand out as innovative and progressive.

“For a Turner BIM project, all things being equal, a subcontractor’s BIM experience will be a tiebreaker in selection,” Barrett adds.

Barrett calls BIM a pocketbook issue, saying the technology helps specialty firms improve operations. Turner often has hired a consultant to work with and teach modeling to its subcontractors, but now, Barrett says, those firms couldn’t imagine not using BIM.“It’s fundamentally a better process for them,” he adds. “It creates a more predictable guarantee of profitability.”

Bonland Industries, an HVAC contractor in Wayne, N.J., has used BIM on Turner and other jobs. Bill Boniface, president of Bonland, calls it a resource for reducing the cost of construction and bringing greater efficiency to the job.

“I think contractors involved with BIM will lead the industry into the future,” Boniface says.

Staying competitive Competition is increased as more firms attempt to enter new markets. E-J Electric Installation Co.’s Mann says there are often 10 or 12 bidders on a project that might have attracted three or four contractors in years past.

“In order to secure any business opportunity, contractors are dramatically cutting their prices,” says Louis J. Coletti, president and CEO of the Building Trades Employers’ Association in New York. “It’s extremely competitive, since new business opportunities are few and far between.”

GreenStar will not take work below cost just to keep people working,” LoCurto says. “We will get our fair share,” he adds. “Our people will stay the course, and the company will become stronger.”

Remco focuses on adding value not price cutting, Saleeby says.

“We’re competing against a lot of players in the survival-pricing mode, trying to provide cheaper solutions, because people don’t have as much money,” he says. “If you think it’s too good to be true, and there are some too-good-to-be-true prices, it usually is.”

In the end, the construction industry will overcome the economic downturn, says Louis C. Grassi, managing partner with Grassi & Co., an accounting and business advisory firm in Lake Success, N.Y. He says his subcontractor clients are surviving the economic downturn.

“They are diversified and creative, looking for that next set of opportunities,” Grassi says. “Public work, especially with the School Construction Authority and Dormitory Authority, is picking up . There will also be increased opportunities in infrastructure work, an area that will experience its own injection of funding.”