Subcontractors Build on Niches in 'Lumpy' Construction Market
Daytime television gained some viewers during the recession, which was not such a bad thing for some specialty contracting firms, says Zach McGuire, MasTec Inc. advanced technology group president. The increase in the number of people watching TV spurred demand for more channels, more shows and more work for firms like McGuire's with expertise in satellite TV installation and service upgrades.
"We're not recession proof," McGuire says. He adds, however, that his firm's ability to provide satellite TV expertise for both commercial and residential building clients has allowed it to grow when many of its rivals have shrunk or gone out of business. In fact, he says, this specialization is largely responsible for the Coral Gables, Fla.-based firm's whopping 245% increase in revenue for the tristate region last year.
MasTec (ranked No. 4 in this year's listing) expanded its footprint into New York, New England and Pennsylvania in 2011 with the acquisition of Halstead Communications, an Olean, N.Y., install-to-the-home contractor whose primary customer was satellite television firm DirectTV. Despite the challenging economic environment at the time, the deal enhanced MasTec's existing relationship with DirectTV and helped it gain an exclusive contract with the company.
While some specialty contractors are still reeling from the industry's ups and downs during and after the recession, others are finding niches or markets that allow them to capitalize on advanced technologies that are gaining traction. These include technologies in the power sector such as smart grids, microgrids and alternative energy, subcontractors say.
Taking Their Lumps
"Construction is a lumpy market," says Tony Guzzi, president and CEO of EMCOR Group Inc. (ranked No. 2). "It is not an industry that lends itself to linear growth; it can be more episodic. Sometimes you don't get the job, sometimes you do. Diversified contractors know that's how it works," he says.
This year's ranking of the top 50 firms that participated in ENR New York's survey reflects the market's weaknesses as well as its strengths. There are 10 newcomers to the ranking and, of the 40 returning participants, nearly half (43%) underwent revenue declines while the remainder saw an increase.
Even so, executives say that the market is healthier today than it was three years ago because sectors including higher education and health care remain robust and post-Superstorm Sandy reconstruction work is ongoing. They also point to new opportunities as institutions and entities embracing advanced technologies flourish, particularly in the power sector.
The emphasis on advanced technologies, for example, was recently underscored in both New Jersey and Connecticut with separate announcements that the states would harden infrastructure against severe weather events like Sandy by installing electrical microgrids. These small energy centers, which use a mix of power sources and typically include alternative energy systems, are "smart" systems that are usually connected to a region's primary utility but can also run independently in "island mode," says Peter Asmus, principal research analyst at market research firm Navigant Consulting, Chicago. Demand for microgrids is growing worldwide but especially in the U.S., he says.
In late August, New Jersey Gov. Chris Christie announced the signing of a memorandum of understanding with the U.S. Dept. of Energy, NJ Transit and the N.J. Board of Public Utilities for what he says will be the first of its kind energy microgrid to keep electricity supplied to NJ Transit even when the main utility's power fails. In July, Connecticut became the first state to launch a statewide microgrid pilot program that will keep the electricity turned on to critical government services and businesses.
The trend is not lost on industry. O'Connell Electric (ranked No. 6) recently invested "millions of dollars" in bucket trucks, cranes and other equipment for smart grid technology, another growth market, says Vic Salerno, the firm's CEO. For O'Connell, business has been strong and steady in recent years, although the firm's 2012 revenue dipped 0.6% to $118 million, Salerno says. He says the firm remained active in the medical and education sectors during the recession but that utility work was and is "our sweet spot."
O'Connell's recent projects include a 12-kV distribution substation in downtown Syracuse, N.Y., for Smart Grid. The recently completed job included new above-grade steel, buss work, high-voltage switch gear and instrument transformer testing. The substation, which broke ground last May and was completed two months later, will provide redundancy to distribution circuits and add much-needed reactors and cap banks as well as mobile station connection points, Salerno says.
McGuire also sees company growth potential with smart grid technology, especially in the next few years if utilities swap out their old electricity meters and replace them with new, interactive ones. "This will provide a need for companies like MasTec to install them," he says. He adds, however, that utilities will do this at their own pace, depending on the current age of meters. "It's not going to be an overnight boom."
At O'Connell, the planned opening of an Albany office as soon as year-end is expected to boost opportunities in the upstate region, Salerno says. The firm is already working there and plans to wrap up the $10-million Stony Creek wind farm project soon in Organville, N.Y. The project includes a 230-kV interconnection switchyard; a wind farm substation; and the routing of 29 miles of a utility fiber line.
"When you're doing well, you try to invest to perpetuate it into the future," Salerno says. He adds that he remains cautiously optimistic about the future. "The market is getting better for everybody, but it's a very fickle industry so we're not cocky about it."
EMCOR's Guzzi agrees. While his firm's regional revenue rose nearly 7% to $694 million, staffing levels have not yet returned to pre-recession levels. EMCOR's new hires are up from three years ago, however, and Guzzi says he is focusing "less on revenue and more on opportunities."
Guzzi expects transportation work to rise in the region during the next six to 12 months. He declined to give specifics but says that EMCOR has major regional bridge and other infrastructure work in the pipeline.
Several firms received major work from the transportation sector, including Northeast Remsco Construction Inc.'s (ranked No. 7) $100-million New Jersey Turnpike widening project and Greenstar Services Corp.'s 71st St. and Continental Avenue signal system project in Queens.
One of Greenstar's (ranked No. 1) major projects last year involved the World Trade Center redevelopment site in Manhattan. Greenstar's Five Star Electric Corp. designed and installed the electrical system for the 408-ft spire on 1 WTC. This included the beacon lighting system at the top of the spire, FAA lighting, the broadcast systems and the framework for transmission lines, says Anthony Giannico, Five Star senior project manager.
Other subcontractor work in the New York region includes modular buildings, says Salerno of O'Connell, which is setting up prefab shops in the three of its four offices. Its current prefab work includes Rochester University's Golisano Children's Hospital, where prefab is being used for receptacles and switches as well as above-ceiling conduit racks for regular power, emergency power and branch lighting, says Brian Rittenhouse, Golisano senior project manager.
The conduits will be assembled off site using measurements that have been derived through O'Connell's Auto Cad MEP software, Rittenhouse says. Besides work being done at the company's prefab shop, the patient room headwalls, "from the metal studs to every system mechanical and electrical," will be made at a mechanical contractor's shop as well, he says. The walls will then be shipped to the site and installed.
"Prefab avoids the stacking of trades and congestion on a job," Salerno says. "By getting a jump on it, we see it as a way to not miss any jobs. It's a very competitive industry."