A total of 131 contractors and manufacturers gathered at Baltimore's Sheraton Inner Harbor hotel for two days of workshops and discussions regarding the current and future state of commercial HVAC contracting.

The program was highlighted by keynote speeches from Hank Harris, president and managing director of the FMI Corp., Raleigh, N.C., and Fred Barnes, political commentator and reporter for Fox News in Washington.

Harris lamented the fact that the postwar HVACR contractors have gone, many of whom formed the foundation of the trade. The president and managing director of FMI Corp., Raleigh, N.C., noted that their successors, the baby boomers, must now consider who will be their next generation of managers and business owners.

That next generation will find some interesting trends in the market, Harris said, thanks in part to recent economic developments.

He noted that the stock market had a "relatively soft landing" and that the economic downturn has been muted. Federal Reserve chairman Alan Greenspan "has been a huge help to our industry. If he leaves, I hope he will be training his replacement."

Harris said that the HVACR trade is "basically a pyramid shape. There are only a few big contractors at the very top setting trends for the majority of the businesses below."

Hank Harris (left) and ACCA Chairman Skip Snyder meet before Harris’ speech.

Market Trends

Because of this, hotel lodging and entertainment venues could be a key market for commercial contractors.

Harris said many contractors unfortunately don't bother looking into alternative markets because they haven't taken time to do the research. In fact, he asked meeting attendees to write down their re-search and development budgets for next year on a piece of paper.

"I'll make it easy for you," he joked. "Just write down a zero, because 95 percent of you don't have one."

He added that the education market has matured and the spending is "ready to move somewhere else." Harris said there would be more opportunities in the community college market.

An upward trend in multifamily housing construction in 2004 (up 3 percent) leads Harris to believe that 2005 will bring another 5-percent increase in this market. He noted that condominiums "will represent a continually growing share."

Harris touched on the importance of integrated business systems. Integration is a key housekeeping issue and contractors need to make sure they are making "reasonable use of technology," he said.

Harris said contractors should be aware of "value migration," in which "Value-added fees are mi-grating from the middle of the job to the front end or the back end."

If contractors can help building owners with the front ends (design-build phases) of projects, they can lock in solid business relationships. A solid back end (commissioning and maintenance) can also enhance a relationship.

"You have to define yourself," Harris stated. Is your company a low-cost producer - a lean, mean, fighting machine - or a value-added service provider, doing the front- and back-end work? "You'll win either way if you do it right."

Political Landscape

Major questions to be dealt with in the years ahead include the conflict in Iraq, where the country must decide whether to stay the course toward democracy or plan an exit strategy; U.S. allies - who they are and who they should be; what to do with the current Supreme Court; and the administration's position on social policies, such as stem cell research and same-sex marriage.

Barnes added that the events of 9/11 "changed politics dramatically. It ended the perception that the U.S. had no enemies or challengers out there."

The Contractors Speak

George Rodriguez, president and CEO of ServTEC Airconditioning Inc., Sante Fe Springs, Calif., said, "My take on the commercial roundtable is a resounding TGIFH" - Thank God It Finally Happened.

"The whole thing felt right because its time has come. I felt good because it validated the direction ServTEC Air has taken. A more aggressive commercial ACCA approach to the HVACR industry can be more enticing to the upcoming generation. Commercial building automation and diagnostics will offer more to [commercial] service personnel."

"The ACCA Commercial Contractors Roundtable was a unique meeting," said Josh Kahn of Kahn Mechanical, Dallas. "It was worth the time and investment. I had a chance to meet and mix with my industry peers and discuss common issues. I obtained several ready-to-use ideas for my business, especially in the areas of contracts and risk management."

Sean Howley discusses risk management.

Sidebar: Managing Risk Through Contracts

Kahn, vice president of Kahn Mechanical Contractors, Dallas, was joined in the panel discussion by attorneys Christine McAnney and Sean Howley from Venable, LLP, Washington.

All three agreed that contractors need to sign a contract with their clients before starting any work, yet some audience members admitted that in order to get the work, they had to start immediately - with a handshake rather than a signature.

"Many business owners don't know what is in the contract or if it is even signed," said McAnney.

One contractor said his market is so competitive and the window for completing a project is so small, contractors must start work without a signed contract, mostly because it takes too long for the contract to be written up and approved.

Kahn said it is good practice to put payment terms into the proposal and ask the customer to initial the terms, thus acknowledging the document. That way, if a contract shows up halfway through the job, there is still an agreement about when payment will be made.

Another comment was made concerning representation and who was qualified to sign a contract. The panel members urged contractors to ensure that the person signing the contract is a true agent or employee qualified to represent the client.

Howley discussed indemnification: protecting someone else from harm that may come to them by something the contractor did. He told attendees to make sure the contract's indemnification clause makes contractors only responsible for something they have done.

"It's fair," Howley said. "If I am accountable, then I am responsible, but don't make me responsible for someone else's negligence."

Mediation was another key point discussed. Contractors were urged to put how they want disputes to be mediated in each contract, ensuring that the person of their choice (such as a judge, business associate, or friend) will act on their behalf.

Finally, McAnney suggested that all correspondence related to the contract be put in writing. "Make sure you ask for all documentation and if you don't get that, put it in writing that you didn't get the documentation," she said. "Always document the correspondence."

- John R. Hall

Sidebar: How To Win School Jobs

Jerry Shapiro, president of Shapiro & Duncan, Rockville, Md., said most jurisdictions don't let "just anybody" bid on school construction projects. Some counties want yearly updates on contractor qualifications before accepting bids, and that's OK with him.

"We look for the right job at the right time," Shapiro said. "We try to make our deals at bid time rather than shopping ourselves around."

He usually follows a couple of rules of thumb when bidding on school projects. "Occupied-space buildings are not bid on as much as other buildings, so I look at these," he said. "New school buildings are more competitively bid, and the price tends to be driven down. Sometimes there is no rhyme or reason why certain jobs are bid."

Skip Snyder, president of the Snyder Company Inc., Upper Darby, Pa., said he has found service work to be the most profitable part of working with schools.

Snyder works with eight different districts in the suburban Philadelphia area. "The money is there," he said, "as long as you go in with your eyes open.

"I don't walk away from a school job in March or April if the money is all gone. I build relationships by putting in my contract that I can accept delayed billing. Building a good relationship has a lot to do with building a successful business."

Snyder said he prefers to work with school districts that have "competent technicians on staff" because they know how to maintain the equipment. However, developing a maintenance contract with a school district may take a few sacrifices at first. "You may have to get in [with a district] with a low-bid maintenance contract and lose money," he said. "But you are able to show in that 12-month period that you care about the people in the school."

Snyder said he did a retrofit project with a school and guaranteed that the energy savings would exceed the school's budgeted energy costs for the entire year.

"If you can differentiate your business, it results in better funding for your business," Snyder said. "Don't walk away from a job; expand your horizons."

- John R. Hall

Publication date: 11/29/2004