Milwaukee union contractors face changing markets, fickle customers

July 11, 2000
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MILWAUKEE — Some contractors characterize Milwaukee customers as being price conscious in a city where profit margins are small. No wonder, then, that design-build work is so attractive.

If you can find and keep the right customers, you should be able to do all right in Milwaukee without the plan-and-spec business.

Still, putting all of your eggs into one basket may be a little risky in a competitive market like Milwaukee. That’s why companies like Illingworth Corp. keep their options open.

“Right now we are running about 60% design-build and 40% plan-spec,” said Mike Mamayek, executive vice president of the company.

Another market peculiar to older cities like Milwaukee is boiler work. “We are doing some boiler work but it is mostly in retrofit,” said Steve Braley, superintendent of service, Debelak Mechanical Systems. “There aren’t too many new buildings with boiler heat anymore. We still bid some plan-spec work involving boiler installations.”

If the direction each company is taking seems a little uncertain, it’s probably because the Milwaukee market is changing from an aging industrial base to service and high tech. One quick downturn in the economy might cause these contractors to alter their courses.

Debelak Mechanical: Shaking the dust

The Debelak name has been familiar to the Milwaukee construction arena for 60 years. Known for its expertise in plumbing and heating, it has undergone some transformation recently.

Brian Stanke purchased the heating division in May of 1998. He brought in Braley to run the service side of the business.

“Brian is a very good estimator and project manager and his side of the business has really taken off,” Braley said. “Jack Debelak, son of the original owner John, still runs the plumbing side of the business.”

The service side is a separate company, known as Debelak Mechanical. The other businesses are housed under the name of Debelak Heating & Plumbing.

The surroundings are cozy but Braley isn’t complaining. He likes the fact that the staff is close and gets along well. “We have eight people stuffed into three little offices but its enjoyable,” he said. “It’s cramped, but we get a lot of things done.”

Braley estimates that 30% of his business is in new construction, 30% in retrofit, and the remaining work in service and estimating. The company also does a small amount of refrigeration work, as well as a little bit of residential work (5% to 10% of their business), including system balancing.

Different hats for tight times

The staff of 28 includes a lot of people who wear different hats. “There is a lot of crossover with our staff,” Braley said. “Some of our service guys do pipe-fitting work and pipefitters do service work.”

While it may be advantageous to have people who can handle different jobs, Braley would prefer to have a larger staff so everyone could focus on doing one thing. Unfortunately, the tight labor market has yielded few qualified workers.

Debelak has been looking at bringing in people from open shop environments. “We will bring in service techs from the non-union sector and test them with our CATTRACKS program, which is administered through an associate program in our local Teamster’s union.”

The program determines what level of knowledge an incoming technician has and where s/he should be placed in an apprenticeship program. Braley said one recent tech with seven years’ experience tested out at a 1- to 2 1/2-year level.

Braley pointed out that “People don’t realize that computer-oriented jobs for college grads average $25,000 to $30,000 per year, but after a four-year apprenticeship, a tech can be making $55,000.

“For years, the rap has been that ‘Little Johnny’ is a bad student, so he has to go into a trade program. But ‘Little Johnny’ winds up making more than a kid with a college degree.”

The profit picture

Braley said that some Milwaukee contractors seem more interested in staying busy than in making a decent profit.

He said his company has bid against other larger contractors and wound up losing the bid because competitors cut labor rates “to the point where they are just covering their overhead, and then they walk away. There’s no profit for them, but it keeps the big companies busy.

“The big guys stay busy gobbling up chunks of work without making a lot of profit. They take jobs for the moment and don’t look at long-term profit.”

Another characteristic of the “conservative” Milwaukee market is the way vendors do business, according to Braley. He said that during this year’s first heat wave, vendors ran out of stock, which may have benefited one major manufacturer.

Milwaukee is very heavy into Trane and Carrier products. But “A lot of contractors have jumped on the Janitrol bandwagon because of its cost,” he said. “A lot of customers in town have not-too-hefty budgets and for price and quality, this brand worked.”

Relatedly, Braley said he is keeping a close eye on the industry trend of manufacturers buying contractors or manufacturers selling directly to the end-user.

“It’s kind of like a Catch-22. Manufacturers want to circumvent us, yet they still want us to warranty their equipment. They want their equipment installed, but not many have their own service departments.”

One way to avoid falling victim to the fast-changing world of mergers and acquisitions is to keep an open line of communication to your competition, according to Braley. “Contractors need to talk to each other. Competition takes over instead of common sense. Contractors shouldn’t be afraid to talk to each other because they might give away some secrets.”

People like people who like people

One thing isn’t a secret, and that’s having good people who communicate well with customers. Braley said that in order to maintain good relationships with customers, he needs workers who are people-oriented.

He enjoys getting feedback from customers; it helps him gauge the performance of his field staff.

He also realizes that the industry has an identity problem, and customers are not aware of specific standards to which reputable hvac contractors adhere. “Customers assume that whatever hvac contractor they call will install the equipment properly. That’s where a lot of customers get angry with our industry; they don’t feel there are any specific standards to follow.

“Give the customer as much information as possible so they understand what they are purchasing. Give them a lot of statistics and pictures.”

Braley’s philosophy is going a long way toward bringing success to Debelak. The company has 1999 revenues of $3 million, and looks forward to gradually building up business into the $5 million to $7 million range.

Braley said he is not looking for rapid growth; rather, an opportunity to boost profit margin. “I’ve seen another company go from $5 million to $19 million and I don’t think they are making any more money. They are taking jobs at cost or less, which helps to destroy the market, because they want to ad to their gross revenues.”

Braley said he won’t lose sleep over a lost bid or a lost customer if it means little or no profit for Debelak. He has turned away customers because he didn’t like the way they conducted business or the conditions put on him.

And that’s OK. As long as the business grows steadily and shows a profit, Braley will continue to see happy customers and just as important, happy employees.

Illingworth Corp.: maintaining growth

Customer service takes precedence over expansion into new markets at Illingworth Corp. The company hasn’t changed much since former owner John Illingworth retired 10 years ago.

“We haven’t done anything brand new or exotic,” said Mamayek. “We have continued to expand our customer base.”

The company divides its markets into commercial, industrial, and institutional work. Sixty percent of its jobs are design-build with the remainder in plan-spec. The company has a service department which includes balancing, a controls department, sheet metal department, and steam fitting and plumbing departments.

Illingworth employs 180 and projects sales of $22 million in 1999. Its clients include Harley-Davidson and Universal Foods. It also does work for hospitals and small manufacturing plants.

Mamayek’s hvac roots go way back to the Depression days. His grandfather founded Milwaukee Furnace Co. in 1929. A graduate of the University of Detroit, Mamayek began his career with Illingworth in 1977 in sales and project management.

Today the company has strengthened its ties with other contractors around the nation by joining Excellence Alliance Inc. (EAI). The alliance of independent contractors provides purchasing discounts and employee training, among other things.

“We do a lot of networking [in EAI],” Mamayek said. “We can’t talk with people down the block, but we do talk to contractors in non-competing areas.”

When it comes to competition, Mamayek is keeping a careful eye on the consolidation movement. “SMACNA said there will always be movement in the marketplace as long as there is cash out there and a lot of good contractors,” he said. “As the economy and stock market heads down, we may not see as much [consolidation] activity.

“In a SMACNA survey, it was noted that around 75% of all contractors had been contacted by a consolidator or a utility.”

Mamayek said he has mixed feelings about consolidation. “It’s good for some and not for others. Some of the younger owners want to maintain control of their business while others are looking for an exit strategy.

“Consolidation is always a possibility for us, but we [management] have a few years to go before thinking about it.”

Mamayek said there will always be room for the independent mom-and-pop shops, because customers like dealing with people they are familiar with and would rather not “wait on a decision from Wall Street” to complete a deal.

In order to compete, it will take a staff of good, qualified workers. Milwaukee is no different from the rest of the country. The economy is strong and skilled workers are getting harder to find.

“The unemployment rate is so low in the state and there are plenty of other opportunities for people to choose from,” Mamayek said. “We are always concerned about recruitment, getting people interested in the trade and keeping them interested.”

There are a lot of projects in the area. A new convention center (the Midwest Express Center) and the new baseball stadium (Miller Park) have attracted a lot of manpower.

“There are a lot of smaller projects going on around town,” Mamayek added. “There is a lot of retrofit work going on, hospital work, tenant work, and renovations and additions to existing manufacturing plants.”

Facing the future

Mamayek said the future holds some definite challenges for his company.

He wants to remain competitive with non-union contractors. He said they are all busy now and when the economy turns down — which it will — he predicts that non-union shops will “ride the coattails” of the union contractors and compete for new contracts.

He is also keeping an eye on the manufacturers and their service departments, who have always been strong in Milwaukee. “We’ve always competed for service work with Carrier and Trane.

“Not every contractor has the capability to provide service so these larger companies have to be able to service what they sell,” he added. “It’s a tightrope walk. If manufacturers pursue service work too aggressively, what’s going to happen to the relationships with contractors they sold equipment to that also have a service department?”

Illingworth will continue to grow steadily and “stay ahead of the inflation factor,” said Mamayek. He wants to continue to focus on customers’ needs, adapting to their changes in order to do the job right the first time.

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