Portland commercial: Two consolidators join the fray

May 8, 2000
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PORTLAND, OR — Like the virgin timber that surrounds this beautiful Northwest community, the independent hvacr industry remained untouched for years by utility competition and the nationwide consolidation movement. But the landscape is changing and Wall Street is taking a closer look at Portland.

With steady business growth, an increasing market for new homes, and a low unemployment rate (not to mention the pleasant climate and scenic countryside), Portland is getting the attention of hvacr corporate executives who see this community as a good place to put down roots.

This week, The News looks at how two consolidated commercial contractors are bringing their goods and services to market.

MacDonald-Miller/Encompass

John Rozell, president of MacDonald-Miller of Oregon, a member of the Encompass Group, is a “second-generation sheet metal guy.”

He attended trade school as a welder, developed a CAD detailing program while working for MacDonald-Miller in Seattle, WA, and also worked in the company’s accounting department.

Rozell eventually moved down to Portland when Encompass (then GroupMAC) purchased MacDonald-Miller as part of its original IPO in November 1997.

“We are a full-service mechanical contractor with 80% negotiated work,” Rozell said. “We also have a separate full-service division which includes controls, piping, sheet metal, air balancing, etc.”

The company employs 115 people in the Portland area, down a little from its peak times of the year, when employment figures reach about 150.

Already sophisticated

Rozell said that the company’s affiliation with Encompass didn’t necessarily bring on a total makeover of the company.

“We were pretty sophisticated before the acquisition by Group-MAC,” he said. “For example, financial reporting and employee training were things we already had in place.”

The recent merger of Group-MAC with Building One (which resulted in the new Encompass logo) is too new to have any impact on Rozell’s business. But he has been impressed with other Encompass contractors.

“The benefits to us included exposure to national accounts and synergy with other Encom-pass companies, which has led to some good referral work,” he explained. “Our association with Encompass has also helped quite a bit with regional accounts.”

Although Rozell said there are a few regional commercial construction projects going on, he has noticed an increase in the high-tech side of business. And he doesn’t see slowing down any time soon.

“We specialize in fast-track projects,” he added. “Our customers, the general contractors, work with a lot of developers of corporate buildings in the area.”

Labor advantage

Can MacDonald-Miller keep up with the steady business growth, given the shortage of qualified workers in Portland?

“Manpower is a big challenge for us, as it is for anybody in our business,” he said. “We have a little advantage, being a union contractor, but it is still a challenge for us to attract young people. Our business is not as glamorous as the dot-commers.

“The key is to get to the kids while they are young and try to invest in people early. Our executive vice president started out as an intern working his way through college. We need to give kids the idea that they have an alternative [career] choice.”

Unlike some other areas of the country, the local utilities are one less headache for Portland hvacr contractors to worry about. Rozell said he hasn’t seen much utility service activity in his market, probably because deregulation isn’t on the horizon.

ACI Mechanical USA/Comfort Sysems USA

Like Rozell, Joe Monego has worn several hats in his years in the mechanical trades. The president of ACI Mechanical USA, Inc., a Comfort Systems USA (CSI) consolidated contractor, started out in the 1970s in the R&D division of a mining company. From there he moved on to industrial solar heating and waste recovery.

ACI specializes in commercial plumbing and piping, as well as commercial hvacr installation and retrofit. Monego’s goal is to take on service work, and he said that Comfort Systems is helping him tackle this.

“CSI has been great to work with. It seems that everyone I meet in the company started out sweeping floors and moving on up.”

Making the decision to sell to a national consolidator was not an easy one for Monego. “I had a lot of apprehensions. It’s like raising a child and then turning the baby over to someone else.” However, “CSI fit the bill really nice for us and now we all feel comfortable.

“There are a lot of national accounts we get through CSI,” he added. “Other CSI companies can assist us with their knowledge of the business, too.”

ACI’s work includes restaurants, schools, office buildings, retail shops, and hotels. Some of the company’s plumbers do a bit of residential work, but the company stays away from any industrial work.

Monego said that the Portland market experienced a fever-pitch growth rate prior to early 1999, then it started to taper off toward the end of the year. The first quarter of 2000 was slow, but now it is beginning to pick up again.

“We are not used to normal,” he joked. “Sooner or later we had to catch our breath.”

Qualified workers

Monego intends to increase his presence in the service market but to do so, he needs to find qualified service workers.

“My biggest concern has always been with my people,” he said. “I believe there is nothing I can’t do with good people.”

Monego contends that training is important, but it is only the beginning of a career. It takes “seasoning” that comes from on-the-job training. And if new hires can understand the concept and the effort it takes to do a good job, they are on their way to a successful career.

The problem, according to Monego, is the initial impression workers get. “There is a 40% turnover rate in the first 90 days on the job. After that, the rate goes down to 2%.

“We do the traditional things to find workers,” he added; “advertising, word-of-mouth, apprenticeship programs; but I haven’t found the perfect way to attract people.”

Monego said he is willing to make sacrifices to find the right people. “We try to do everything we can to bring people up to our standards. We try to give them incentive plans and rewards.

“The cost of doing business is a big challenge. People deserve to be well paid and have good benefits. We are willing to tighten our belts and decrease profits in order to pay our employees good benefits.”

Hearty outlook

Monego said he likes the heartiness of people in the Northwest. If the weather is bad, they “just put on another layer of raincoat” and go off to work.

That’s one reason why he thinks it is so important to keep people happy and keep them “at home” in Portland. It affects his bottom line, which he says is growing by about $2 million a year.

“When someone gives us a job, they are doing us a favor,” he said. “And we have the right to charge a fair price for our work.”

If a fair price means a comfortable lifestyle for his employees, Monego is all for it.

“When you build a business and it has made a home for a lot of people, nothing is more satisfying,” he said.

“You can’t be in this work just for yourself. I’m in it for my employees and their families, too.”

Sidebar: Trane Oregon is firmly entrenched, thank you

If success breeds longevity (or vice versa), Bob Davis is setting a lot of good examples at Trane Oregon. After a stint with the U.S. Marine Corps., Davis joined the company in 1962 and moved back and forth from Milwaukee, WI to Spokane, WA, including 10 years at Trane corporate, before being awarded the agency in Portland in 1982. He is now the president of Trane Oregon.

“There were 11 people then and now there are 75,” he said. “It’s been a long and exciting adventure and I thoroughly enjoy it.”

The company lists commercial and industrial and institutional businesses as its customer base. Among these customers are high-tech companies like chip manufacturers and wafer manufacturers, with facilities that tend to use centrifugal chillers and related service work.

“We have a beautiful downtown area and a big chunk of it is serviced by Trane,” Davis added. “We focus on a lot of the larger installations around town.

“Our company is divided among five basic profit centers: new equipment sales, building automation, service, parts, and training and marketing.

“Training is a big thing for us,” Davis continued. “We were the largest certifier of CFC refrigerant handling, training over 550 local technicians. Last year we spent $52,000 on internal training for our journeymen.”

Davis said his company has a good working relationship with the local union, both in the service and building controls sides of the business.

Bob Hamill, of Trane’s Asset Management Services, said their service technicians are trained to do a variety of service work because of the nature of the clientele. “Having excellent teammates with proper training is at the heart of our success.”

Davis said it is important that apprentices go through the local five-year program and then go through the manufacturer’s training; “The five-year program constitutes about half of their total training.”

Other characteristics of today’s hands-on approach to customer service include the “cradle-to-grave” approach to working with building owners from the start of a project to service after completion, and that time it takes to complete a project. These are two more reasons why training is so important to Trane Oregon.

“Building owners are sophisticated and more demanding,” Davis said. “Nothing is for sure and you can’t assume anything.

“There used to be more time for bidding or formulating ideas but now speed to market is very important. But with speed you have to be very accurate.”

While accuracy is a common buzzword among design-build contractors, Davis likes to point out the “uncommon” and unique nature of the West, and how the introduction of new systems has impacted the design-build business in Oregon and surrounding states.

“The West tends to introduce new systems, whether it’s low-temperature water/low-temperature air, or under-floor systems,” he said. “This puts a different kind of pressure on manufacturers and contractors to put out a good product for the building owners.”

With sophisticated controls and building automation systems the norm, Trane is doing what it takes to keep up with demanding customers and a shrinking labor market. But that’s OK with Davis, whose longevity speaks volumes of his experience in the industry.

Sidebar: Yes, there are more keys to success

The News published some keys to success from the contractors featured in Part 1 of our Portland series in the May 1 issue. Now let’s look at the opinions of contractors featured in this issue.

John Rozell of MacDonald-Miller/Encompass said his keys to success include “a strong commitment to our employees and customers. We are strong professionals in the engineering and design-build fields.”

In addition, “We are absolutely focused on building long-term relationships with our customers.”

Joe Monego of ACI Mechanical USA, Inc./ Comfort Systems USA, agreed that customer service is paramount to success. “We have to service our customers and be aggressive in our sales and marketing.”

Nonetheless, “We have to be creative and innovative — maintaining a status quo is a slow death.”

Bob Davis of Trane Oregon believes that “Success is treating people with respect and dignity. I’ve treated my team as part of my extended family. It is easier to attract new people when you treat your current employees with respect.

“People make the difference,” he continued. “And we have an open-book policy so people can see our profits and losses.”

Finally, “The Trane theory is ‘no bad jobs.’ We absolutely have to make sure the customer is happy. Our people take a lot of pride in getting the job right.”

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