Before leaving the stage for the final time, outgoing SMACNA president Mark Watson (right) accepts a gift from incoming president Kevin Harpring.
MAUI, Hawaii - The annual meeting of the Sheet Metal and Air Conditioning Contractors' National Association (SMACNA) ended with a bang.

And a boom.

And a few pows.

The closing gala, held along the ocean front at the Molokini Garden located on the grounds of the luxurious Grand Wailea Resort Hotel and Spa, concluded with an eye-popping and colorful fireworks display.

Prior to the grand finale, the record crowd of SMACNA attendees danced to the tunes of former Beach Boys lead singer Mike Love and his Endless Summer band, after feasting on an impeccable evening meal outdoors under blue skies and warm temperatures.

"It doesn't get much better than this," commented one attendee, en route to his hotel room with his wife and two children.

No, it doesn't.

It doesn't take a rocket scientist to figure out why the national association opts to have its annual convention in Hawaii approximately every four years. SMACNA members were not born yesterday.

"Gee, I wonder why?" asked outgoing president Mark Watson, who passed along the gavel to 2004-2005 president Kevin Harpring, vice president and general manager of Harpring Inc., Louisville, Ky. "It is such a beautiful place, isn't it?"

No need to persuade members. They came in droves to Maui, as the 2004 convention was one of the largest-attended of all time. According to SMACNA officials, attendance was 1,400 strong.

"When we heard it was going to be in Maui this year, we made sure we saved so our entire family could come," said Peter Watson, who was present with his wife Penny and four other Watsons from Cedar Rapids, Iowa.

"We didn't want to miss this."

While spouses, children, and friends had plenty to do to entertain themselves during the sun-kissed days, members had plenty to keep themselves busy, too, as the association offered numerous business and personal development sessions, forums, and the ever-popular product show.

The product show offered a unique opportunity for SMACNA members to speak directly to manufacturers and representatives of service companies.

Forum Frenzy

One of the more well-attended forums was the opening-day HVAC Contractors Forum. In addition to discussing the issues involved with the early start-up of equipment, the forum provided attendees an update on the Construction Specification Institute's (CSI) MasterFormat revisions and SMACNA's position on the final version of Division 23 [HVAC].

After two years of industry commentary and feedback, separate plumbing and HVAC divisions are to be listed under the Facility Services subgroup in the 2004 edition of CSI's MasterFormat. SMACNA fully supports this separation of the "wet" side of construction from the "dry" side.

Don Rodgers, chairman of the Bid Specifications Task Force, noted that SMACNA is developing a bid specifications document based on the MasterFormat HVAC Division and discussed the progress of that document, as well as associated programs.

Another topic discussed involved mixed buildings and the challenges they bring to the HVAC table. Speakers included Eli Howard, group director, SMACNA Technical Resources Department; contractor Jeff Laski, S & M Heating Sales Co. (Southfield, Mich.); and contractor Frederick Streimer, Streimer Sheet Metal Works Inc. (Portland, Ore.)

"There is a lot of opportunity in this area," noted Howard. "For the most part, these are high-profile projects, as it is a popular concept for city development. With businesses on the lower floor and lofts on the top for residents, these mixed-use buildings are designed to bring residents back to the city."

For the sake of discussion, the definition of mixed-use buildings was broken down into two areas: multiple floors (such as mid-rise and high-rise buildings) and mixed occupancy, with separated HVAC use.

The latter includes a building whereby the lower floors are for mercantile or commercial space, while the upper floors are for residential use. Figured into the mixed-use equation are parking garages for residents and/or merchants.

"It's almost like having residential working with commercial," explained Laski.

Robert B. Gawne (right) poses with outgoing SMACNA president Mark Watson after receiving the Contractor of the Year plaque.
"You have the commercial side on the one hand, with the creation of mercantile and business environments. But, then above it you have individual lofts or apartments, which is totally different in design. You have to factor in both designs in the bid."

According to Howard, there are three ways a contractor can approach nabbing these ever-growing jobs:

1. Fully designed and specified projects, this being the traditional approach, with low bid winning;

2. Basic design and specifications, whereby the contractor completes tenant work based on design guidelines; and/or

3. Complete design-build, where the contractor can be "more creative," said Howard, noting that with this method a contractor can sell on his capabilities.

While this form of building is gaining popularity, especially within large cities, there are some challenges contractors should be aware of, noted Streimer. Building code responsibilities surface regarding fire dampers and fire separation, fire sprinklers and fire stops, outside air ventilation requirements, and exhausts - from living unit dryer, kitchen, and parking garage.

"One of the scariest points of recent is the pollution insurance and corresponding with that is mold insurance. It goes along with the residence," said Streimer.

Still, looking at the positive side, the mixed-building project brings labor partnership opportunities, said Laski. It puts together the building trades workers with residential workers.

In yet another topic covered in this forum, three contractors - Richard Darin of S&M Heating Sales Co. (Southfield, Mich.), Brian Fluetsch of Sunset Air Inc. (Lacey, Wash.), and Douglas A. Happe of Emerald Aire Inc. (Auburn, Wash.) - discussed acquiring and training service technicians.

Each revealed the training programs they introduced in their respective region, plus provided input as to how attendees could establish their own service training programs.

The final topic discussed at the forum involved the proposed partnership between SMACNA Testing and Research Institute (TRI) and Underwriters Laboratory (UL).

Howard, who has been involved in developing a certification for duct fabrication and installation with UL, provided the update.

"This will differentiate us from the rest," said Howard. "This is about raising the level of awareness of SMACNA standards."

With the planned partnership, a member's shop can be SMACNA TRI/UL-approved by following specific guidelines, which include having SMACNA-verified shop standards as the default setting

for all computer-driven equipment. There will also be some on-site random inspections from UL representatives.

When Howard asked for comments concerning the proposed partnership, most replies were not necessarily positive.

"Throw it out," said one contractor. "We have enough people in our business as it is. Now you want an outside source coming in and checking my shop? Forget it. I don't need it."

Still, there were a few agreeable members.

"I'll go out on the limb and say I think it is a good idea," said one contractor. "It is one more tool that will help us differentiate ourselves from others."

Tom Goodhue, executive director of the Columbia Chapter of SMACNA, Portland, Ore., serves as master of ceremonies.

Increasing Value Of Business

Allen Oppenheimer, president of A.M. Oppenheimer Inc. (La Jolla, Calif.), provided business advice in his session titled "Business Valuation - How to Increase the Value of Your Business."

"You could have a company with a book equity of $600,000. But, the value of the company could be $10 million," said Oppenheimer. "The difference between the book equity and the value of the company is intangible. You need to quantify that intangible part by getting a professional evaluation that could be the difference from hundreds of thousands of dollars or millions of dollars in the business. This is what this seminar is all about.

"When you leave this room, the one thing that I would like you to remember are the two main assets of a business: off-balance sheet assets and future potential. That [future potential] is the intangible part I am talking about."

In producing an evaluation report, Oppenheimer recommended breaking it down into four major categories: organizational, financial, marketing, and valuation. In the organizational section, he emphasized including a solid description of the business, operations, personnel, business segments and subsidiaries, and the existence of a corporate entity.

"It is important to show structure," said Oppenheimer. "You need to show the buyer that you have an organization and everything is identified accordingly."

The financial areas that require emphasis include the preparation of adjusted historical income statements, analysis of costs and expenses, preparation of pro forma income statements for future years, and preparation of adjusted balance sheets.

Auctioneer Jim Murphy takes bids on items available at the SMAC PAC [Sheet Metal and Air Conditioning Contractors’ Political Action Committee] auction. Members bid on a host of possibilities, including autographed pieces from Walter Payton, Willie Mays, and Johnny Unitas.
"You might show $50,000 profits on the books, but maybe the true profit is $560,000. What the buyer wants to see is the true operating profits of the business," he said.

"What we usually do is ask for at least three years of historical income statements. We go back at least three years, and we go through each company expense, and we adjust them to reflect true operating costs."

Asset valuation includes inventory, machinery and equipment, and real estate. Other typical balance sheet items requiring adjustment are cash, cash surrender value of owner's life insurance, organization costs, loan due from owner, loan due to owner, loan due on personal assets, and long-term debt.

Some of the information which should be included in the market analysis section is market research information sources, such as annual reports and regulatory filings, computer databases, and key secondary research sources.

The typical market analysis should include a rundown of the local market, state of the market, who your competitors are, customers, and market penetration.

"In the end," said Oppenheimer, "you have to show potential."

His formula for determining the value of a business is market value of equity at the time of sale plus future earnings capacity. In the end, he did recommend selecting a professional brokerage intermediary to provide professional expertise.

"It takes about a year to prepare to sell," he concluded. "You have to get a lot on paper ahead of time."

Gary L. Schwenk, executive vice president of the Bay Area SMACNA Chapter, received the Petersen-Dunn Award. The award is presented to the SMACNA chapter executive making a substantial contribution to the local association and SMACNA.

Residential Advice

A recent market research study conducted by the FMI Corp. concluded that current residential HVAC service and retrofit expenditures in the United States are $12 billion, with strong growth expected to continue during the next three to five years. With capital entry requirements basically a non-issue, the market potential for SMACNA contractors interested in entering this market is enormous.

With that in mind, the 2004 Residential Retrofit and Service Operations Management Task Force invited Kevin Dougherty of Proof Management Consultants to address the Residential Contractors Forum.

Dougherty's session, "Realizing Profits in the Residential Retrofit and Service Market," touched on the keys to building such a service-orientated business: marketing and advertising; financial expertise; and people and production.

"Your ability to be successful is in direct proportion to how well you treat your customers," said Dougherty.

"The golden rule should be: ‘We want to treat the customers like we want to be treated.'"

Providing professional service can and will make the difference, he said. The first step in accomplishing this goal is to establish a professional image for your company, he said.

"After all," he said, "image is based on a perception. A strong image makes it easier to pick you. It provides the justification for paying more. It makes the customer feel comfortable. It gives your company and your people credibility."

There is a need for providing consistency, too, said Dougherty.

"Consistency," he said, "builds a strong brand."

This means generating market awareness through everything from job signs to print advertising. In the residential market, initial contact is paramount.

During his session on the retrofit market, Kevin Dougherty provides advice regarding residential service and its importance. “The golden rule should be: ‘We want to treat the customers like we want to be treated,’” he told his audience.
"How do we answer the phone?" he asked. "Did we show up on time? Are we more professional than everyone else? ... How we present ourselves from the start is most important."

Just as important is following up. Dougherty said a contractor must "stay in touch, even if we don't get the job."

In regard to the financials, a service contractor must keep a close eye on non-billable vs. billable hours. He said a service organization needs to track the amount of time that is billed directly to the job. At the same time, he recommended to view the tech as a profit center.

"Every tech and retrofit crew should be tracked as a profit center to see if there are missed opportunities," he said. "It allows you to see training voids."

For those in the audience who were not in the residential sector, Dougherty admitted that the transition into residential service and retrofit "is difficult."

"Front-line employees are caught between the office and the field, thereby making the transition even more difficult. Being a good worker does not ensure success."

For instance, he said being a good dispatcher, service tech, sales-person, or service manager requires a different set of skills other than just being a good worker.

"New employees should be coached and trained in the area of customer service, communications, and complaint handling," he said. "When possible, new employees should be temporarily placed into service with an avenue available for possible return to prior position."

Above all, a contractor should spend more money on developing communication skills.

"We spend more money on tech training than service training," said Dougherty. "It should be the other way around in service. People are like any other investment. With proper training and selection, you can maximize your return. While there is no guarantee you will be successful, you can increase your odds."

Working smarter, not harder, is the key to enhanced productivity, he said.

Dougherty is to present a one-day residential retrofit and service pilot program Dec. 10 at the Renaissance Orlando Hotel. This course was developed to help SMACNA contractors understand what it takes to be a successful union residential service and retrofit contractor and to show the pitfalls and opportunities that exist. For more information, contact Susan Karr from Florida SMACNA, 321-242-8223.

Publication date: 11/22/2004