Commercial-industrial contractor crisscrosses U.S. in search of projects
The business thrived when it shouldn’t have.
In the 70 years since its humble beginnings, Berg, Inc., has grown into a $37 million commercial-industrial contractor, with a license to do business in 18 states and plans to increase that number soon.
It hasn’t always been a smooth row to hoe. The Shreveport, La. area had been traditionally dependent on the oil and gas industries, and every time there was a downturn, local businesses suffered. “When the oil companies caught a cold, all of the rest of us caught pneumonia,” said company president Bob Hamm.
However, due to its diversification and expansion beyond the region, Berg has been able to withstand changes in the area’s economy.
In the meantime, the company has been setting some pretty high goals.
“We project 1999 sales to be $55 million to $60 million,” said Bill Hamm, executive vice president. “We’ve got a substantial backlog in commercial and industrial work for the first time in a while, and we are planning to turn around our jobs pretty quickly. Our construction division is finally coming along compared to last year.”
In order to see how Berg operates and how it plans to make these lofty projections, let’s take a look at the company structure.
Operating divisions and servicesThe company has gone through two name changes since the original Shreveport Plumbing Co. In 1965 it changed to Berg Mechanical, Inc., and changed again in 1987 to Berg, Inc.
“We started doing more industrial work in the 80s and our customers didn’t know what a mechanical contractor was,” said Bob Hamm. “They only knew who contractors were, so we dropped ‘mechanical’ out of the name.”
Berg, Inc., is divided into three operating divisions: Berg Mechanical, which serves the commercial and institutional mechanical construction market; Berg Service, which provides service-maintenance and energy management for industrial, commercial, and institutional customers; and Berg Industrial, which provides industrial construction services.
Hamm said he expects the industrial division to do well. His predictions include an adequate staff for every project. Berg is defying the industry trends by having enough people to aggressively start and complete projects.
“A couple of years ago, we started building the industrial division’s infrastructure and now we have enough people to do at least $65 million to $70 million without adding anybody,” he said. “This gave us a high overhead; so now we need to do around $44 million to keep our profit margins up.”
Berg’s industrial self-performing work includes concrete, structural steel, equipment erection, millwright work, and carpentry. About the only thing it doesn’t do is electrical work, painting, and insulation. “If we have to build a small building as part of an industrial job, we will do it,” Hamm explained. “But we do not bill ourselves as building contractors.”
The industrial division has traditionally relied on the pulp and paper industry for much of its business. A typical job includes industrial process piping, poured concrete, and structural steel. Berg also works on a lot of refrigeration systems in chemical process plants.
“We very seldom see a ‘green field’ job,” Hamm said. “Most of the work is in retrofits, additions, and add-ons inside existing plants. The pace is frantic, with short, compressed schedules.
“For example, a company like International Paper will give us a set of drawings; we get two weeks to bid the job and they want to award the job a week after that. Once you get the job, they want you there the next day and the job will have a 90- to 120-day construction schedule. It is totally different from a commercial job, where the pace is slower and you might have a year or two to complete a building.
“The cost of a building owner’s product is so sensitive to their capital costs that when the owners get ready to spend a few million dollars to upgrade, they want the job completed yesterday.”
Bill Hamm related the story of a project in New Mexico, where the pace of the job dictated how the local building inspectors would approve their work.
“We had to educate the inspectors who would say, ‘Give us a call and we’ll be out in a couple of days to inspect.’ We said, ‘No, if we call you at nine in the morning, you have to be out that day because we are getting ready to pour the concrete.’”
Berg goes where the customers are, from upstate New York to the Carolinas to a $95 million paper mill outside Albuquerque. The company was just awarded an $8 million concrete foundation project for a Louisiana utility.
Even while its industrial business spreads out over the country, Berg is planning to go in a different direction soon — more design-build work.
“The industrial business is almost all plan and spec, or engineer, procure, and construct [EPC],” said Hamm. “We do very little design-build. One of our strategic objectives is to develop our design-build market.”
While Berg continues to be on the inside in bids for industrial jobs, its service department keeps the cash flowing. “The service division accounts for about a third of our sales and has really been the biggest profit producer for the last couple of years,” Hamm said. The division is run by Kelly Bryson, “who has worked very hard to make it a very profitable part of the business,” Hamm added.
Berg has branch offices in Lake Charles, Lafayette, and New Orleans, La., which are supervised by Bryson.
“We have a $14 million service division which has increased about 20% a year for the past few years,” Hamm said. “We increased our preventive maintenance base by 25% in the past year, and the plan is to increase by another 25% this year.”
The commercial division is actively involved in many of the local construction projects. The entire state of Louisiana is dotted with Berg projects.
“We have a lot of work in south Louisiana,” said Hamm. “The market is actually better there than here, in places like Lafayette and Lake Charles.”
But the Shreveport area is still the talk of the state, with the number of existing and planned casinos. Berg had the plumbing and hvac contracts for the Casino Magic and Horseshoe Hotel casinos.
“We’re trying hard to get on the team with the Hollywood Casino [coming soon],” said Bob Hamm. “Harrah’s will also be building a hotel here, and they will be taking bids for plan and spec. We expect to be a strong competitor for that project. The budget for the hotel is $75 million.”
A convention center and a domed stadium for ice hockey are also in the planning stages for Shreveport. The construction boom fits the pattern of many of the nation’s older industrial towns — those that have traded in dependency on oil, gas, and steel industries for tourism dollars. The one thing that differentiates Shreveport from these other metropolitan areas is that it doesn’t follow national economic patterns.
“We have always been counter-cyclical to the national economy. We’ve never experienced the highs and lows of the national economic cycles,” Hamm said. “In fact, we had two of our best years in 1972-73, in the middle of the oil crisis. The sky wasn’t falling on us. We just seemed to be out of sync with the rest of the country.”
Hamm said the future looks good for the local economy because of accessibility to the rest of the country. It has a good, deep water port, and there are plans to link up Shreveport to the north via Interstate 69, which will come from Indianapolis, link up with local state Highway 20 in Shreveport, and go west to Houston.
The lure of local projects fits into Berg’s business plans, too. The company is involved with apartment plumbing jobs, hvac in high-rise buildings, schools, and churches.
“We don’t like to travel as much for commercial projects compared to industrial,” Hamm added. “It’s hard to go into a different area and beat the local competition for commercial contracts.”
Technology, utilities, and other issuesBob Hamm is the first to admit he is a technology freak. The company has more than 100 computers linked to its network, and the long arms of technology reach out into the field.
“We have 18 field supervisors with laptop computers and they can do some pretty sexy things with them,” he said. “We have a dial-up company Intranet system. The supervisors can send their time in electronically, and they have access to our office accounting system to check labor and job costs. They have taken to computers like ducks to water.”
“We’ve had a website [www.berginc.com] for three years and right now we are doing some renovation,” said Bill Hamm. “We’ve got some good hits on our site from people who are interested in employment. The man who runs our industrial group came from an application via the Internet.”
That bodes well for Berg because, despite the abundance of an overhead staff, Hamm said his company faces a common challenge in the trade — a shortage of qualified field technicians. The company has an office staff of 100 people and a field staff that ranges in size from 250 to 500.
Hamm also has an opinion about two other issues that are on the minds of hvac contractors — utilities and consolidation.
“Utility competition is a scary thing,” he said. “Utilities can take the profits from their regulated side and beat our brains out. Their marketing thrust is to take over everything in the building, which threatens our service market.
“My impression is that the big utilities will be disappointed in the returns they will get from the construction business.”
Consolidators have approached Berg, but Hamm hasn’t been impressed with the terms of the sales, namely a stock-cash split.
“I don’t think consolidation will be viable long term,” he added. “You really can’t generate the capital in this business to sustain the return rates that consolidators are looking for. The only way to do this is to borrow money and buy more companies.”
Berg’s plans are simply to forge on. Bob Hamm feels that the company can become a force to reckon with on the local and national scenes — just the thing that would have made founder Chris Berg proud.