The contractor’s utility question: Would you rather fight or switch?
Another commercial hvac contractor wants to grow in spite of utility competition.
Between them, these two commercial contractors probably voice the opinions of many hvac contractors in the United States, no matter what size their companies.
F & G Mechanical/Comfort Systems USAJust across the bay, in clear sight of sprawling Manhattan Island, sits Seacaucus, one of many New Jersey communities linked by common boundaries and compressed into a relatively small piece of waterfront property.
One of the local businesses that looks out over the New York City skyline is F&G Mechanical Corp. The mechanical contractor lists all of New Jersey and greater metropolitan New York City as its client base. Besides its commercial work, F&G’s market includes industrial buildings, high rises, institutional, and municipal buildings.
One of its projects is installing the hvac systems in the new International Arrival concourses of New York City’s Kennedy Airport. One of the bigger clients is telecommunications giant MCI, which has numerous switching facilities throughout the region.
“The bulk of our work is design-build,” said president Sal Fichera. “We do a lot of new installation and retrofit work and we have a service department. We do a ton of tenant fit-up work.”
The sheer number of renovations can be seen through F&G’s windows. “Just look out that window at midtown Manhattan and see all of those skyscrapers,” said secretary-treasurer Sal (Butch) Giardina. “There are guys moving out and guys moving in — constantly.”
Fifty years ago, the company was started by both men’s fathers as a tool-and-die business. The founders saw more opportunities in coal- to oil-burning-furnace conversions, and that business eventually built the company up.
“They were doing a lot of residential renovations and eventually began doing public works for the City of New York,” said Fichera. “One of their biggest clients was the New York City Board of Education.”
The business continued to grow. There now are 450 employees, and 1998’s sales volume reached $80 million.
Utility interestsAlong the way, F&G has partnered with a lot of major building contractors. Those close ties are helping to pique F&G’s interest in doing business with local utilities.
“We’re the guys with the relationships to the end-users of electricity and gas,” said Giardina. “We have connections to every major developer in the state. We see these relationships as being very attractive to utilities.
“Utilities want to sell juice; they don’t want to be mechanical contractors. We see this as an opportunity to partner with utilities.”
One of those major end-users is Hartz Mountain Industries, which built the sprawling Meadowlands Sports Complex. The development is home to the NFL’s Giant Stadium, NBA’s Continental Air Arena, and the Meadowlands Racetrack.
“Since 1974, they [Hartz Mountain] have built over 35 million square feet of fixed-use residential, commercial, retail, and hotel space,” said Giardina. “They are doing in excess of $250 million in annual new construction.”
F&G did all of Hartz Mountain’s plumbing work and eventually went into hvac work. At one point, Hartz asked the contractor to get into sprinkler work, which at that time F&G knew little about. That request eventually led to the creation of its subsidiary company, Meadowlands Fire Protection.
And that subsidiary went on to do work for more companies. So down the road, “Because of our relationship with Hartz Mountain, we were able to start doing work for other major developers,” said Fichera.
The contractor developed a strong reputation for its fast-track engineering. It wasn’t unusual to close a deal on a Friday afternoon and have a work crew onsite by the following Monday.
The company’s attention to detail and quality eventually caught the eye of a national consolidator.
Hooking up“When Comfort Systems first approached us we told them, ‘Leave us alone, we’re not interested,’” laughed Giardina.
But later, they became interested in what Comfort Systems was bringing to the table — a decentralized approach. Their philosophy, according to Giardina, was, “You guys have been doing mechanical contracting for a long time and you know what you’re doing. We’re not going to come in and tell you how to do it.”
“The atmosphere hasn’t changed one bit since the acquisition,” added Fichera.
With the success F&G has enjoyed and the bright prospects for future growth, why would these two men in their mid-40s want to sell their company and work for someone else?
“We didn’t sleep for three months,” said Giardina. “It was a gut-wrenching decision.” But there were some solid reasons for the sale.
“If we saw there was another generation of our family who wanted to run the business, we probably would not have sold. But that is not the case,” said Giardina. Moreover, “We have the highest respect for [Comfort Systems’ ceo] Fred Ferreira.”
Both men agree that they like the position F&G holds in the Comfort Systems group. As of March, it was the second largest company in the consolidated mix, and Giardina and Fichera feel their company has a tremendous impact on whatever direction Comfort Systems takes. “We take our role very seriously,” said Fichera.
F&G is one of six contractors in the Newark-area acquired by this consolidator. Giardina said he would like to see his company tuck in a good service contractor, but the right one hasn’t come along yet.
One advantage to working with this consolidator, Fichera and Giardina agree, is its expertise in dealing with utilities. The consolidator has people who have worked with utilities before, and can help F&G with potential partnering with New Jersey utilities.
With a $65 million backlog of jobs and a lot of work coming up at Kennedy and Newark airports, F&G doesn’t have a lot of time to fret about the state of the hvac industry. Skyscrapers lining the Jersey shoreline have the F&G stamp on them, and the market will stay strong for a while.
Monsen EngineeringAbout 25 miles northeast of Seacaucus is the community of Fairfield, another one of the many New Jersey communities within a stone’s throw of the New York/Newark metropolitan area.
Fairfield also is home to Monsen Engineering, a commercial hvac contractor that, like F&G, has been in business for 50 years.
Jeff Somers oversees the company’s $7.5 million service business and 51 of the 110 employees. That service figure accounts for about one-third of Monsen’s $20 million sales volume. The other two-thirds is in design-build projects.
“Our goal is to grow the service business by 50% by the year 2000,” said Somers. This ambitious goal will be aided by the company’s expansion into electrical contracting. The owners are looking at ways of getting into the plumbing business, too.
“We’ve always been a service-oriented company, but now we are going to push service even harder,” Somers said. He added that one of the factors affecting this push is the lack of good service technicians.
“There is a lot of service work available and not enough technicians,” he said. “Even being a union contractor, there is still no one just sitting around. We wind up getting technicians from the non-union sector.”
Besides venturing into some new businesses, Monsen is looking at new markets, too. It has a strong presence in the automated building controls market. It is staffing customers’ buildings with full-time technical journeymen who maintain building hvac systems.
Distinct markets, common problemsSomers said its venture into building automation is one more way to put some distance between the contractor and utilities.
“We are into commissioning and building controls to further separate ourselves from utilities,” he said. “This takes highly skilled people like ours. I don’t think utilities will venture into the automated controls market until they have the top technical guys to do the work.”
That type of thinking is keeping Monsen away from competing with utilities, for now. Somers said that scenario might change soon. However, instead of traditional concerns about utilities (competing for service business), he thinks his company will be competing for employees.
“We don’t feel utilities directly affect Monsen right now because of our ways of going to market,” he added. “The utilities are moving into the residential and light commercial markets. They are taking some good technicians by offering them generous packages. This concerns us.
“Some guys will jump at a chance to have more vacation days or sick days, and accept a lower wage in order to work for a utility.”
As far as competition for service contracts, Somers doesn’t feel the heat from utilities — yet.
“They’ll grab strip malls and retail stores which will affect us somewhat,” he said. “Most of our business is not in that area. But we don’t like what’s happening.
“In five or 10 years, they might be at our back door. If they keep staffing up with our talented people, they’ll be into the same businesses, like pharmaceuticals and chip manufacturers” — some of Monsen’s strong markets. “They can tell these companies, ‘We have the Monsen people and we’ll do your work and offer great rates on your utilities.’ They are a threat.”
Still, Somers is happy to be in his position, moving away from utilities while other contractors, especially those in residential hvac work, are faced with intense competition.
“I feel real bad for residential contractors,” he said. “It is heartbreaking to see what is happening. I think they [utilities] should be stopped.
“With cross-subsidization, a utility can go into one of our buildings, offer one of our guys $35 an hour, and tell the customer they’ll bill the labor at $42 an hour. We can’t do that. We’d go broke.”
Somers also sees a lot of interest in utility acquisition of hvac contractors. Being a successful contractor can be a curse as well as a blessing.
“If you’re a good company doing 40% to 50% gross margin and 12% to 16% net at the bottom line, you are very, very attractive to a utility.”