“We haven’t picked a date [for the party] because we need additional space,” he said.
Midwest has experienced a lot of growth in the last couple of years, and Beard needs to make a decision soon on expansion or new construction. It’s a dilemma that most business owners probably wouldn’t mind facing.
Beard is looking forward to a record 1999 and expected revenues of $45 million. The thrust of Midwest Mechanical is in the design-build field of new construction, and expansion into more service areas throughout the Chicago region.
“We have three service locations and will soon add another,” Beard said. “We believe you need a strong service business to support a growing construction business.”
His background in engineering and his commitment to service formed a foundation for the future Midwest Mechanical.
After graduating with a mechanical engineering degree from the University of Kentucky, he went to work for The Trane Company, selling its equipment to contractors, architects, and engineers. Eventually, as a sales engineer in Chicago, he started up a residential service business called the Trane Home Comfort Center.
“A lot of people started in this industry through the Trane system because of their compensation package,” Beard added. “Their 100% commission package encouraged the entrepreneurial spirit, which was good, because I always wanted to have my own business.”
Starting from scratchAfter unsuccessfully trying to buy an existing business, Beard began his own company in 1974. The early focus of this business was in design-build industrial work.
After starting out with himself and one secretary, Beard graduated from a 3,000-sq-ft building to his present location, two buildings constructed in 1986. Total size is more than 42,000 sq ft.
The service side of Midwest’s business is spread out over three locations, soon to be split into four. Over the past 10 years, the company has acquired three mechanical service firms in Mt. Prospect, Park City, and Lansing, Ill./Hammond, Ind.
Beard thinks the ideal satellite service location has sales in the $2 million to $4 million range and employs 12 to 16 service technicians. His blanket approach to service covers the seven-county metropolitan Chicago area and northern Indiana.
The service business is expected to generate more than $13 million in sales in 1999, including $5 million from the company’s more than 850 maintenance agreements.
“Any construction project we do, we make a determined effort to negotiate a maintenance agreement,” explained Beard. “We have a saying in our company: A project isn’t completed until we have negotiated a maintenance agreement with the building owner.”
Midwest’s service has formed a solid base to support a growing construction business.
“Out of our $32 million in construction work, we break it down into two categories, owner-direct and work from general contractors,” Beard said. “Almost all of the work we do with owners is design-build, whereas 50% of the work with general contractors is plan and spec-redesign.”
One of the stronger areas in Midwest’s portfolio includes “tenant work.” This involves installing basic heating and cooling systems, including rooftop units, chillers, and central ductwork, in high-rise buildings. Later, as tenants move in, there is an additional need for more ductwork, grilles, vav boxes, and controls. This work forms a basis for future installations as tenants relocate.
“Whenever companies move, hvac work is created,” Beard said. “A tenant may want to move into a larger space that needs to be remodeled. And the space they are vacating will need to be remodeled for the next tenant.”
Two of Midwest’s larger projects include Chicago-area companies. Tellabs, a major telecommunications business, hired Midwest to install equipment in both phases of its 500,000-sq-ft manufacturing-office space facility. And the 250,000-sq-ft “Esplanade” is a high-profile office building that bears the stamp of Midwest’s engineers and technicians.
“We are currently in the process of doing a $1 million retrofit of a chilled and hot water plant in a facility operated by the FAA [Federal Aviation Agency],” Beard added. “We have to change out the equipment while keeping the 200,000-sq-ft building on-line.
“It involves a lot of overtime, weekend work, and intensive project management. We were only one of three mechanical contractors considered for the job.”
There are certain projects that Beard will turn down; those he calls “opening-the-envelope” jobs that are sent out for bid on large public projects. Midwest prefers the negotiated design-build projects that involve his engineering group and construction teams.
Although Midwest works in the commercial-industrial markets, they manage to keep their hand in a “form” of the residential market.
“We do some high-rise residential,” Beard explained. “But I see this type of work as being more commercial than residential, since much of the equipment is similar to commercial equipment.”
Beard employs 260, including sheet metal mechanics, pipe fitters, and electricians. The tradesmen are100% union, with whom Beard has an “excellent relation.”
Midwest has not suffered the pains of a tight labor market compared to other contractors. Beard thinks this is because “We have the reputation as a company that tradesmen like to work for.
“The reasons are our emphasis on safety and steady growth, affording more opportunities for the workers. But the market was tight last summer, and I expect it will be again this summer.”
Beard noted his success at bringing in non-union service technicians and training them. He likes to bring in people to learn the Midwest “culture.”
Consolidators, utilitiesWhen discussing consolidation and utility competition for service contracts, Beard sees the positive side.
“I think what is happening now is very healthy for our industry,” he said. “It provides opportunities for people who are interested in selling their businesses for a much higher value than three years ago. But from my point of view, it would be a difficult decision to make.”
Beard also believes that the decision to sell is made more difficult by the choices of who to sell to.
“If you sell to a consolidator, you become a partner in a much larger business. If you sell to a utility, you become part of a significant player in this industry, because there is no doubt that utilities will become major players.
“But I don’t see consolidators or utilities as a threat to my business. I don’t see them as having a negative impact on our ability to generate work.”
Beard said he has no immediate plans to sell his business, although he has had opportunities to do so. But it’s good for him to know that he has viable opportunities in the future.
Beard does not hold to the belief that utilities are using ratepayer money to subsidize their venture into the service market. He thinks that utility activity is monitored by regulatory commissions and scrutinized closely. However, he would like to have the opportunity to work for them.
“Utilities are going to control a lot of retrofit work and performance contracting,” Beard predicted. “We certainly want to do that work, so an alternative to selling our business would be to align with utilities to share some of their work.”
The midwest differenceBeard said he is proud of his reputation as a leader in design-build engineering in the Chicago area. He is equally proud of his track record for customer satisfaction. One way of ensuring that satisfaction is through a liability insurance policy.
“We carry $2 million of errors/omission professional liability insurance,” he said. “This is insurance against poor design work. Certain owners and architects require this as part of the project.”
Beard also spoke with pride about the company’s safety programs and safety record. He believes his safety programs, headed by a full-time safety coordinator, set Midwest apart from other contractors. He cites his experience/modification rating as a representation of that record.
The rating is based on the number of accidents on the job based on the type of work. The state average rating is 1.0. Midwest’s is 0.65.
“The rating is applied towards the premiums,” Beard said. “For example, a company with an experience/modification rating of 1.0 might pay $100,000 in premiums, versus our rating of 0.65, which equates to a $65,000 premium.”
Beard said there is growing concern among industrial and commercial customers and general contractors for safety on the job. Some customers won’t allow contractors on the job if their rating is over 1.0.
Midwest also has a safety committee and an incentive program to keep employees abreast of the latest issues, and to remind them of the importance of job safety.
Whether it is service or construction, Midwest’s fleet of 118 vehicles is usually on the road early and often. Based on the company’s success in the Chicago market, these vans will be putting a lot of miles on their odometers.
Now if only they find a place for their anniversary bash.