Commercial Considerations

Concrete contractors across the country are feeling the crunch from the downturn in the residential market. For some, a changing market is old hat - they've been through this before. Others, however, are experiencing the need for business adjustments for the first time. In response to a dip in residential work and an increase in commercial jobs, many concrete contractors are increasing the percentage of commercial work they perform. The residential and commercial markets have their differences, and being prepared for some of the nuances will help you weather the changes.

The dreaded retention
Matt Stevens, a management consultant for construction contractors and author of the book Managing a Construction Firm on Just 24 Hours a Day published by McGraw Hill, says the biggest challenge contractors have to contend with on commercial jobs, especially when they're used to the residential sector, is retention. "For the average construction company, retention costs from 20 percent to 50 percent of the firm's profit," Stevens explains. "For contractors whose profit is average, the impact is on the high end of the scale. For highly profitable firms it is less of a problem."

Stevens suggests dealing with this problem head on and asking for a reduced retention at the bidding stage. If you can't get that, then look for other ways to make up the deficit, such as getting cash flow started in the right direction at the beginning of a project. He says only as a last resort should you offer a slightly reduced price in return for retention breaks. "You have to understand what retention is doing to you financially - you need to know how much you're losing and where," he says.

Kirby Justesen is owner/president of Formco Foundations in Salt Lake City, Utah. The residential downturn in his area of the country is only about six months old, but he says years ago he recognized the need to go into commercial work and the recent market change has drug him along. So far, Justesen says there's not always a lot you can do to negotiate retention, but he's had luck dealing with it another way. "We think we hit the commercial market at a good time when there are a lot of jobs out there, so we try to bid higher prices to make up for how long they hold our money. We build it in as a cost of the job, but sometimes you don't always get it all," he says.

Justesen adds that a large increase in commercial work might also mean taking a trip to the bank for higher credit limits to balance cash flow issues created by retention issues.

Stevens has some suggestions for reducing your risk when it comes to retention issues. "First, deal with people you know; second, have a good relationship with them," he says. "Don't deal with anyone doing a one-off job. If someone isn't local and is working on a one-time construction deal, you might want to pass on the job."

Stevens continues, "If you look at the number one reason people get profitable work at the get go, it's their number of qualified leads. If you've got 14 jobs in the mix, you can pass on ones that might not be good or profitable for you."

Dealing with the differences
Jerry Balmer, with Balmer Bros. in Akron, Pa., says his company has seen a considerable increase in commercial work over the past year. Where his company typically does a couple commercial jobs a year, in 2007 it had one of its crews doing commercial work all year long. Balmer has a background in bridge work, and his company is set up to take on commercial jobs, but he'd rather not do it for a number of reasons. "We have the equipment to do larger commercial work, but it's a whole different league than what our employees are used to dealing with," he says.

Balmer says the main difference is on the jobsite. "With residential concrete work, we're usually the first person on the job and the only person on the job at least in the beginning phases," he says. "With commercial work you're typically working with a lot of other subcontractors, and you have more difficulty going ahead with your project because people can get in your way and everyone has different schedules."

To combat this issue, Balmer says his company hand-picks its commercial jobs, avoiding those that demand holding a 10 percent retention and gravitating toward jobs where it can work with architects and designers directly. Balmer Bros. has had a crew working on a ready mix plant project since summer, pouring walls up to 30 ft. high. But he says they're the only contractor there and he's able to work directly with the owner, and if he needs plan changes or adjustments he can get them by talking to the engineer.

For contractors who might take on a commercial job with a less-than-desirable situation with balancing subcontractors' schedules and such on the jobsite, Stevens says you need to spend extra time in planning so your field staff isn't wasting time on the jobsite. "I see office staff as leverage," he says. "If the office and support staff have things in order and planning is running smoothly on their end, then work will run smoother for the field staff too."

Randy Wilkerson is president of Sustainable Building Strategies in Tennessee and North Carolina. He distributes ICF forms along with other certified green building components and consults on green building projects. He's seen the residential ICF market slow down in the central East Coast region while the commercial market is taking off in areas like movie theaters, multi-family buildings and schools. Wilkerson says it's important for contractors breaking into the commercial market to understand the building codes they're working with. "When you've got an architect or engineer who's going to sign off on a wall inspection on a commercial project, you may have much higher requirements for steel reinforcing and such than you would on a similar residential application," he says.

Wilkerson also says it's important to be aware of increased OSHA visits on commercial projects, too. So make sure your employees are being properly trained and following safety rules and that your equipment is in good working order. In addition, most commercial general contractors will have a staff safety inspector who will require weekly safety meetings and written verification of compliance.

In preparation for the residential downturn and because he's been wanting to increase commercial work for a while now, Justesen has invested in equipment to help increase his commercial load at Formco, namely precast retaining wall blocks and a rock slinger truck. He also has his former track home manager researching and training in vertical overlays with stamping and staining so Formco can offer customers a finish on top of the foam panels on their insulated cast-in-place walls.

Justesen also hired a new sales person to target mid to heavy commercial and manufacturing foundation work, and an equipment investment came along with that as well. "We have invested in a big panel forming system that works similar to our aluminum forms but allows us to keep up with quality and introduces cost efficiency when we're up against general contractors for jobs," he explains.

Justesen says another type of equipment technology that's a must for commercial work is laser layout equipment and AutoCad capabilities. "We get plans from the structural engineer, precaster and steel beam guy and we can marry those all up on the computer to identify the locations of the hold downs, anchors and so forth," he says. "If you get those early enough you can find problems in the design and you can help them out and they're very willing to work with you. That's a must to provide the professional level of service that the architect and engineer are expecting."

Wilkerson says when it comes to commercial jobs, time is money, and the key to increasing your profit is by reducing cycle times. One way you can do that is with equipment. "I recommend commercial ICF builders have power rebar cutters and benders because of jobsite speed," he says. "They save you time in terms of having to order out your rebar and lentil hooks, stirrups, scallops and things like that." Wilkerson adds that power rebar tying tools, hand tools, laser leveling equipment, and more bracing and alignment systems are also important.

"Another piece of equipment they might want to look into is man lifts, telehandlers, all-terrain scissor lifts, equipment like that. On commercial projects it's essential that you have them because you're going to be dealing with multiple stories," he says.

An increase in commercial work can also have its effects on your staff. Management and office crews will see more paperwork. "We see a higher work load in the estimating department," Justesen says. "Before a project goes into production the estimator has a lot of time dealing with people and plan changes even before the plans go to the job." Justesen adds he also has an employee who spends a lot more time reviewing contracts, which are more complicated and detailed in the commercial realm.

Balmer says one of the biggest things he has to keep in mind on commercial jobs is employee safety. "We have a good safety program here, but on commercial jobs you have to be more safety conscious. When you're pulling people from a residential crew where they aren't used to scaffolding, manlifts and those types of things, you have to push safety when people start working at those heights," he explains.

Justesen adds that his company has been focusing on training in order to smooth the transition to a commercial-heavy company. He has someone in-house who creates training and safety programs on DVD. The programs help new employees he's had to hire because of increased work loads learn the ropes at Formco and help lend uniformity on the jobsite. Justesen also uses the in-house DVD programs to train employees on new equipment and on safety procedures.

Despite the challenges with training, scheduling, and other similar issues with commercial projects, Justesen says his managers and crew leaders see the increase in commercial work from a different perspective, too. "One of the biggest things I've seen in the field is my lead guys - my managers and crew leaders - look to commercial jobs as a challenge and take it as an opportunity to get out of the everyday things and into something different," he says.

The challenges associated with taking on increased commercial work can easily be meet with proper planning. Commercial work will help you diversify your company and bring you healthy revenue sources. Make sure you have the proper equipment and training in place to make your projects successful.