Follow Giants' Lead to Prepare for Change

UNLIKE THE PAST few editions of our Book of Giants, the 2005 report carries good news for most of the nations top mechanical contractors. The chart that quantifies these companies revenue changes from the previous year shows more increases than minus signs. Steve Comunale, president of one of the Giants, predicts: 2005 is going to be a great year. Revenue is up and were looking forward to nice continued

UNLIKE THE PAST few editions of our Book of Giants, the 2005 report carries good news for most of the nation’s top mechanical contractors. The chart that quantifies these companies’ revenue changes from the previous year shows more increases than minus signs.

Steve Comunale, president of one of the Giants, predicts: “2005 is going to be a great year. Revenue is up and we’re looking forward to nice continued growth in so many markets.”

The fact that so many Giants have increased their business over the last year, or at least held their own, speaks to these contractors’ ability to adapt to changing market conditions as well as fundamental shifts in the U.S. economy. Perhaps the last few years have conditioned us to be a bit cautious, but when we examine these growth markets we see some things that shouldn’t be ignored.

For example, Comunale’s own company has fire sprinkler contracts on a half-dozen warehouses of more than 1 million sq. ft. The reason for the warehouses? This country’s lopsided balance of trade has so many imports flooding into the United States that these products have to be stored somewhere.

So, while the warehouse contracts provide excellent business for the sprinkler contractor, you have to wonder where the U.S. economy is heading long term.

Other Giants are finding substantial business from government-funded projects, including schools. J.F. Ahern Co., for instance, is seeing the Wisconsin state government funding well water and wastewater treatment projects. The contractor describes the University of Wisconsin as being on a “spending binge.”

At the same time, the contractor’s manufacturing customers — with a few exceptions — are not faring nearly as well. Here again, you have to question whether the lack of privately funded projects from manufacturers in Wisconsin and elsewhere in the country is another sign of a basic change in the U.S. economy.

That certainly seems to be the case just to the south of Wisconsin in Chicago, where the manufacturing base has been eroding for years, says Warren Hill, chairman of a Giant headquartered there. He recalls in the 1960s that every square mile grid in the city contained a manufacturing plant that employed 500 people. “Now they’re gone,” he notes.

To make up for the shortfall in part, Hill Mechanical has found work in the booming condo market in the Chicago area. More attention appears to be focused on the margins on some of these projects than on talk of any real estate bubble.

In Chicago and others areas of the country such as Southern California, the demand for housing still is greater than the supply. Yet the talk of the bubble bursting persists and could signal yet another big change in the economy.

Along with increasing their revenues, many of the Giants have been able to deal with rising prices for commodity metals, gasoline and insurance. All these “external forces” would seemingly be out of the control of mechanical contractors, yet these companies are buying smarter, improving relationships with their customers and suppliers and being more conscious about fuel efficiency to control their costs.

The country’s trade imbalance, vanishing manufacturing base and possible housing bubble are forces that are even further out of the mechanical contractor’s reach. Still, amid the optimism of improving business this year, we all should keep in mind that further changes are inevitable. We need keep an eye on how they will affect the contracting business.

We highlight the largest mechanical contractors every year because of the size of their operations and the impact that they have in their markets. While many of you may not be able to relate to the size of the Giants’ operations, you still are facing most of the same market conditions. How the Giants go about their business can be instructive to all mechanical contractors, particularly during this period of change.

Fortunately, what won’t change is the need for clean water, heating, cooling, fire protection and other mechanical systems provided by that contractors, regardless of their size.