Evolving like a startup

Forward thinking and ever adapting, 49-year-old Farmer & Irwin keeps its edge. BY ROBERT P. MADER OF CONTRACTOR'S STAFF Steve Irwin adapts easily to change, whether he starts it or just gets caught up in it. Irwin is chief executive officer of Farmer & Irwin Corp. in Riviera Beach, Fla. Because of the dynamism and forward thinking of the Farmer & Irwin team, the $23.5 million contractor is the CONTRACTOR

Forward thinking and ever adapting, 49-year-old Farmer & Irwin keeps its edge.

BY ROBERT P. MADER
OF CONTRACTOR'S STAFF

Steve Irwin adapts easily to change, whether he starts it or just gets caught up in it. Irwin is chief executive officer of Farmer & Irwin Corp. in Riviera Beach, Fla. Because of the dynamism and forward thinking of the Farmer & Irwin team, the $23.5 million contractor is the CONTRACTOR magazine Mechanical Contractor of the Year.

Farmer & Irwin is a full mechanical contractor, specializing in plumbing, air conditioning, fire protection and sheet metal services.

Steve Irwin has had plenty of change forced on him, most lately in the form of Hurricane Wilma this past October. Southeast Florida is still heavily damaged and anyone who can stand upright and owns a tool belt can get a job.

As a result, it's difficult to get anything fixed. A light fixture still dangles from the outside the Farmer & Irwin main building because the electrician never came back. On a tour of one of Farmer & Irwin's condominium projects, the remains of the tower crane that was wrapped around the building by 180 mph winds lies on a junk pile, the large H-beams twisted like pretzels. The counterweight was never found and is believed to be in the intracoastal waterway.

To Steve Irwin, a hurricane is a good excuse to make improvements. The two biggest problems, Irwin says, in the week following the hurricane were electricity and gasoline. They are actually interrelated because the gas stations couldn't pump without electricity. He's planning to install a generator and gas tanks for his fleet. After Wilma, by the time he could get temporary power hooked up, the power came back on.

It was also a good reason to remodel the office space and get his estimators into more comfortable surroundings.

Irwin also initiated change in 1997 when he and his current co-owners started the buy-sell agreement that transitioned the company from its founders to the next generation. Since then, the company has been substantially changed, from its organizational chart to its computer software, and from its team estimating methods to the beginning of Lean Principles.

Of course, all this would not have been possible without good customers and Farmer & Irwin has plenty of them. The company keeps crews on site at customers such as the historic The Breakers hotel in Palm Beach, and at United Technologies' Sikorsky Helicopter and Pratt & Whitney. Anything customers like that want, Farmer & Irwin hustles to give them.

Founding fathers
Farmer & Irwin was founded in October 1956 in Riviera Beach by R.E. "Bob" Farmer and R.R. "Dick" Irwin, longtime supporters of the Plumbing-Heating-Cooling Contractors-National Association. Dick Irwin was a member of CONTRACTOR magazine's Editorial Advisory Board back in the 1980s.

The company has often been mentioned in CONTRACTOR's annual Book of Giants issue, not in the Top 100 but in the list of most profitable contractors. This past year they were ranked second, with a net profit of 6.4% (May 2005, pg. 1). Irwin and Chief Financial Officer Alan Long run the business on a daytoday basis, along with key executives and family members: Fire Sprinkler Department Manager Rob Farmer Jr.; Plumbing Division Manager Randall

Irwin; HVAC Division Manager George Tsurutome; and Project Manager Jeff Irwin. Tsurutome is retiring in 2006 and will be replaced by Project Manager Tom Licata. Licata sold his own mechanical contracting business in New Jersey to move south, and Irwin considers him to be enormously talented.

Irwin anticipates that Tsurutome's stock will be bought back by family members.

When the two founders decided to retire, they researched their options and decided on a buy-sell agreement. The agreement was structured to allow them to retire comfortably and also provide financial stability to the company and the second-generation key executives.

After lengthy negotiations in August 1997, the founders and key executives entered into a series of agreements designed to aid the founders' retirement and the sale of each of their interests in Farmer & Irwin to the key executives. The sale of the original owners' interest was completed in 2004.

The buy-sell agreement provided deferred compensation to Dick Irwin and Bob Farmer as their stock was bought back, financed by profits. Throughout their lives, Farmer and Irwin and/or their spouses will also receive additional income from the company, such as rent from a warehouse.

The agreement gave the key executives the opportunity to purchase the founders' stock over a multi-year period. Steve Irwin notes that the company was profitable enough to pay the founders off in just four years, but they took five years for tax purposes.

"The two owners pulled together a document that ensured that they and their families were all taken care," says Steve Irwin, who notes that the two had been shrewd investors, especially in real estate, and would have comfortable retirements.

"It was a fair deal for all of us, but our challenge was to transition a 40-someyearold company into one that could compete in today's marketplace," Irwin says. "We were fortunate that the buy-sell agreement provided some stability as the change in ownership took place."

Like his dad, Irwin is a member of PHCC-NA, and he credits the association's Construction Contractors' Alliance with helping him and his partners through the transition period. He attended the first CCA meeting in Dallas and became a charter member. He is one of the founders of a CCA peer group of similar non-competing contractors who gave him advice throughout the process.

Irwin says that membership in CCA is one of the most significant things that he has done, and Farmer & Irwin has changed greatly because of suggestions from the peer group.

Split PM, estimating
Perhaps most significantly, Farmer split project management and estimating functions.

Project management is part of the production department that includes the fabrication shop and CADD design. Randy Irwin runs plumbing; Tsurutome and soon Licata run HVAC; and Mike Moore manages fire sprinklers, each with project managers and a superintendent under them.

On the estimating side, Rob Farmer runs fire sprinklers; Gary Kahn manages HVAC; and Mike Higgins oversees plumbing, each with a team of estimators under them.

Farmer & Irwin uses the roving superintendent method of field labor supervision. Each trade has its own superintendent and that person is responsible for all field labor within his department. Superintendents report to both the department manager and the project manager on the individual jobs.

The company fabricates as much of its assemblies as possible in its pipe fabrication and sheet metal shops. Besides putting together assemblies, the pipe fab shop also attaches fixture trim to fixtures to save the field crews from the task. Irwin plans to apply Lean Principles to the fab shops to improve the flow.

It also works to improve its material handling by doing things such as attaching wheels to carrier assemblies. Once the carriers are wheeled to the spot on the jobsite where they are to be installed, the wheels come off and the carrier is bolted into place.

Farmer & Irwin is signatory with United Association Local 630 and Local 719 Plumbers and Pipe Fitters. It is also signatory with UA Local 821 Sprinkler Fitters.

Farmer & Irwin has a full-time tool manager, and Lean Principles are going to be employed first in the reorganization of the tool room.

"All of these changes have made our bottom line a little more profitable," Irwin says. "Our prefabrication efforts, in particular, have been the cornerstone of our company, and have been a large part of the profitability of Farmer & Irwin."

Team estimating
The company has divided its estimating group into three separate but interrelated teams of plumbing, HVAC and fire sprinkler estimators. Irwin believes that by specializing the functions and having the three groups work on plans simultaneously that it speeds the bidding process.

A team captain manages the team. It's his job to review plans and assign estimators to specific systems for takeoff, oversee distribution of plans and specs, review and prepare specific bid requirements or bid forms, tell all bidding general contractors that Farmer & Irwin intends to bid, forward RFIs to GCs, contact subcontractors and prepare the estimate summary.

The team estimators review prints with the team captain for take-off assignments, take off assigned systems, advise the team captain of questions and draft RFIs and review the completed take-off with the team captain

In 1998, the company upgraded to the Windows platform of Estimation software. Since then, Estimation had upgraded its offering to TradePower and then again in December 2004 it upgraded to the Logistics system. All estimators are using the Logistics system. Farmer & Irwin uses the Harrison Pricing Service for material pricing and the PHCC Labor Calculator for labor.

The contractor has 3D piping software running on the latest computer technology. It has a Hewlett Packard colorfinishing plotter and a Kyocera 4845 PS 3 spool plan copier/scanner/printer with separate file server. Irwin & Farmer can scan in plans for future multiple prints at the touch of a button and convert to PDF for e-mailing raw prints to engineers.

All the contractor's computer equipment is now up to date. All office employees have a computer at their work area with Internet and e-mail capabilities. Purchase orders, bid forms, general office information and more is available to everyone through the server.

The company recently upgraded its network with an IBM X Series file server, which runs Windows 2003. It hosts 150 gigabyte of storage space on four storage drives. The contractor keeps the most up-to-date security measures active including Microsoft updates, current network-wide virus scanning and a complete daily backup of vital data.

The 46-user network sits behind a Linux firewall system that routes a DSL Internet connection near T1 speeds.

Alan Long and his staff have used ComputerEase accounting software since January 2000. It is fully integrated with the accounting modules. Irwin notes that for the limited amount of service work Farmer & Irwin performs, the service module is more than adequate.

Since the contractor started using the program in 2000, it has not deleted any of the database, so all the information is readily accessible. The company has more than 70,000 accounts payable vouchers in the system.

Finally, the company upgraded all its communication equipment to the 150 Nextel radios in service. Project managers, superintendents, jobsite foremen, equipment operators, lead mechanics, delivery drivers along with warehouse and fab shop personnel all use the radios. The fleet is mostly GMC.

The company is nearly 50 years old, but it's evolving today like a startup. Steve Irwin gives the credit to his employees for pulling it off.

They live up to their motto: "We know Plumbing; We know Air Conditioning; We know Fire Protection; We know Sheet Metal. Because we've been doing this for over 48 years, and this is what we do, we do it right the first time and on time. It's as simple as that."