Residential contractors have upper hand

Today's residential plumbing contractors have an advantage in the residential fire sprinkler market.

The new IRC requirement for all new single- and two-family dwellings to have fire sprinkler systems installed in houses constructed after Jan. 1, 2011, is here. Of course, there are those that are for the new IRC residential sprinkler requirement and those who are not. Nevertheless, the potential market that is now open to those who install fire sprinklers is also open to the plumbing industry as well.

The impact of the new IRC requirement is estimated to be as much as $3 billion a year in potential revenue. Contrary to many of the reports and articles written about this subject, the fire sprinkler industry is not large enough to absorb this type of demand. Even with the pressure our economy is currently feeling, demand for designers and installers of these systems is going to be very deliberate. Do you want to be a part of this market?

Before you answer this question, allow me to impart some observations that only someone in my position can share. I doubt anyone would argue with me about the differences between commercial and residential construction. However, when narrowed to the introduction of fire sprinklers to the home building process, there are specific issues to consider.

Consider the fact that the plumbing industry can be characterized into three major groups: large mechanical contractors, residential contractors and service contractors. Major mechanical contractors usually have both HVAC and plumbing capabilities. These companies predominately work on commercial projects, which require more than three-man crews with construction schedules that can stretch out for months and maybe even years.

Then there are those companies that concentrate on the residential markets. These would include multi-family as well as single-family projects. These companies are usually much smaller than those involved in the commercial markets and tend to have smaller crews.

The final group is those companies that have chosen to focus on the service side of the plumbing market. These are usually small to medium sized companies with less than 25 employees that are structured to accommodate plumbing service needs.

Of these groups, it is the residential companies that are most prevalent and have the most opportunity in the residential fire sprinkler market. They have the most to gain with the least amount of investment required. In residential construction, there are usually only five or six sub-contractors involved, including, but not limited to, foundation, framing, mechanical, electrical, finish and painting contractors. Since the residential plumbing market is already very competitive, the potential profit margins are very tight, especially when you consider the fact that average tract housing plumbing contracts total $8,000 to $10,000. Most residential contractors are looking for volume as well as the occasional custom home. Any chance to increase the base cost of their services means that while the actual margins may not increase, the amount of that margin allows opportunities for more rapid growth or internal capital improvements, such as tools, trucks or even employee benefits.

Plus, plumbers have been on site for decades — fire sprinkler contractors have not. Plumbing contractors already have relationships built with current clients. They are familiar with home building trends, contracts and market conditions. The majority of all fire sprinkler contractors in this country are commercial contractors. They do not have the years of experience with residential markets. Over the years, some have diversified into the residential markets, but one thing is for sure, few are capable of or even want to participate in both markets. The reasons for this are the same reasons there are three groups of plumbing contractors. The bottom line costs are not as much as commercial construction, and they have found that trying to accommodate both markets usually involves higher overhead, which makes it harder to compete.

Other reason residential contractors are most suited for this market is the nature of the trade itself — it is pipe and water. Who better to adapt to this market than skilled labor that already knows how to work with the majority of the components involved with fire sprinkler systems.

I have read several articles and reports from those on both sides of the residential fire sprinkler argument, and I have to say that this is not difficult — it will not take years of training and expenses to merge the design and installation of fire sprinkler systems into an already successful residential plumbing contracting company.

While residential fire sprinkler systems have been required in select markets and geographic locations since the mid-1980s, it has really only made its presence known in multi-family projects, and, even then, it is fairly marginal. Today's residential plumbing contractors have an advantage in the residential fire sprinkler market. It is wise for them to consider this advantage, and the education and training tools that are being made available by Fire Smarts and the Plumbing-Heating-Cooling Contractors Association. Given the economic conditions in the residential market, demand can only grow.

In Part 4 of this series, Steven Scandaliato will discuss how plumbing contractors that provide both domestic water and fire sprinkler services have a competitive advantage by reducing the general contractor's administrative burden.

Steven Scandaliato is a Fire Smarts faculty member, vice president of business development of Telgian Corp. and has more than 23 years of fire protection engineering, design and project management experience. He holds a Level IV certification from NICET in Fire Sprinkler Layout and serves as a member of the NFPA 13, 101 and 5000 committees. Visit his Web site at: http://www.scandaliato.com.