Will you have the right to exist?

Oct. 1, 2011
Proprietary control protocols and limited access to technical information and service tools are starting to drastically affect the independent servicing contractor.

It is said that you can put a frog in a pot of water and put it on the stove to boil. The frog will die without moving not knowing that he can jump out and not realizing the water is hot until it is too late. That might be a metaphor for the HVAC service industry. The independent contractor is the frog in the pot of water and the stove is on.

Microprocessors revolutionized our industry. The falling cost and increasing reliability of micro and power electronics caused them to be used throughout our industry in controls, speed controls, solid state motor starters and a myriad of other functions. This evolution, however, was not a disruptive technology (unless you made pneumatic controls) that changed the way we operate and control systems. Microprocessors did not greatly affect who did what or how and when it was done.

Until now. The next evolutionary phase will be a disruptive change affecting the independent contractor.

Proprietary control protocols and limited access to technical information and service tools are starting to drastically affect the independent servicing contractor. That trend will accelerate. The use of analytics will revolutionize the HVAC service industry. These measurements and metrics will optimize operation, identify problems, predict maintenance needs, forecast energy consumption, and dispatch the appropriate personnel to resolve problems or perform maintenance. And the Internet will allow it all to happen from Bangalore, Moscow, Sao Paolo, or Beijing.

One major manufacturer has a goal of making all controls wireless and integrating them into equipment within five years. They have an additional goal of having 1,000 buildings under this type of control. If they control access to this technology and the information from it, they can control the service and repair of that equipment. Other manufacturers surely have similar integration strategies with similar objectives. All the manufacturers are either in the building controls business themselves or aligned with someone who is.

This is a game changer for the independent HVAC service contractor. It disrupts our task- and time-based service model (the periodic maintenance agreement) and puts the control of the operation and maintenance of systems in the hands of someone else — the person with the technology. There are no restraints on the manufacturer’s ability to restrict access to the information, repair parts, and service tools required to service modern systems. There is a parallel in the auto industry.

The auto manufacturers adopted technology to add features and improve performance long before the HVAC manufacturers did. And they largely retained control over the technology required to service their products. When I started driving, cars got 15 mpg and you changed the oil every 3,000-4,000 miles and tuned them up every 12,000 miles. There was a "service station" that did that repair work on every corner and many independent repair shops. Today cars are heavily computerized, tell you when to get service and what to do and service is usually done at a dealer. The corner "service station" now sells gasoline and coffee. The number of independent auto repair shops declines every year.

When I started in the HVAC service business, centrifugal chillers used .85 KW/ton and had a couple of relays and a motor starter. There were many independent service companies and some of the manufacturers did not even have service operations. Today centrifugal chillers use .55 KW/ton or less and are controlled by advanced computer control panels signaling variable frequency drives. Unlike the auto industry, these advanced controls are available as retrofits for older systems. They are, however, a controlled technology not available to independent service companies. There are still a lot of independent service companies (more every day) but they are increasingly relegated to servicing older chillers or unitary equipment.

Many will say that this is a problem best solved by the hustle and ingenuity of those inclined to solve it for themselves and that the result of that effort is a competitive differentiator. And that is partially true. However, you still need access to the service tools and repair parts. Obtaining them through subterfuge isn't a good business model and tends to leave you a product generation behind.

Twenty-some years ago as a result of litigation, the major manufacturers entered into a consent agreement to stop some anti-competitive policies. The policies that triggered the lawsuit were access to the technical data needed to do refrigerant conversions on chillers and access to replacement parts. That consent agreement has expired. The policies that gave rise to it have not. We have seen manufacturers quote repairs for less than what independent contractors pay for required repair parts. We have asked for quotes on replacement equipment and had the manufacturer sell the job directly to the customer. We have asked for access to the diagnostic tools needed for some of the modern equipment and had the request denied. The list could go on.

The bottom line is that unfettered by litigation, economic pressure, or legislation, the expansion of technology and consolidation of the industry will continue to limit opportunities for the independent contractor. Litigation is expensive, time consuming, and unpredictable. Economic pressure is hard to apply and organized trade actions are generally illegal under anti-trust laws. Legislation, while also messy and time consuming, offers the opportunity to open the market to independents.

Most HVAC service companies are owned and managed by the type of entrepreneurs that have always led the growth and health of our economy. They are used to controlling their future through hard work, risk taking, and ingenuity. The present direction of the HVAC industry will neutralize all of those traits in the future. If independent contractors ignore this direction, their futures are in the hands of others — a group of people who probably don’t need them or particularly want them in the way.

The water in the pot is getting warmer …

Brad Bolino is a retired consultant. He was the founding executive and president of the Mechanical Services Div. of John J Kirlin LLC, Rockville, Md., for 16 years. A veteran of more than 35 years in the mechanical contracting and HVAC service industry, he is past chairman of the Mechanical Service Contractors of America and past president of the MCA of Metro Washington. He can be reached at [email protected] or at [email protected].

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