Many electrical construction firms are hanging on by their fingernails while waiting for the market to turn around, said Peter Corogin, president of Westlake, Ohio-based Lake Erie Electric. The number of bidders on individual projects has doubled, and some contractors appear to be bidding at cost to keep their electricians busy.
“There is not enough work out there for all the competitors, resulting in too many contractors going after the same projects,” Corogin says. “A lot of companies are disrupting the market and weakening the industry by bidding to stay in business rather than to make a profit.”
Electrical contractors hoped for a strong economic recovery in 2003, but due to the continued softness of the construction market, sales dropped for half of the firms on EC&M’s fifth annual listing of the Top 50 Electrical Contractors. Overall, however, the companies managed to post a 1.4 percent average gain in sales from 2002 to 2003 compared to an 8 percent drop from 2001 to 2002.
Limited capital spending, uncertain regulatory progress, and extreme competition led to a 6 percent drop in overall sales and a 1 percent increase in electrical and datacom sales for Houston-based Quanta Services. John Colson, chairman and CEO, said to survive the flat economy, it’s critical to regulate the size of your company to meet the size of the market. With fewer projects on the horizon, Quanta has focused on decreasing its costs, reducing its overhead, and downsizing its company.
“Our customers’ spending has declined due to their financial capabilities,” Colson said. “There’s now an oversupply of the services needed to complete those projects, and the prices have declined.”
Electrical contractors had more work than they could handle a few years ago, but today, construction jobs are scarce in many regions. For that reason, almost half of the respondents to EC&M’s Top 50 survey named the stagnant economy as their top challenge for 2005, followed by the skilled labor shortage. The U.S. Department of Labor estimates that 550,000 new construction jobs will be created through 2008, and 240,000 workers will leave the industry every year due to retirement and other reasons. Compounding the problem, the average age of the construction worker is 49, according to the Construction Education Foundation of Georgia. As these baby boomers plan for retirement, the construction industry will need to train the workforce of tomorrow. In the meantime, however, electrical contracting firms are facing a severe labor crunch.
About a quarter of the respondents expect to face a shortage of qualified electricians next year, and Los Angeles-based Bergelectric is no exception. The firm experienced a 20 percent increase in 2003 sales and expects sales to increase another 15 percent this year. While several other states witnessed a dropoff in construction, the majority of the firms in the Golden State had too much work and not enough workers.
“If there were enough qualified people, you wouldn’t have to spend as much time and effort training new employees,” said Don Briscoe, president of Bergelectric.
One of the ways in which the Top 50 players have survived the stagnant economy is by expanding their operations into strong geographic regions and venturing into the overseas market. About 21 percent of the 2004 survey respondents perform electrical construction work abroad. For example, Boston-based Mass. Electric Construction Co., which ranked eighth on the 2004 listing with 2003 sales of $371 million, recently completed contracts in Puerto Rico and Venezuela. Over the past three years, the volume of overseas work accounted for about 5 percent of the firm’s total revenues.
While the Top 50 contractors faced many challenging market segments in 2003, some firms’ sales increased due to hot markets like healthzcare, education, residential, retail, government, and transportation. Surges in population have increased the need for new homes, schools, and retail stores. The aging of the nation’s population has also boosted the demand for health-care facilities.
To find out more about the 2004 Top 50 firms, visit www.ecmweb.com/research to purchase an exclusive research report, which features detailed capsule summaries, a list of contact information for each firm, and a sample cover letter and survey. The report also includes information on the hot and cool markets, the top players in certain industries, the 10 firms with the largest sales gains and drops, firms’ biggest challenges for 2005, and the companies’ forecast for 2004 sales.