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A neighbor was telling
me he wanted to grade a short distance of rural road - about a quarter
of a mile, he guessed - by his property "out in the country," but
he didn't want to pay somebody else $70 an hour to do it. He asked
how quickly he could learn to operate a grader if he purchased one.
My first reaction was that $70 an hour didn't sound too terrible
for having the grading done correctly; an expert contractor wouldn't
take long to do it. My second reaction was to wonder why the neighbor
would consider purchasing a grader (not a minor investment even
for a used machine) rather than renting it for such a small project.
My third reaction came a few hours later: That neighbor imagines
he can do anything! He believes that he can buy a grader, hop on
the seat, and produce perfect results. "A crown? Drainage? I'm a
Republican, why would I want a crown in my domain? In the country
everything drains away, doesn't it?"
During a thoughtful evening I asked myself: Is it simply
ignorance of better business practices and improved machine designs
that causes some contractors to lose contracts and complain that
they are being forced out simply because their competitors are bigger
companies?
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| Attachments
such as thus one can help expand a subcontractor's business.
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| To
give total service, a subcontractor might offer more than basic
excavation and grading. |
The profitable days of
the owner who slammed the levers, kicked the tracks, and never-could-find-a-good-employee-younger-than-himself-who'd-do-a-decent-day's-work
seem to be disappearing. Those who laughed at innovations in hydraulics,
cab design, power transfer methods, and machine control now own
the equipment they swore would never enter the yard. Forgive us;
we're only human, with the privilege of erring. The next touted
stage in the development of the North American construction industry
(and it applies to users of excavators and graders as much as to
anybody) might be c-o-n-s-o-l-i-d-a-t-i-o-n. To some people it sounds
a loud warning because it could be a strong challenge to the concept
of subcontractors, which is what many of us call ourselves. Consolidation
happens when a contractor decides that he wants total control of
every stage of the project. If he is pouring concrete, he wants
to know that the ground on which he is pouring has been prepared
correctly. It means that he might prefer to do the excavation and
grading himself (i.e., with his own equipment and workers) rather
than entrust it to subcontractors. Some will cry, "Foul!" They say
many subcontractors have established excellent reputations for their
work. That is true; nobody denies there are many good subcontractors.
"Is there really more consolidation, or are current
conditions simply sorting out the good companies from the ... not-so-good?"
asks Marsha Mitchell, who contracts in the Dakotas and Montana.
After conversations with contractors nationwide, I suspect that
those who are most angry about consolidation (or, in their opinion,
being squeezed out by the "big boys") are those who
have not made genuine efforts to be constantly better than their
competitors. Some people contacted wished to be anonymous - in
case it hurt their businesses - and we have respected that,
identifying them only by their regions. "In our market, most
GCs want to sub anything," remarks a small Alabama
construction company owner. "They want site contractors to
be mini general contractors. Many GCs want to be construction managers
with no trades on their payroll."
Is Consolidation a Cycle? A Normal Turn of the Wheel?
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| Several
manufacturers have started to market trucks in addition to their
traditional excavators and loaders. |
"I believe what we are
seeing is a trend related to the economy," observes Kevin Hugulet,
project manager with Mike Becker, general contractor in La Grande,
OR. "This trend - what you have called consolidation - is cyclical
and will be reversed one day. When the economy is robust and growing,
you see more small, independent subcontractor-type companies popping
up all over the place. When the economy is on a downturn, like presently,
you see those same small companies start to fall out because they
cannot weather the tougher economic times as well as the larger
companies. Those larger companies are doing more of their own work
because there are fewer subcontractor companies available and, hence,
less competition and higher sub prices. If the current trend shows
larger companies are doing more of their own work, then the trend
is not new. It is normal, part of the construction industry's regular
cycle."
A caution about expansion comes from Sean McCaa, owner
of AWS Grading & Excavating in Hoschton, GA. "I have never
seen a diversified contractor who reaches beyond his specialty - whether
it be grading, hauling, landscaping, or plumbing - who has managed
to maintain the integrity of any one facet of that expanded scope.
We've heard, for example, of a hauling contractor deciding
to include grading as a primary service in addition to the hauling.
The grading venture spins off quite well, at least for some time.
When the novelty wears off and grading loses its appeal, the contractor
comes to realize his experience in hauling didn't make him
an expert in grading. Meanwhile, as he carried out his grading venture,
his hauling business probably suffered, as it was serving only his
own needs attached to the grading jobs. Not all phases of construction
can be carried out efficiently by the same contractor. At some time
or other you will need specialist help." McCaa adds that to
be competitive in today's market, you have to be an expert
at something and stick to it.
In the Southeast, the owner of a midsize construction
company says one of his local paving contractors recently purchased
a grading and excavation business. "The advantage for the
paving firm is that most of the current highway paving work is expansion
of existing roadways. This requires little volume of dirt work but
more detailed pipe work, and the paving company's competitors
seemed to have an edge in that respect. In our market there are
only four or five decent paving contractors, so how will the remaining
grading and excavating contractors quote the paving contractor who
now has in-house grading and excavating operations?" To complicate
that local issue, the paving company mentioned is a sister company
of a big general contractor. "What will the subcontractors
do? Will they feel they are bidding against themselves and not give
as good a price to the GC?"
The Key to Subcontractor Prosperity?
If developers find reliable contractors, they do what
you would expect. Thomas Stanley Grading in Apex, NC, specializes
in grading and utility work. They also do curb and gutter work and
some paving. "The developers and general contractors use us
to do the entire site-work package, minus the landscaping,"
says Bob Westall, project manager for the company. "Developers
who have been doing this type of work for a while like to have one
contractor because they do not have the coordination problems they
run into with multiple contractors on the job. For example, if the
grading and utility contract is complete but it will take two or
three weeks to get the concrete and paving contractor to the site,
it could rain in the meantime. When the concrete and paving contractor
crews finally arrive on-site, someone is responsible for fixing
what the rain might have changed [such as grades and compaction
rates]. Usually the developer ends up paying for fixing the grade.
If the developer has one trusted subcontractor, then he will be
the one responsible from start to finish."
Underlying
all decisions about subcontracting (or not) is the desire to make
the entire project profitable. Kelsey Construction in Orlando, FL,
is a general contractor. "I believe that general contractors
have always preferred a turnkey package or one-point responsibility,"
asserts Richard Heinkel, vice president of operations at Kelsey.
"In the event that there are not many turnkey site contractors
in a particular area, you may find that an earthwork contractor,
for example, will combine with other disciplines, like utilities
and paving, to put together the turnkey package. The earthwork contractor
would oversee all the work even if his crews perform only a portion
of it." Economics is the reason for splitting a job so that
the general contractor has a lower "site price." The
more the job is split up, however, the greater the chances are for
specific scope items to fall through the cracks, costing the general
contractor additional money before the end of the project. "What
will dictate whether or not site packages tend to be combined [turnkey]
or split apart [earthwork to one contractor, utilities to another,
paving to another, et cetera] is the willingness of each general
contractor to take additional risks," adds Heinkel. "That
would be in exchange for having a lower initial site price, in order
to be awarded the job in the first place."
Tom Grey, president of Oak Contracting Corporation in
Towson, MD, agrees that the construction industry is cyclical. He
tells us his company has been through the "total control phase"
in general contractor–construction manager work but now operates
differently. "It has been a process of natural selection,"
states Grey. "The construction business is far too costly
to have any phases of your operation sitting idle. Specialty subcontractors
will always be with us, and for good reason. They tend to operate
much more efficiently and don't have a fixed overhead that
consumes them. When he considers insurance, benefits, equipment
repairs and maintenance, office overhead, and all those costs, the
general contractor perceives a monster that needs to eat all the
time. The first inkling of a slowdown in the supply of new work
and he finds himself not bidding to take profitable jobs but taking
work at cost to keep the troops - and there will be many of
them if he thought total control was a good idea - paid and
fed."
Very few of the professionals interviewed for this article
believe that independent contractors - at least not the competent
ones - are a dying breed. They do, however, seem to be undertaking
additional specialties to find new business or simply to stay in
business; that, as mentioned above, might be an economical sign
more than anything else. "Just this season we have seen more
contractors in our area going into the paving and curbing business,"
comments Bruce Kramer, chief estimator at Brubacher Excavating Inc.
in Bowmansville, PA. "We all want more control of our projects.
Our company does everything from layout to the finished paving,
so we do somewhat control our own schedule, but we still use reliable
subcontractors and will continue to do so as needed. I think it
will be a long time before the independent contractor disappears."
Not surprisingly, the key to survival for the subcontractor or the
smaller contracting company with multiple skills is efficiency.
"Do your job well and people will want you" might always
be true.
That sentiment is echoed by an experienced general contractor
based in Sioux Falls, SD: "We are a medium-size general contractor
with some $40 million–plus per year," relates Dave Fleck,
president of Sioux Falls Construction Company. "We don't
have any interest in self-performing this kind of work [grading
and excavating], and we will rely on subcontractors. This type of
work takes a large capital investment in equipment that must be
kept busy generating income to pay for itself. We see grading and
excavating as work for a specialty subcontractor who can maintain
a good market share by working for many generals or be a prime bidder
on certain types of projects where most of the work is grading."
Keeping Up-to-Date to Stay Efficient and Wanted
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| Taking
advantage of new technologies, such as machine guidance, will
help keep contractors competitive and efficient. |
Those contractors who
are expanding their fields of expertise to win more contracts and
stay busy have already realized that fields such as grading and
excavating are not (as my neighbor imagines) something that anybody
can do. One of the words that springs to mind is training.
Most of us have heard horror stories about those training seminars
in places such as Reno, NV; San Juan, PR; or Washington, DC, where
your neighbors go and listen to speakers on remote subjects but
have some fine evening meals and beautiful hotel rooms. Such training
programs seem to be funded most often from public funds, don't they?
But manufacturers such as Caterpillar, Deere, Case, and Volvo have
initiated extremely practical and highly praised training programs
for operators. Manufacturers understand that the new, sophisticated
engineering in their machines requires skilled operators. Even if
the control is now simpler and less physically demanding, the operator
needs to know how to get the best results from the equipment. If
there is one lament common to most contractors, it is the lack of
skilled operators. When your operator is running a machine that
costs hundreds of thousands of dollars, it seems sensible to ensure
that he or she knows the best way to run it. You've all met that
worker who can run everything, who just has to switch on the ignition
to be an expert. How often does he prove to be a slow producer with
poor technique and less willingness to learn? A little practical
training is worth a ton of productivity.
If you acquire a John Deere 950C crawler dozer, for example,
your operator (who might be you) should know how to take full advantage
of the hydrostatic drive train that allows power turns, power management,
and infinite speed control. The operator should learn how to choose
the right ground speed for a particular job. Even though the 950C
has Deere's Auto-Trac system to keep the unit straight in
forward and reverse, the skill of the operator is still important.
The time taken to learn the necessary skills soon will be repaid
in better productivity. Ask Caterpillar about its recommendations
for the cuts made by a dozer. Ask Cat about "slot dozing";
it's a technique where slots are made at single blade width
and, as each adjacent slot deepens, the sides hold material on the
blade. The precision and efficiency seem obvious once you've
seen the technique; the estimated fuel savings are impressive.
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| Subcontractors
don't need huge fleets of equipment, just the right-size machines
for the work they intend to do. |
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| While
excavation remains the core of a subcontractor's business, he
might be asked to be involved in other aspects of large projects. |
If you intend to use
an excavator with a low or zero tail swing, such as Takeuchi's 5-ton
compact excavator, Kubota's U35, or Komatsu's PC138USLC-2, you should
know all the right moves to make before the first job. The Takeuchi
TB53FR has an Interference Prevention System to stop the bucket
from contacting the operator's station, but wouldn't it be comforting
to know that your operator is aware of the range of motion available?
The same applies to those choosing a Case CX excavator for their
jobs in tight spaces. Case excavators are called "thinking machines,"
but you know that doesn't mean the operator needn't think too. Volvo's
B-Series excavators claim to help you move more cubic yards, but
your success will depend on your familiarity with all their useful
features. Graders, say many contractors, require especially good
operator-machine coordination for the best results - the only results
that are acceptable. Training of new and current workers does not
include only knowledge of machines. Knowing how to plan and execute
an excavation or grading task is just as worthwhile. Some of the
inefficiency of that man who knows how to run any machine is that
he has given no thought to where he is going to run it.
As Current Subcontractors
Retire
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| Operating
a compact excavator requires proper training before working
in tight spaces. |
"We
may be looking at a future work force that is 90% semiskilled and
top-heavy with managers," observes John Van Liew of Charlottesville,
VA. Van Liew (and, previously, his father) used to have his own
company with 31 employees; he won complete site-work contracts from
all the big contractors in his area. "We used to do 200,000 feet
a year of curb and gutter." He now works with major contractor W.C.
English Inc., among the top 300 contractors in the United States
and established for more than 90 years. They certainly are "big
boys," and their subcontractors still include some who place concrete.
"Some of them are most reliable and dedicated, but they seem to
have no life," adds Van Liew. "I know one who finished a big job
and took his crews immediately to the next job, to start work at
10 in the evening. Sometimes they're working 90-hour weeks and traveling
wherever there is a job, even as far away as Florida. That's why
we sold our company. For me, if being a subcontractor means having
no family life, it isn't worthwhile. Several owners of contracting
companies have retired from the industry because of such pressures."
There usually is somebody willing to step in and fill
the space left vacant by a retiree. As subcontractors retire or
quit their businesses, they leave a void to be filled. This might
be when the general contractors decide to do more of the project
with their crews and equipment. If there are no reliable subcontractors
available near the work site, what else would they do?
The one aspect of this
subject that seemed to dominate others was the location of
the contractor interviewed. "In major cities," comments a contractor
based in a city of about 250,000 people, "general contractors may
perceive an advantage in managing the equipment they use all the
time-skid-steer loaders, rubber-tire backhoes, loaders, dump trucks,
and small or medium-size excavators." In smaller communities, contractors
tend to offer more than one area of expertise, and many of the jobs
are small enough for one company to handle everything. That's where
rental has become so useful. The subcontractor in many small communities
is a one-man operation; he's the person you call in to a specific
small section of the work because he is the best local person at
that kind of work - which might be grading, excavating, pouring
concrete, paving, or masonry.
Paul Hull is a frequent contributor to Grading
& Excavation Contractor magazine.
GEC
- July/August 2003
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